BELGRADE, July 12 (Reuters) – Serbia's central bank kept its benchmark rate unchanged at 3 percent on Thursday, taking advantage of a strong dinar …
Serbia's dinar was bid at 117.99 against the euro, firmer by 0.1 percent. Being less liquid, it has not been affected by the past months' global jitters.
What was being put in narrow circles a few months ago is now a question that is expanding day after day. Is the world heading for a currency war? Or is the currency war already under way, and can the Sino-US trade conflict be a prelude to a massive economic downturn that drives both sides to take a qualitative step to win the battle by turning to currency war? And who is the biggest loser in that war if it breaks out?
Currency war is the password now in many economic corridors, and it is not a matter of examining the extent of its seriousness or economic impact, such topics have killed academic research, but that the international economy suffered catastrophic effects in some stages of development, and therefore humanity has painful experiences with That kind of war, and what is currently being seen, is limited to how the global economy can face the risks of that battle.
Can the bipolar leaders of the United States and China realize the fate of the international economy if they decide to go ahead with currency war, Which may mean that Khaya Is economic suicide the official choice?
Professor John White, former chairman of the Bank of England’s Advisory Committee, puts the question to the question: Does anyone have an interest in the value of the currency being high in the current global trade conflict? The question is answered by "no".
"It can not be said that the international economy is witnessing a war of currencies, but certainly the circumstances are more than ever prepared for that war," he says. "If you are pessimistic, I can say that we are moving in this direction.
"The big economies now have a strong currency, after the strong currency has been a sign of strong economy and improved performance, and the conviction now prevailing among many economic leaders and policymakers that a weak currency will boost economic growth gives the economy a preferential advantage On his trade rivals, the risk that if everyone joined to that conviction will be all losers. "
The US administration wants the dollar to be weak, the EU is also seeking a weak European currency, and Japan is not hiding its official policy to overcome deflation lies in weakening the yen, China wants the yuan More competitive to increase exports and reduce imports, and Britain is silent on the decline of sterling, which could contribute to increase exports at a time when the exit from the European Union many economic problems.
But what’s the problem with that? Answers d. David, the Bank of England economist, said: "There is no problem in devaluation per se if it is a result of changes in market forces, but the risk when it is deliberate or flawed is done deliberately."
He asserts to the "economic" that the US side was clear and frank in accusing China strongly and frankly, as well as Japan to a lesser degree, that they manipulate the value of their local currency, the yuan and yen to achieve preferential advantages at the expense of US exports.
He notes that US Treasury Secretary Stephen Manuchen welcomed the depreciation of the dollar while welcoming the best economic performance of the euro area in more than a decade. Not surprisingly, the euro against the dollar rose to more than $ 1.25. On the other hand, The European is very upset by the euro’s improved value, which hampers its efforts to overcome deflation and low inflation in the Eurozone countries.
"Under the circumstances, investors and hedge funds are very cautious and delay their investment decisions pending clouds, which means a drop in growth."
Concerns that a trade war could turn into a currency war are legitimate for many economists, but they believe that currency war has not yet officially broken out.
But some believe that the US economy may be better able to counter that war than others. Some even believe that Washington may have a real interest in moving the international economy toward a currency war to curb the Chinese yuan’s ambitions.
And some believe that Washington has an interest in weakening the Chinese yuan so much that it can not be priced for major commodities in international trade, and this will only happen through its defeat in a currency war, which China is seeking to avoid now .
Since 2016, there are notable Chinese steps to dismantle capital controls on the yuan, a prerequisite for making it an international currency. Although these steps contribute relatively to the promotion of international trade by promoting the use of the yuan beyond China’s economic borders, it is a future challenge for the dollar American.
"The Chinese central bank has pledged that it will not use the yuan as a means of a trade dispute with the United States, revealing China’s financial policymakers’ understanding that they will emerge losers from the battle of currency war," said Tina Brown, a banking expert. In that war, the Chinese yuan is in a vulnerable position, and Beijing will not have to repeat the experience of 2015 by injecting more cash reserves into the markets to maintain the value of its national currency from total collapse against the dollar.
This means huge erosion in its dollar reserves without a household It is to maintain the balance of the yuan. "
But if the United States can emerge victorious in that war, despite the losses, why not rush to ignite the currency war ?!
The current interplay in the global economy as a result of globalization largely hampers the ability of the United States to do so. Such a war will inevitably weaken the growth rates of the Chinese economy and weaken the import intensity of China from the United States. Means that the US economy is negatively affected by the decline of his opponent.
