Central Bank project to delete the three zeroes from the dinar: The targets & risk

Central Bank of Iraq during the last period, but more than once his intention to publish a new edition of the Iraqi dinar, delete the three zeroes of the thousand dinars to be existing newborn is the new dinars, the currency in a bid to increase trading in local currency and thus reduce the phenomenon of replacement of cash or dollarization known to the Iraqi economy since the early stage of the siege in the nineties of the last century, as well as reduce the size of the issue of local currency cash from existing bank also announced that through a plan of long-term replacement without that the impact on the Iraqi market.

The monetary authority has tried since the first days after the political change and the issuance of the Central Bank Law No. 56 of 2004 that is working to stabilize the monetary and reduce inflation and deepening the financial market to market forces as well as the use of certain monetary instruments that have not previously used, and most importantly to engage in open market operations and the establishment of an auction of foreign currency. This shift demonstrates the new trends towards increased use of indirect tools (quantity) and reduce reliance on direct tools (quality). Central has succeeded in that to a large extent The theme of the deletion of zeros from the dinar in the context of strengthening the value of the Iraqi dinar, which operates the Central Bank to achieve them.

This procedure is not new in the global economic experiments and there past experiences, most notably the experience of Germany after World War II with the mark and the experience of Turkey in the beginning of 2005, which removed six zeros from the lira after the decline in chronic inflation in the Turkish economy has been the transition from the old currency to the new in a quiet unaccompanied inflation, which accounts easy in a country where salaries are calculated in the millions, even billions, and the annual budget Balkuadrliun (one thousand trillion), but to what extent the Turkish experience can be applied in Iraq?

Specialists believe that the benefits that can accrue to the Iraqi economy to the process of deleting the zeroes associated with psychological side mainly falls within what is known in economic literature, monetary and illusion, which dates back to the Keynesian school in the thirties of the last century, which means increasing the nominal value of money without increasing the real value and thus is not important amount of cash but what is important is the ability of that amount to buy goods and services, and therefore the central bank believes that the demand for possession of the currency will increase (for psychological reasons) and this can reduce the dollarization of the situation facing the Iraqi economy as well as that, this process will give more power to the JD Iraqi and wider acceptance among investors, which could be the return of the golden age of the Iraqi dinar.

Despite the fact that the process of switching groups and raise cash zeroes itself has no flaws, but he had a direct negative effects, but directly related by the Iraqi economy are not borne by a central objective conditions need to be determined the following:

- Low inflation and price stability. In this aspect, the Iraqi economy continues to suffer from high rates of inflation, although at relatively low and that the Iraqi currency exchange rate stable long-run through direct intervention by the daily currency auction.

- Harmony between fiscal and monetary. Have shown the past six years of confusion in the relationship between financial and monetary policies were not the picture is clear to the extent that revealed limits of the relationship in addressing the economic problems faced by the Iraqi economy at the same time people, many economists and a state of contradiction in the treatment of the phenomenon of inflation, especially the lowers.

At a time when you see the importance of financial authority to tackle unemployment first and therefore trying to follow an expansionist policy which is carrying high rates of inflation in the future after falling for supply to expand commodity resulting from the increased production, the contrary view of monetary policy and trying to deal with inflation first and believes that the environment of fiscal and monetary stable condition is the head of the production as well as the fact that the Iraqi economy is not flexible for several reasons. Accordingly, the expansion is not appropriate now and will inevitably lead to inflation, and in front of the two policies, the lack of consensus means that potential gains in inflation rates as a result of the expansionist policy of financial power.

- Despite the improved security situation in the past years the period in which the replacement process first, but the corruption is still a main challenge in front of the Iraqi economy and this means that the replacement process possible mechanisms need to be carefully studied to avoid the dilemma of corruption that could be one of the obstacles to success switch.

The process of switching over thirty trillion Iraqi dinars will require significant cost for printing and transport costs as well as the destruction of the existing currency and therefore these costs should be compared to the potential positive "and then take the appropriate decision. Moreover, the indicators do not delete the zeroes continue to indicate that the time was not ripe the process of removing the zeros and the success of this experiment need to bear the objective conditions of all parties to achieve the process, otherwise this topic will remain controversial between rejection and acceptance.

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