Will the CBI Try Dinar QE?

By Mark DeWeaver.

This year the Ministry of Finance (MoF) is set to sell IQD 11 trillion in new debt to the state sector banks, thereby partially filling the hole in the central government budget left by the recent collapse in oil prices. The new issuance should bring total treasury bills outstanding to IQD 18 trillion, a 156% increase over the end of last year and more than double the previous peak level of November, 2010.

T-bill issues of this magnitude could potentially provide a sizable boost to money supply growth. Consider what would happen if the state banks didn’t keep any of the new bills on their balance sheets but instead sold all of them to the CBI (Central Bank of Iraq). The central bank would pay the banks by crediting their reserve accounts, thereby monetizing the increase in government debt by “printing” new money. (Such operations are allowed under Article 26, Section 2 of the CBI Law.)

The resulting IQD 11 trillion increase in base money (commercial bank reserves + cash in circulation) could increase Iraq’s M2 money supply by as much as IQD 15 trillion (assuming the current M2 multiplier of 1.37 times). (M2 includes base money and commercial bank deposits.) That would be a 17% jump, a dramatic acceleration from December’s year-on-year M2 growth of just 3.3% to growth rates last seen in 2013. (See Chart.)

Engineering a monetary stimulus of this magnitude might be a good policy for the government to pursue. With GDP growth at a multi-year low (see my last post) and year-on-year inflation dropping to -0.41% in January, why shouldn’t the CBI attempt its own version of “quantitative easing?”

Yet it is far from clear that the government has any such plan.

This year’s T-bill sales will not be unprecedented. From April, 2009 – April 2010, total T-bills outstanding rose by IQD 7.2 trillion—the same 17% of initial base money that IQD 11 trillion would represent today. And none of those earlier T-bills were sold to the CBI. In fact, the central bank hasn’t had any T-bills on its balance sheet since March, 2006.

If this precedent is repeated, this year's new issuance will have no impact on the money supply at all.

16 Responses to Will the CBI Try Dinar QE?

  1. Richard 15th April 2015 at 19:28 #

    Analysis: When the dollar loses its dominance in the international monetary system?

    Away from the limelight hedge many countries in gold on the dollar account. The BRICs are trying to establish institutions to break the monopoly of the IMF and the World Bank controlled by the West. Does this mean that the dollar’s dominance on the international monetary system has become a matter of time?
    The US currency-that Atar- recently witnessed a significant rise in the price towards the euro and other currencies by Amylin main objectives: the first is based on the expectation imminent raise its key interest rate, which is still up to 0 to 0.25 percent. The second reason is based on expectations of an increase of the strength of the US economy’s recovery, which is still its growth rate up to 2.5 percent, compared to less than 1 percent in the European Union. However, these hopefuls appear in is replaced by now, after the announcement of the Federal Reserve (ie, the US central bank) in the second half of March / March 2015 that it was not in a hurry to raise interest rates, because the growth indicators do not point to further recovery, as does not predict higher inflation.
    In this light, it makes sense to stop the rise of the dollar over the euro and other currencies if it comes to indicators of the US economy. However, the US currency not subject to the logic of which is subject to him the other major currencies in the world, being a global currency governing global trade and currency exchange quasi only to buy and sell raw materials, particularly oil and gas. Therefore, all countries in the world needs a dollar -kaamlh again along Aloutnah- their currencies in order to trade their goods, especially the strategic ones.
    The US economy – high indebtedness and structural crisis
    The performance of the auto industry downturn in the United States, with its presence in global markets example of the decline of export strength of the US economy.
    However, the continued global dominance of the dollar is no longer taken for granted since the outbreak of the global financial crisis in 2008, according to the opinion of many analysts. This reflects the decline in the export strength of the US economy and the continuation of the structural crisis that caused the global financial crisis and other recent crises precedent almost kill the current international monetary system into the abyss. To make matters worse and increase the size of the US debt to more than $ 18 trillion, or more than US GDP estimated at $ 17 trillion. If we take into account the social support funds, the debt obligations of the United States to become the highest of Greece’s debt relative to GDP.
    Nevertheless, the US central bank will continue to print hundreds of billions of dollars are dumped on the market under the pretext of fighting deflation and revive the economy. This alarming situation pays a lot of countries -ovi forefront of China, Russia and India to reduce their reserves of US currency gradually and Sri favor hedge the euro, gold and other values. However, the financial crisis in several countries in the euro area has recently paid more cautious about the European currency hedge and the trend to buy gold and hedge it. The available data indicate that there is a strong bullish wave around the world to buy gold to the extent that it seems to be working on the formation of gold reserves similar to what was the case until the seventies of the last century, when the value of the currency linked to the size of the gold coverage.
    RICARDES: the dollar will not continue the dominant currency
    Is it approached the day on which the Chinese yuan become a global reserve currency?
    The question that arises here: Is the global trend to buy gold and get rid of the dollar indication for the birth of a new international monetary system is one of the pillars of the dollar, rather than be controlled and dominated it? Interestingly, in his book “monetary collapse / The death of Money” well-known American writer James RICARDES talking about the collapse of the indicators mentioned system for the benefit of the system is not clear yet pillars. One of these indicators, for example, try the BRICs (Brazil, Russia, India, China and South Africa), the establishment of financial institutions to Aihimn the West and Japan as it is in my case Monetary Fund and the World Bank. BRICS countries have planned to lay the foundations of these institutions should -alta the financing of infrastructure projects and solving Alozmat- monitor the amount not less than $ 150 billion so far.
    The new here is to provide a loan does not give preference to the US dollar. However, China -hsp Ricards- not only at this level to work in the framework of BRICS, but intensify buy gold and hold to finance international transactions in the Chinese currency, “Yuan” agreements. Perhaps the most prominent of the swap agreement between the Swiss franc and the yuan, which opens the way for the adoption of the Chinese currency as the currency of international reserves are increasingly.
    In turn, Russia is, after the imposition of Western sanctions in the midst of the Ukrainian crisis, to reduce its dependence on the dollar through bilateral payment of national currencies with China, India, Iran and other agreements.
    In the Arab world, the most dramatic step in this context is at the feet of Saudi Arabia to open its stock exchange to foreign investors is easier for the Chinese and other investment companies and funds in Saudi Arabia. Which will help to mitigate the recent reliance on oil, which is sold in dollars.
    Everyone’s interest in quiet shifts
    All countries of the world reserves -bhma much or Mak- large amounts of US currency as a reserve needs to finance its trade and investment. China alone, for example, has nearly two trillion dollars. Accordingly, the various countries, especially with large reserves of the dollar has no interest in getting rid of it quickly in cases of causing panic in the markets and lead to a dramatic collapse in the dollar value of the reserves in a way that threatens it. Hence, the ease reserve it gradually and quietly in favor of other alternatives on the one hand, and the establishment of regional and international financial institutions to end domination system on the other hand, it may be a more appropriate way to build a new international monetary system, the dollar is one of the pillars instead of being controlled.
    It remains to be Ntnzer to know the answer to the questions arise here: Is the new system will be based on a basket of currencies or gold on the basis of coverage or on both? Any will play the role of the International Monetary Fund in the event of lay the foundations of international financing funds away from the dominance of the West?