Investment expert Boris William said the United States would accept a relative devaluation of the yuan as a means of providing some support for the Chinese economy. But if Beijing’s financial authorities ignore US warnings that the yuan should not retreat from a certain level, the sensitive level is 6.7 yuan against the dollar The US strategy will change.
"The fear that the continued devaluation of the Chinese currency against the dollar will lead to a currency war is because each country will have a different reading of the reasons for this decline. While China will view it as a justifiable move, Given the conditions in the Chinese economy.
He explains that the other side, the administration of President Trump, will look at China’s position as a plan aimed at harming the US share of world trade. If the two sides engage in a currency war, the other economies will certainly suffer greatly.
He notes that a number of advanced industrial countries such as Japan, the European Central Bank and the Bank of England have used the logic of weakening their currency more money printing to encourage exports, so why deprive China of the practice? https://www.albawaba.com/ar/%D8%A3%D8%B9%D9%85%D8%A7%D9%84/%D9%87%D9%84-%D8%A7%D9%84%D8%B9%D8%A7%D9%84%D9%85-%D9%86%D8%AD%D9%88-%D8%AD%D8%B1%D8%A8-%D8%B9%D9%85%D9%84%D8%A7%D8%AA-%D8%A3%D9%85-%D8%A7%D9%84%D8%AD%D8%B1%D8%A8-%D8%A8%D8%AF%D8%A3%D8%AA-1157616
KUWAIT, Iraq – Iraq’s approval of any Iranian request to exchange trade between the two countries in local currency instead of the US dollar has been ruled out by economic expert Majid al-Suri, noting that such an agreement would not be in Iraq’s favor.
Al-Suri said that Iraq can not apply trade with Iran in local currencies because the trade balance will be in favor of Iran and the majority of trade for its benefit. "
He added that "the implementation of this agreement will work to store the Iraqi currency within Iran, which is not in the interest of Iraq, pointing out that" such a decision is not only the competence of the Central Bank of Iraq,
but the power of the Government of the Ministry of Finance in consultation with the Central Bank of Iraq and do not expect the bank The Central Bank of Iraq on such a matter. "
"A number of countries, including India, Russia, China, Brazil and South Africa, are trying to reduce the dollar’s control over international trade and the trade war between China and the United States has resulted," he said.
The governor of the Central Bank of Iran and Crown Prince Ali Abdullah announced on Sunday the follow-up of the bank to conclude monetary agreements with Iraq, Russia and Azerbaijan to deal in national currencies.
7/9/2018The Central Bank of Iraq announced Monday that foreign currency reserves rose to 55.7 billion dollars last June.
A source at the Central Bank of Iraq, the central bank reserves rose in June to 55.7 billion dollars, adding that the rise in foreign exchange reserves, due to successful management.
The source pointed out that Iraq, one of the countries that fully secured their reserves of foreign currency to cover demand by more than 100 percent of the dollar.
BELGRADE (Serbia), July 10 (SeeNews) – Serbia's central bank said it bought 10 million euro ($11.8 million) from commercial banks on Monday to …
BELGRADE (Serbia), July 9 (SeeNews) – Serbia's central bank said it bought 30 million euro ($35.3 million) from commercial banks on Friday to stem …
The Central Bank of Iraq (CBI) signed a memorandum of understanding (MoU) with Yunin Bi International International on Wednesday to develop smart payment technologies and electronic payment services in Iraq.
"The company is one of the largest companies in China and most of the Asian countries in this field, in addition to being the third largest international company to issue and collect cards," said a statement issued by the Central Bank.
"This agreement came in the light of the strategy of the Central Bank To develop electronic payment services and open the horizons of work and competition for international companies to participate actively in the implementation of current and future plans for the electronic payment sector,
as well as the development of this sector and the transfer of expertise owned by this company to the Iraqi market, thus facilitating the payment and transfer of funds smoothly and smoothly E-cards saliva.
" "The company intends to enhance the collection of card purchase payments through traders using the latest technology developed over the years in mature and promising markets," the statement said.
"Supporting the international companies and organizing their work in the country will contribute directly to providing the best services and providing effective competition in this field," the statement said.
"This is the third memorandum signed by the bank in 2018 with global card companies as part of its expansion plans.
In the use of high technology to promote the work of cards and the development of payment systems in accordance with the best international practices.http://www.alsabaah.iq/ArticleShow.aspx?ID=159563
The information received from the Union of Arab Banks and based on special evaluation criteria indicates the selection of the Union of Arab Banks, the Governor of the Central Bank of Iraq, Ali Mohsen Al-Alaq, the best Arab, and was honored with a special celebration on the sidelines of the Arab International Banking Summit,
In the French capital Paris under the patronage of the French Prime Minister and in the presence of ministers and governors of central banks and heads of boards of Arab, French and European banks and prominent economic, financial and banking personalities.
