Hussein Sharif Naeem- Researcher
Abstract:
This research sheds light on the impact of political and economic events on the value of the Iraqi Dinar (IQD), leading to disruptive repercussions on the country’s financial and economic indicators. The outbreak of the COVID-19 pandemic and the subsequent closure of public facilities resulted in a global economic recession and a decline in worldwide demand for fossil fuels. This, in turn, led to a decrease in oil prices and a reduction in the country’s overall revenue, prompting the government of Mustafa Al-Kadhimi to devalue the Iraqi Dinar to address the budget deficit. However, this scenario changed with the outbreak of the Russian-Ukrainian war, causing a shift in the oil price landscape and resulting in financial abundance. Consequently, Iraqi politicians advocated for restoring the previous value of the Iraqi Dinar before the devaluation, citing reasons such as supporting the impoverished class in society. The government of Mohammed Shia Al-Sudani indirectly supported this by endorsing the decision of the Central Bank Governor, Ali Mohsen Al-Alaq, who reduced the exchange rate from 1450 to 1300 IQDs per 1 USD.
Introduction:
It is self-evident today that the value of any local currency is subject to the influence of foreign currencies such as USD. This influence varies depending on the prevailing exchange rate system. Despite the collapse of the Bretton Woods system in 1973 and the shift from fixed exchange rate systems to floating ones, most developing and emerging countries, suffering from structural production deficiencies, found it suitable to maintain a fixed exchange rate system. Under this system, financial crises and economic cycle fluctuations accumulate pressure on the value of the local currency. As these pressures persist and monetary tools fail to achieve price stability, monetary policy is compelled to alter the value of the local currency through devaluation or appreciation, causing disruptions in the country’s price system. Rentier countries are characterized by intricate financial and monetary relationships, reflected in the rapid transition of fiscal policy stimuli to exchange rates. The dominance of oil revenues in the general budget leads to changes in government spending, necessitating a change in the size of domestic demand. With the consumption trend in rentier countries surpassing the productive investment trend, increased government spending does not necessarily lead to an increase in demand for local goods compared to foreign goods, resulting in fluctuations in the value of the local currency.
