World Bank Questions Iraq Currency Peg

By John Lee.

A report published on Thursday by the World Bank focuses on the implications of low oil prices for eight developing countries — Egypt, Tunisia, Lebanon, Jordan, Iran, Iraq, Yemen and Libya — and the economies of the GCC (Gulf Cooperation Council).

The Plunging Oil Prices report questions the practice of pegging the Iraqi dinar to the US dollar, noting the that value of the dinar has been falling against the dollar in the parallel market:

“Iraq pursues a policy of a de facto peg to the U.S. Dollar, and therefore monetary policy is constrained in tackling the current shock.

“The Central Bank of Iraq (CBI) had kept the Dinar steady through January 2009.

“In 2014, the nominal exchange rate in the official market remained stable against the U.S. Dollar at 1,166 IQD/1 USD, but the rate in the parallel market increased.

“The CBI has recently taken steps to simplify foreign exchange market regulations, but has not eliminated all existing exchange restrictions and the multiple currency practice.

“With the peg, fiscal policy carries the burden of macroeconomic stabilization, but in this case does not have the space to do so.“

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