What it will take for the Central Bank of Iraq and the Iraq government to have a revaluation of the Iraqi dinar.
We can all agree that the Central Bank of Iraq (CBI) is not at all very transparent when publishing data to the public or even on their website. When you look at the CBI website, it is not updated and the information posted is from 2012. I would like to know what is the data for years 2013 and 2014? How much Iraqi dinar is in circulation in the country? No on knows for sure what the actual number is as the records are not up to date.
The CBI governor has been meeting with government officials and economists discussing monetary policies and security. The Islamic State (IS/ISIL) is on every Iraqi citizen mind as those terrorists are inside Iraq killing innocent people. The Iraqi army and security forces are not at the level required for a full-scale military operation against ISIL. The Iraq forces and Shiite militias have had some success in Iraq. However, it’s going to take several more months for the United States Army to train the Iraqi security forces. The U.S. Army 82nd Airborne will be arriving next month to start the training cycle. The CBI governor has stated in government meetings that there would not be any currency reform until all the provinces are in government control. In November, the ISIL stated they would be creating a new currency called gold dinars. This news report sent alarm bells at the CBI headquarters. In Tel Aviv a researcher, named Ofir Winter, with National Security Studies said about the new currency if implemented would consolidate (ISIL) its hold on the territories it controls. “It would improve its prestige and strengthen the sense of governance it projects at home and abroad.” Winter wrote in a report to National Security Studies.
Oil Exports is key to an Iraqi dinar revaluation
Iraq has an estimated 120 billion in oil reserves and exporting approximately 2 million barrels a day. Earlier in the year oil exports were closer to 3 million barrels per day before ISIL arrived in Iraq. Oil exports will increase because just recently the central Baghdad government signed a temporary oil deal with the Kurdistan Regional Government (KRG). The agreement is that the KRG will continue to produce 550k barrels per day and receive 17% of the national budget as well as a payment of $1 billion dollars. The Iraq government’s 2015 federal budget is 93% from oil revenues. There are going to be issues with the 2015 Budget because of the deficit due to the security problems and spending money outside of the budget. Iraq’s 2015 federal budget is based on the oil price of $60. Iraq did not complete the budget in 2014. The world market price for oil is half of what the 2013 Iraq federal budget of $106, and this will create a problem for the Iraq government. In January, the International Monetary Fund (IMF) warned the Iraqi government that the Iraqi budget was vulnerable to the oil price.
By the end of 2015, oil exports is estimated to be at 4 million barrels a day. Higher oil exports will have a significant impact on the value of the Iraq dinar currency. When Iraq starts exporting 5 or 6 million barrels a day of oil, the currency will increase in value.
Iraq needs to upgrade and update its oil infrastructure. Foreign Direct Investment (FDI) is needed to ramp up the oil production. Western and foreign oil companies are investing in the oil industry in their different projects. Iraq requires hundreds of billions of dollars for the oil industry, if it wants to reach their goal of 6 million barrels a day by 2020.
Another option to revalue the Iraqi dinar, you must also need a legal framework for forex trading. At the current time, there is no laws in place that will regulate forex trading. The Iraq Stock Exchange (ISX) installed the latest software for trading and needs to advance to the next step in forex trading. The ISX lacks in this area.
The economy needs to improve in 2015 if you’re going to see an increase in the Iraqi dinar currency. The IMF says the growth should increase slightly more than in 2014.
Islamic Banking laws are non-existent which doesn’t help the Iraqi dinar currency.
There are many other things that have to occur like updating laws for the banking industry. Iraq has no existing banking laws for the 12 Islamic banks that are currently operating in Iraq.
How about creating laws that do not restrict banks business and that limits their expansion and development. A bank should be allowed to add banking services to customers.
Banks play a part in the value of a countries currency. If Iraqi’s perceive the countries currency as weak, they will not hold onto it and quickly exchange it for hard currency.
Private Iraq Banks do not have a means to settle transactions quickly when sending currency transactions
Iraq Banks do not have an updated accounting system that settles transactions quickly and with any transparency to the customer. Mobile banking is not available because you need 3g mobile technology. There is no 3G mobile technology in Iraq as some gurus would have you believe.
Iraq banks fail to keep up with international banking standards. It is getting better however they still have a long way to go to be able to communicate with banks around the world. They do not develop banking products and services for the consumer. They just participate in the CBI auction because it is less risk to the bank. The banks rather conduct exchanges in the CBI auctions and make money on the spread.
Banks need to open more bank branches in the country and more ATM’s. Banks need to be encouraged to merge and increase their capital.
I could go on and on but as you can see the banking industry is important to the value of the Iraqi dinar. Oil exports is very important as Iraq is very dependent for its revenue. It will get better.
The terrorists that are plaguing in Iraq is creating a major situation for the Iraqi government and its people. It is going to be awhile before the Iraq government and its army removes ISIL from the country.
You can watch the Iraqi dinar revaluation video below.
Iraqi dinar currency
American Contractor Youtube Channel up to date videos on Iraq and the middle east.
Iraqi dinar forex trading