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Thursday, June 7, 2018

"Monetary Policy in Iraq" - News from KTFA Don961


Don961 » June 7th, 2018

Dr.. Amer Al-Adh *: Analysis and criticism of monetary policy in Iraq



This paper seeks to summarize views on Iraqi monetary policy. This research found an inverse relationship between the support of the dollar exchange rate and the price level. The reverse relationship was characterized by the reduction of the dollar exchange rate by one thousand dinars raises the price level by an estimated 690 Iraqi dinars.

This means that the policy of monetary sterilization is counterproductive to the desired policy of fighting inflation. This conclusion is based on data between 2010 and 2015 issued by the Central Bank of Iraq, and the direct cost of the dollar support policy was set at at least 11,062,702,152.15 (more than eleven billion) US dollars.

The main cause of inflation in the Iraqi market is the real side and the high cost of production, employment, incomes, and commodity flows, because of the lack of rule of law and low productivity.

To continue reading please download the PDF file for easy reading and printing. Click on the link below

Amer al-Adadh - criticism of monetary policies in Iraq - edited

Dr.. Amer Al-Adh *: Analysis and Criticism of Monetary Policy in Al-Arak

Abstract This paper seeks to summarize the views on the monetary policy of the East. This research found an inverse relationship between dollar exchange support and. The level of prices and perceived this reverse relationship that the reduction of the dollar exchange rate by 690 dinars dinars, raise the price level by an estimated high.

This means that the monetary sterilization policy is counterproductive to the desired policy of fighting from 2015 to 2010 inflation. This finding is based on data between one year ago and the direct cost of the dollar support policy was determined by at least 11 billion US $ 11,062,702,152.15 and the direct cause of inflation in the Arab market is the real side and the high cost Production, operation, entry, and flow. This is a sovereign exception, commodity law and low productivity.


The central bank as a hedge fund that insists this short research analyzes the policies of the Central Bank of Iraq aimed at sterilizing the monetary bloc, ie, it aims to stabilize the level of prices or reduce inflation. And expressed this Aryan Mr. Hussein Atwan said:

This is what has been achieved over the past few years. The economy of the Arab countries is relatively sensitive to the lack of financial policy discipline. However, economic growth is appropriate for a climate of security and political instability. Without reaching the development goal. " "If the stabilization target of the dinar devaluation (the risk of an increase in the price of evil through the Central Bank of Egypt covering only a small proportion of the budget deficit, the fiscal one) is to block the revenues of the international economy Of the budget deficit and this coverage may be closer to the illusion of them to the truth. This [4] is very direct to the reduction in the exchange rate, which will be reflected in the rise in the global level of prices. "The criticisms of the situation detailed above can be summarized as follows:

1. There is no concrete evidence of available data that the monetary policy that supports dollar has succeeded in reducing inflation. .

We may say that deflationary policy is justified in times of expansionary monetary policy and government spending, which is feared to cause undesirable inflation rates in the US defense, as occurred in the first occupation, and the market is full of expenses and related contracts. . The delusion of fiscal policy is not a pretext because the central bank must simulate the financial reality with the right monetary policy, not vice versa.

A good summary of the position of the Central Bank of Iraq What can be considered and after review, it is worth mentioning that cash stabilization policies currently include two deflationary strategies:

1. Raising the dinar exchange rate above the market price.

2. High night interest rate

As for the overnight interest rate effects, Abdul-Hussain Al-Anbuge: "Lashel represents a safe haven for commercial and specialized banks to take interest without the need to make bank deposits with the Central Bank dominate the risk of managing more than 42.

The nature of the relationship will be limited to the movement of funds In a closed circular framework between those banks and the central bank without the need to exercise credit to finance the development of a country hungry for development, there has been some improvement in the recent frenzy as a result of the reduction of interest paid for night deposits, which means refraining from sticking to them by banks.

And deflationary effects and we focus on the policy of supporting the dollar, which is increasing the exchange rate of the dinar, which is aimed at stabilizing the level of prices and the fight against inflation The monetary policy of deflation practiced to equalize an expansionary fiscal policy may threaten unreasonable inflation rates and this may be the cause of its original practice.

Before we begin analyzing the dollar support policy, we must describe the mechanism of the central bank in place to stabilize the dollar. The process of supporting the price level by raising the dinar exchange rate against the countries with the aim of reducing the price of imported goods through currency. Dr. Ali Maraz described the following description of the coin:

"It has been noted that, despite the currency, since the beginning of the" Mazda ", it has been appropriate to follow the order of the fixed dinar exchange rate against the reference currency (dollar), such as all 2009 oil countries in the region towards the reference currency. In order to satisfy the demand, the dollar is sold in the so-called "overdraft" in two ways: remittance transfers to foreign accounts, namely, international, cash and cash equivalents The first method involves banks involved in the financing of Estearda And the second includes cash sales to banks to finance various needs, most important of which are travel, treatment, etc.