This honor is in fact a tribute to the Central Bank of Iraq and cadres, whose role was distinctive in support of the national economy in the near the difficult circumstances experienced by Iraq during the past three years.
The support provided by the Central Bank to the national economy during the economic and security shocks suffered by Iraq due to the economic and financial crisis and the war on terrorism is a bright spot and a success experience in a country that is going through harsh conditions and a historic phase which is the most difficult to face the economic and security challenges that no country in the world has experienced. Such as Iraq.
As the team of the Central Bank proved their success in enhancing the economic steadfastness and achieving monetary stability through the efforts, procedures and applications of monetary policy and the development procedures of the Central Bank in the difficult economic stage of Iraq, where they were able to draw a strategy for the years (2016-2020)
and a clear road map goals and ambitions to achieve stability Economic growth, financial inclusion, structural and institutional construction, and the optimal investment in human capital through important achievements achieved during the years 2015-2017.
The most important of these is the maintenance of inflation by no more than 2% For a hundred and at the level of adequacy of foreign reserves within acceptable rates according to the latest cumulative standard by the International Monetary Fund 0 by 160 percent, which is considered high-adequacy ratio internationally as foreign reserves of Iraq stood up to $ 52 billion.
And the establishment of new units within the regulatory structures of banks such as compliance and combating money laundering and financing of terrorism and management of credit and operational risks and the issuance of the law against money laundering 39 for the year 2015
and the development of payment systems and the application of all payments and retail by mobile phone and the establishment of the national division and work on the application of international standards In financial reporting in line with the principle of transparency and disclosure.
In addition, the Bank’s efforts are exerted daily to stimulate financial inclusion and focus on the initiative to settle the salaries of employees in order to raise the financial coverage of the population who do not have accounts in the banking system, which actually rose from 11 percent to 22 percent, according to the World Bank Bulletin.
In order to restore confidence in the banking sector, the Bank re-evaluated and classified banks in accordance with international standards and standards in evaluating business results and measuring the efficiency of performance.
As well as the establishment of a deposit guarantee company in order to raise the percentage of savings at banks and reduce the proportion of home-made and restore confidence in the banking sector and thus stimulate the economy through the activation of investment and bank financing initiative to finance small and medium projects
and supervision and leadership of community initiatives funded by Iraqi banks such as Baghdad project and support the Iraqi Drama Fund and the establishment Two companies for the national financing of large projects and the establishment of a fund for social and humanitarian benefits
and take regulatory and structural measures and the development of the depository center in the Iraqi market for securities and the establishment of a national center for Query credit and payments of the Iraqi Council.
At the level of international banking relations, the central bank has been able to restore relations with Arab and foreign central banks and deliver the achievements of the past three years to the international financial institutions such as the Financial Action Organization, which contributed to the transition of the classification of Iraq from gray to follow-up.
The governor’s visit in 2017 to the UN Security Council and its presentation of achievements, organizational and structural and technical and compliance with international standards in financial reporting and enhance confidence in the Iraqi economy
and Iraq’s ability to comply with international credit benefits and the World Bank and IMF and the Financial Action Task Force had a clear impact in promoting economic resilience and victory Financial and a steady pace towards financial sustainability.
All these achievements make the Central Bank of Iraq worthy of praise and recognition. I call on the Iraqi national media to read, read and listen to the sincere efforts of the Iraqi people or fight terrorism and build the new Iraq in one and to highlight the achievements and success stories achieved despite all the challenges And one of the most prominent successes achieved by the Central Bank of Iraq.* Economic and banking consultant http://www.alsabaah.iq/ArticleShow.aspx?ID=159546
By Ahmed Tabaqchali, CIO of Asia Frontier Capital (AFC) Iraq Fund.
Any opinions expressed are those of the author, and do not necessarily reflect the views of Iraq Business News.
Activity in the economy at large, and the market in particular, came to a virtual standstill at the start of the month as it coincided with last two weeks of Ramadan which ended with the Eid holiday’s in the middle of June.
The start of the summer heat in earnest further contributed to the slowdown of activity. However, the intense focus on the political activity around the election results took the spotlight over the major markers of economic recovery and the banks’ leverage to it.
Average minimum and maximum temperatures in Baghdad in degrees centigrade
(Source: World weather and climate Information)
The elections produced winners and losers who will eventually form a coalition government as reported last month, a process that should take a few weeks but could extend to a few months. Claims of fraud surfaced as in past elections, however this time there was an unusual action by parliament to force a manual recount of the whole vote and a wholesale annulment of certain types of votes (overseas, IDP’s and security forces votes). The parliament’s action was made possible by investigations that suggested that fraud was made possible by hacking the electronic readers of the ballot papers –introduced for the first time this year.
