Bad news for the central bank

Last week the federal supreme court ruled in favor of the government’s request to have the Central Bank of Iraq (CBI), along with the Independent High Electoral Commission, the Integrity Commission, and the High Commission for Human Rights, put under the supervision of the cabinet. This is bad news for the central bank.

Up to now, the CBI has been under the supervision of the parliament, as stipulated by the constitution. There is a good reason for this. Under the parliament, the central bank is not answerable to any single politician. Under the cabinet, it could potentially be directly controlled by one man.

A dangerous opportunity has been created for the government to increase the money supply arbitrarily. Saddam Hussein tried this during the 1990s. The result was hyperinflation.

Iraq’s US$ 50 billion in forex reserves are also at risk. There will be a big temptation to use these for local patronage projects with foreign currency-denominated expenses. If this happens, the CBI could be saddled with significant losses. It could even end up having to be recapitalized.

The court’s ruling is great news for anyone who might some day be in a position to “wet his beak” at the CBI’s expense. Bad news for everyone else.

11 Responses to Bad news for the central bank

  1. Keith Merser January 31, 2011 at 8:07 am #

    With this news how will it affect the rv of the dinar? Help it or hurt it?

  2. Stew February 2, 2011 at 10:42 am #

    Mark… the funny thing is this is bad news for dinar holders… yet possibly great news for dinar dealers.
    The last we heard the CBI was going to redenominate and delete 3 zeros, they were just waiting for parliament to be seated and address a few issues.
    Now… with this issue leaving the FX reserves at risk. I doubt the CBI will move forward with the redenomination.

  3. Stew February 2, 2011 at 11:06 am #

    Just read an article where the Iraq Cabinet is telling the CBI to open accounts to transfer the $$ in foreign accounts back into Iraq.
    Would seem they will lose all the interest they were gaining on the money and the move can’t look to good to the international community whom they are trying to convince to invest in Iraq.

  4. Stew February 2, 2011 at 11:15 am #

    Just thinking here Mark. The main thing presidential order 13303 did was protect the Development Fund Iraq from lawsuits. But it also protected the Oil companies and other businesses that made money in Iraq from lawsuits.
    If this move throws the DFI and FX reserves at risk, does it also throw Oil company profits from Iraq at risk?

  5. […] I totally agree that they have to decide the kind of democracy they want, not us. So when the Iraqi supreme court approves Maliki's request for moving the control of the Iraqi Central Bank from…, effectively bringing it under control of one man, himself, that's just the kind of democracy they […]

  6. DeWeaver February 3, 2011 at 9:23 am #

    There could be a perfectly legitimate motive for transferring funds from foreign accounts back to Iraq. The government claims the protection for those assets from international creditors will expire in the middle of this year…

  7. DeWeaver February 3, 2011 at 9:24 am #

    It’s hard to see how anything that may threaten the central bank’s forex reserves could be dinar positive.

  8. Maliki ueber alles | peacefare.net February 13, 2011 at 1:49 pm #

    […] we’ve all been preoccupied with Tunisia then Egypt, an Iraqi Supreme Court decision has called into question the independence of the central bank, the electoral commission, the human […]

  9. LZ February 15, 2011 at 3:01 pm #

    Stew,
    what you said was that Dinar dealers want to maintain the 3 zero dinars so they can keep pumping the lies. What will they do when the dinar lops? I guess they will try to profit from buying them back at a low rate.

  10. […] Debunking another Naysayer Wayne Askew of DinarVets has taken the time and effort to present his case that the IQD will in no way RV period, let alone to anything over $3.00.  I have copied his entire post below for those who want to get the full flavor of his masterful presentation.  Afterwards, I will address the pertinent facts to show that his reasoning suffers from a fatal flaw from the very beginning.Read this from dinarvets:How’s this for proof. If the IRD RV to just $1, there are 27 trillion of them in circulation. So that means CBI has to have $27 Trilliion to cover that value. Currently the hard currency reserves of the CBI are about $50 billion. So, just to reval to a dollar, they’re missing $26,950 Billion dollars. If you go to the other end of the scale, $6 RV, the number is $162 trillion, which is more money than actually exists on the planet.In fact, recent changes in how the CBI is run make it more likely that it could run out of money.. http://www.iraq-businessnews.com/2011/01/31/bad-news-for-the-central-bank/ […]

Trackbacks/Pingbacks

  1. Riots erupt in Egypt as protesters demand end to Mubarak regime - February 3, 2011

    […] I totally agree that they have to decide the kind of democracy they want, not us. So when the Iraqi supreme court approves Maliki's request for moving the control of the Iraqi Central Bank from…, effectively bringing it under control of one man, himself, that's just the kind of democracy they […]

  2. Maliki ueber alles | peacefare.net - February 13, 2011

    […] we’ve all been preoccupied with Tunisia then Egypt, an Iraqi Supreme Court decision has called into question the independence of the central bank, the electoral commission, the human […]

  3. Enorrste Debunking Another Naysayer: G.E.T. 4/20/11 | Info about the Iraq Dinar - April 22, 2011

    […] Debunking another Naysayer Wayne Askew of DinarVets has taken the time and effort to present his case that the IQD will in no way RV period, let alone to anything over $3.00.  I have copied his entire post below for those who want to get the full flavor of his masterful presentation.  Afterwards, I will address the pertinent facts to show that his reasoning suffers from a fatal flaw from the very beginning.Read this from dinarvets:How’s this for proof. If the IRD RV to just $1, there are 27 trillion of them in circulation. So that means CBI has to have $27 Trilliion to cover that value. Currently the hard currency reserves of the CBI are about $50 billion. So, just to reval to a dollar, they’re missing $26,950 Billion dollars. If you go to the other end of the scale, $6 RV, the number is $162 trillion, which is more money than actually exists on the planet.In fact, recent changes in how the CBI is run make it more likely that it could run out of money.. http://www.iraq-businessnews.com/2011/01/31/bad-news-for-the-central-bank/ […]

  4. Where do we go from here part 2 | Iraq Currency Watch - July 22, 2013

    […] http://www.iraq-businessnews.com/2011/01/31/bad-news-for-the-central-bank/ […]