Analyzing the Impact of Selling Foreign Currency on Inflation Rates in Iraq

Abstract

This study aims to analyze the effect of the foreign currency sale window on inflation rates in Iraq for the period 2003-2015. The foreign exchange sale window is one of the direct instruments used by the rentier economies that suffer from the inefficiency of the traditional channels of the real monetary policy movement,with a large amount of imports to meet domestic demand. The exchange rate is the main instrument of the monetary authority to target inflation and maintain price stability. The currency sale window is used as an effective means of directly influencing the exchange rate, and is a temporary instrument used only to cross a certain transition period to ensure monetary stability during that period. The study has found that monetary policy is able to achieve positive and satisfactory results. Despite the increase in public spending due to the large increase in oil revenues, the government was encouraged to increase public spending. Public spending has been amounted to 4,902 billion dinars in 2003, Billion dinars in 2015, accompanied by a parallel increase in the money supply amounted to (6,953) billion dinars in 2003 and (86.724) billion dinars in 2015. The monetary policy and through the use of such tool to sell foreign currency and the policy of sterilization were able to recover the Iraqi dinar value gradually and maintained the stability. The exchange rate of the dinar against the dollar was 1936 in 2003 and then decreased to 1166 dinars in 2012, the lowest level in years, and then to 1190 dinars in 2015, i.e a compound growth rate of (-3.9%)is due to the policy adopted by the Central Bank of exchange rates, taking full control of foreign exchange movements to restore confidence in the national currency (dinar) has been achiered and at the same time the market witnesses such difference .