The Erosion of Foreign Reserves Among the Motives of the Sale Window, the Coverage of Import Requirements, and the Decline in the Financial Resources Cycle in Iraq for the Period (2014-2018)

• Post by: Muthanna mjdes
• October 23, 2022
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Mustafa Rashid Ali       &     Mohsen Khudair Abbas

 Directorate of Education , Wasit University/ College of Administration and Economics

Abstract

 The Central Bank of Iraq has foreign reserves resulting from buying the dollar from the Ministry of Finance and providing it with Iraqi dinars for spending on the general budget items. Most of the imports of the Ministry of Finance are in foreign currency (dollars) and most of its expenditures are in Iraqi dinars. The central bank is reselling it to the private sector to obtain the dinar, as the private sector covers its imports in the dollar purchased, as well as other requests. When the demand for the dollar is lower than the central bank, the surplus goes to the foreign currency reserves. While if  the demand for the dollar is greater than the dollar supplier uses the foreign currency reserve to cover the deficit, so the reserve rises and decreases depending on that mechanism to maintain the local exchange rate, any reduction in dollar sales widens the gap between supply and demand and consequently the rise in import prices. The Central Bank cannot influence the demand for foreign currency and cannot control the size of foreign currency coming to it. The sale of foreign currency is governed by the cycle of financial resources and supply the demand factors. Thus, the volume of foreign reserves rises and decreases to factors outside the control of the Bank Central.

DOI:10.52113/6/2021-11-4/125-135