The "Almazd rules" mentioned needs of the two methods determine what can be called between 2012 and the fact of the divergence that occurred in. Normal "approach to sales satisfaction , The application of balance rules, on the one hand, the official exchange rates and the market can, on the other hand

The conclusion is that the central bank does not respond to all the requests submitted and above as putting an end to the daily sales of the dollar. "In another article, Dr. Ali Maraz stated that there are several prices for the dollar:

, The gap between the exchange rate between 2009-2014 has remained, despite the gradual expansion during the official period and the market price within the limits within which the exchange market can be considered a relative equilibrium, in 2015 during the period. But this gap has expanded and additional factors have arisen since the beginning as indicated above. Although the gap is still moderate, it can be considered a market that is now on the verge of multiplicity (ie, on the verge of imbalance) or exchange rate (ie, moderate imbalance) of exchange rates. He describes d. Ali Mraz prices "moderate" under the multiple disbursement at the present time as follows:

"Window"), the official exchange rate or the exchange rate (1) shall be used in the official transfers, and the official exchange rate shall be used for this purpose. These official transfers are not made through a window or a window of credit through the State accounts of the Central Bank or the Central Bank Development Fund, but rather directly for the sales of the State if the Central Bank does not have a specific provision. Family / Private Sector.

(Official exchange rate 2)

The actual window / Mazda of the central bank. The actual price is equal to: price
(Ie, JD 24 for transfers and 21 USD / USD for cash sales of JD1,190 for USD and 1,187 for (3) market exchange rate. This is the price that is determined by the price, the price (companies / shops etc.) based on the interaction of supply and demand. Which is in fact a market connected / remaining to the market, banks enough or counting the adequacy of the central bank's sales). It is narrowing and expanding according to the official (ie, the central bank's window) to satisfy the demand of the family / private sector on the dollar, on the other hand, these banks transfer to their customers at the actual official price and the extent of the coverage, To JD 1,302 as indicated, and in the first half of May to the dollar.

The central bank imposed on the banks the payment of a refundable deposit from its imported customers when converting from the dinar [4] of the amount of remittances to the dollar. In fact, the exchange rate will be equal to six dinars, ie: 1,282 dinars [ 1.08 (x 1,166 + 21) This adds a price we called another, the exchange rates shown a LAH "possible exchange rate alternative remittance."

1 This price is likely to increase when the gap between the official exchange rate and the market price widens (and its emergence may widen the gap itself). Dinar. And obviously 1,282 dinars to the dollar make it exceed 1,302, the arrival of the market exchange rate in the first half of May to, for example d "that" the borrower 1,282 who does not want to import will not deter him payment of insurance as long as he can get the dollar at the total price of dinars to the dollar) .

This is in addition to the great importance of the ease of conversion abroad, by 1,302 (which is cheaper than the market price of JD officially to widen the gap between the exchange rate and lower risk compared to resorting to the market.) We can conclude from the above also, the official banking system and the market price will reduce And most likely will eliminate the effectiveness of insurance coverage as a means of control. "

Theoretical Analysis and Policy Analysis The benefits and costs of policy should be compared and the final outcome should be analyzed. We refer to the benefits of the policy of raising the dinar exchange rate, which is to reduce the price level of imported goods to citizens. Mr. Mehdi Al-Bannai summarized the effects of the deflationary policy as follows:

The reduction of inflation and the targeting of reasonable rates is one of the most important objectives of the monetary and financial policies and say the monetary policy of the central bank and the government's fiscal policy). Moreover, it was possible that the central bank could achieve its goals in this regard faster if the government cooperated with him by rationalizing budgets and directing resources. He pointed to the factors complemented by political speculation, including

A judicial system free from corruption and nepotism. The most important point is that the central bank should guide the most flexible fiscal policy to simulate reality and not adhere to its policy, even if the fiscal policy on the government.

Monetary policy has been criticized for several reasons:

. The increase in the value of the dinar raises the price of domestic production and its competitiveness with the importer, increasing the demand on the importer who saw this commercial sector on a cheap basis and therefore supporting the policy of supporting the production sector account. .

The policy of subsidizing the dollar brings huge profits to banks that are reluctant to finance projects, where 2 percent in some 400 profits so-called currency multiplied by some years in percent. 12 or 9 years it is not reasonable to wait for banks to project projects to profit Moreover, the profitability of this process led to the establishment of banks that claim the deposit of the conditional amounts.

Before we begin to analyze the effects of deflationary monetary policy, which led to the disruption of the productive and banking sectors and the effects of the disruption of the banking sector, according to Mr. Mehdi al-Bannai:

"The investor demands that he has a unique situation in the world as I know. Even if he owns this percentage, he can not build the project because he needs the guarantees and credits for the supply of machinery and equipment. (Property and cash) and at least 50% of the market value (under reservation and management of the land only and less than the risk).

As for the reasons for the disruption of the productive sector, many governmental and private factories face difficulties in competing with foreign importers, for reasons such as supporting the dollar but also the absence of customs tariffs targeting sectors that can compete. Therefore, it is necessary to mark the integration of the process of economic development, but it is necessary that monetary policy mimics fiscal policy and not vice versa.

We first begin by analyzing the effectiveness of dollar exchange support by reducing the exchange rate of the buyer from which he buys from the market price. This is the same as the call for international banks to sell support policies that create a black market. The buyer is bought and sold at the market price to benefit the black market traders instead of the target beneficiary, the citizen.

However, we will depart from the theoretical analysis and the age of the data provided on the standard price basket, which aims at bringing the price level of the CBE closer to the market. In the central bank's window and the exchange rate of the country and its relationship with the exchange rate of the countries

Data Analysis If the central bank's deflationary policy is effective, we will see a positive relationship between the exchange rate of the countries that express the value of the dinar. The higher the dollar exchange rate in the dinar, the lower the value of the commodity and the higher the price of imported goods. Therefore, the central bank sells the dinar dinar at a low price to reduce the price of imported materials and goods. That is, there is a direct relationship between the price of larceny.

The effect of the exchange rate of the currencies and the level of public prices in the exchange rate is more affected by increasing the proportion of imported goods in the standard basket. In view of the negative impact of the dollar support on the above mentioned, the productive sector and level, the level of the positive relationship between the exchange rate of the countries should be high.

The dollar exchange rate 2007 The Central Bank publishes the standard basket price data as evidenced by the measurement year in the central bank window and the market price. The data, which were not published in full, were analyzed with regret. Therefore, the analysis began from the month of March, ie, the year 2015 to the year of December, years of data. The model adopted the interaction of variables with each other due to the neglect of relationships related to calculations and valuation.

We see from the table that the relationship between the price of the basket and the price of the called window is inverse. That is, support for the dollar is rising to a record high 2007 price for the consumer. LAR in the black market which may indicate this manipulation of the exchange rate Aldo raises the price of the consumer.

Model of the interaction between the price of the window and the 1 Price table and market price Vector Autoregression Estimates Date: 02/06/18 Time: 15:46 Sample (adjusted): 2010M03 2015M12

Included observations: 70 after adjustments Standard errors in () & t-statistics in []

D (CPI200 7) D (MARKET_PRI CE) D (WINDOWRA TE) D (CPI2007 -1)) 3% -192% -15%

[0.26] [-1.16] [-0.65]
D (MARKET_PRICE (1)) 1% 27% 0%

[1.46] [2.33] [-0.01]
D (WINDOWRATE (-1)) -70% -739% 61%

-36% -506% -71%

[-1.9] [-1.46] [0.86]
C -5% -14% 20%

[-0.39] [-0.085] [0.85]
R-squared 0.1 0.1 0.0
Adj. R-squared 0.0 0.1 0.0
Sum sq. resumes
S.E. equation 1.0 14.0 2.0
F-statistic 2.2 3.2 0.4

Log likelihood -98.0 -282.1 -144.9
Akaike AIC 2.9 8.2 4.3
Schwarz SC 3.0 8.3 4.4
Mean dependent 0.0 0.4 0.2
S.D. dependent 1.0 14.7 1.9
Determinant residual covariance (dof adj.) 751
Determinant residual covariance 629
Log likelihood
524 Akaike information criterion 15
Schwarz criterion

16 To assume that there is a stable relationship between the exchange rate of the window and the real exchange rate, this may affect the assessment of the real relationship between the price of the window and the price level as expressed by the standard basket.

The estimation of the extent of the inverse relationship has not changed, and when the real exchange rate has been added to the market

1000 as. The underlying relationship is that the dollar's appreciation of one dinar raises the level. This is contrary to the dictation of Dr. Anbuge from the policy of 2007 dinar in the year 690 prices by the central monetary amount: but it did not prevent the apparent appearance, "may be reduced inflation rates, why?" Because the data show that support for the dollar did not prevent the absence, but there is an opposite relationship to stabilize prices and combat inflation. The stable relationship between the standard basket and dollar prices is the monthly price level. In the long term, there is no impact on change and for the analysis, we include the long-term relationship estimated at the levels: CPI2007 = -34447+ -2.6 MARKET_PRICE + 27 WINDOWRATE

Even after the inclusion of the long-term relationship in the equation was not statistically significant and did not change the estimates in 1. Table and see that the test of causality also does not support the theory of price stabilization shows that the data supports the existence of causal relationship between the price of the window and the price of the basket.

Pairwise Granger Causality Tests Date: 03/02/18 Time: 22:32 Sample: 2004M01 2017M11 Lags: 2 Null Hypothesis: Obs F-Statistic Prob.

WINDOWRATE does not Granger Cause CPI2007 70 4.99601 0.0096
CPI2007 does not Granger Cause WINDOWRATE 0.51760 0.5984

This means that the negative effects of the dollar support policy do not have the positive effects that justify it. This is done by collecting the amounts of dollars sold in the balance sheet, determining the cost of this policy and estimating the amount of support that the central bank will guarantee. As a result, the cost of supporting the dollar in the period 2015 to 2010 to the amount of dollars sold for the study period from 11,062 billion (US $). Because this study is not 11 (more than 702,152.15 study on inflation and its causes, we will not go into the causes of inflation, but we will review the words of some economists in the causes of inflation and then go back to the conclusions of this research.

The reasons for inflation in the niqab are not monetary, and agreed by Dr. Abdul Hussein al-Anbuge, says Dr. Ali Mraz, that the sources of inflation come, due to the abundance of cash for goods, but the fact of the shock in the supply risk premium factors driving the cost of production and especially the cost of providing security and fuel costs " . He says inflation in the dump is "traumatized", energy, infrastructure, production and transportation

Display and shock supply is not in the market. In terms of the sense of health, it is the high cost of providing higher demand because of it being withdrawn. The deferred request is financed by government spending that feeds the private sector and a class of beneficiaries of administrative corruption and state employees. 50 through the legislation of the article, which prompted the political intervention in the exchange market in the law. That the economic problems are the best 2015 budget does not exclude the standard of security and administrative failure, including the failure of the policy of the Central Bank of Iraq.


1. Lar and the price level of selling it at a price This research found an inverse relationship between the support of the exchange rate less than the exchange rate in dinars through the central bank window. This reverse relationship was characterized by the fact that the reduction of the dollar exchange rate by one thousand dinars raises the price level, including an outstanding dinar.

This means that the policy of monetary sterilization has the opposite effect 690 estimated to 2010 for the desired policy. This conclusion is based on data between 2015 and 2015. Of the Central Bank of Iraq 11,062,702,152.15.

2 . The policy of supporting the US dollar has cost US dollars and may have contributed to du. Therefore, it is difficult to see the price increase in a policy that supports a black market that is not sustainable and losses in billions and does not actually lead to price cuts. .

3. This model highlights the reasons for this inverse correlation between USD support and price level. Which has led to the demand for drug smuggling, and the support of OECD countries in turn may have reduced the effectiveness of monetary policy.

4. The rise in the costs of business operations and the value chain is attributed to inflation in the Arab market, which in turn raises the price of goods to the consumer.

I hope that this study has shed light on the causes of inflation, despite the support of LAR, such as administrative corruption, lawlessness, and the environment of investment and competition. Aldo did not address this, the study of the operational and administrative costs of monetary policy did not address the indirect costs of deflationary monetary policy, which hampered the productive sector and economic growth, which may result in expansionary monetary policy. This may be valuable research for policy makers.

Solutions. To provide suitable investment opportunities for banks to prevent them from being closed if they are re-operated, especially public-private partnerships. .

To restore the official exchange rate with the operating budget and reactivate the sector by one billion dollars of costs. Cut interest rates in the central bank to provide cash and reverse deflationary policy

Sources "Foreign Currency Mazaz and Reserves, Dr. Ali Maraz International and the Independence of the Central Bank in the Network of East Economists," Al-Arik Network of Economists, Chairman of the Board of Directors of the Advanced Food Industries Company, Mehdi Al-Bannai 2013/03/21. Economist Economist, Hussein Atwan, "Central Bank of Iraq, price / stability or exchange rate of dinar, price index in the Arab economy," Economic stability network, Abdul Hussein Al Anbuge, Prime Minister, Economic Affairs Advisor , Central Bank of Iraq, Network of East Economists, "Miyazniyya and Misalignment", d. Ali Mraz since. Network of Eurasian Economists, "2015 Exchange Market in the Land of Borrowers Balancing

(*) Economist

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