The potential disruption could have resulted in a delayed government formation until early 2019. However, objections to parliament’s action were raised to the Supreme Federal Court, whose ruling on 21st June was a master class response to the conflicting political reactions following the elections. The ruling, provided a framework for a workable compromise as evidenced by its wholesale acceptance by all of Iraq’s political parties.
The ruling is discussed in a recent article: in a nutshell it led to a manual recount of only of those election centres whose results were disputed, and thus should be concluded in a few weeks. The impact will likely be felt in a changed balance of power among the Kurdish parties and among some Sunni parties, but ultimately will not significantly change the balance of power of the main election winners. The process of government formation continued unabated during this period and the broad outlines of it are taking shape.
However, irrespective of how the upcoming government is formed, it would need to address the issues at the heart of the 2015 protest movement that had such a profound effect on how the election was fought and its results. These would be the provision of services and reconstruction, which require much needed overdue investments in the country’s infrastructure and the reconstruction of the liberated areas, estimated at USD 88bn over five years.
Prevailing negative perceptions of Iraq’s ability to fund this have not reflected the transformative effects of higher oil prices and the end of conflict on Iraq’s ability to self-fund the reconstruction of the whole country. These were discussed in detail in a recent article, the highlights of which are: By end of 2018, based on realized oil prices of 2017 and average year-to-date for 2018, Iraq is on its way to have a cumulative two-year budget surplus of USD 18.8bn instead of the initially projected cumulative deficit of USD 19.4bn. This would be equal to a stimulus of 14.5% of non-oil GDP once reconstruction projects are underway, thus further accelerating economic activity. The effects of this stimulus would be enhanced by a potential budget surplus of USD 9.3bn in 2019 or a further 6.8% stimulus to non-oil GDP.
The stock market’s action in June was a continuation of the same trends discussed here over the last few months. By end of June, the market, as measured by the Rabee Securities’ RSISUSD Index, was down -3.5%, bringing its year to date performance to -0.6. Average daily turnover was among the lowest of the last three years and most stocks, in particular the banks continued to decline.
The market’s focus continues to be the effects of the shrinking FX margins on banks’ earnings brought on, paradoxically, by the increasing signs of an improvement in liquidity in the broader economy. These were brought by the steady increases in the market price of the Iraqi Dinar (IQD) versus the USD, lowering its premium over the official exchange rate to 1.2% – the lowest point in a number of years from just under 6% at the end of 2017 and 10% at the end of 2016. FX spreads are one of many sources of revenues for the higher quality banks but constitute the bulk of earnings for the lower quality banks. However, almost all banks were caught in the group’s sell-off which accelerated in recent months.
However, valid as these concerns are, they fail to take into account the transformative effects of the expected budget surpluses of USD 28.5bn for 2017-2019 on the banks’ future earnings through the simulative effects the surpluses would have on economic activity. This same leverage worked in reverse during the double whammy of the ISIS conflict and the collapse in oil prices as government finances were crushed by soaring expenses and plummeting revenues.
The government resorted to dramatic cuts to expenditures by cancelling capital spending and investments which, due to the centrality of its role in the economy, led to year-year declines in non-oil GDP of -3.9%, -9.6% and -8.1% for 2014, 2015 and 2016 respectively. Ultimately, the government had a cumulative deficit of around USD 41bn during this period and accumulated significant arrears to the private sector in the process. The outstanding arrears are estimated by the IMF to be at USD 3.6bn as the end of 2017.
The effects were disastrous for private sector businesses at the receiving end of the cuts whose finances deteriorated, and which in turn affected the quality of bank loans as these businesses accounted for the bulk of bank lending. As a result, the banks’ earning suffered from the increasing non-performing loans (NPL’s) coupled with negative loan growth, as well as from declining/negative deposit growth.
The changes for the worse for the banks during these years can be seen through the three charts below that look at loans/NPL’s, deposits and trade finance and their association with budget surpluses/deficits. The charts consider only loans/NPL’s, deposits and trade finance for the private sector but not those for the government as they conducted through state banks.
Loans and NPL’s 2010-2017
(Source: Central Bank of Iraq (CBI), Asia Frontier Capital (AFC))
Loan growth peaked in 2015 after slowing in the prior year and has declined since, while NPL’s soared in 2015-2016 as the effects of the capital spending cuts fed through to deteriorating loan quality. These negative effects were made worse by a flight to safety as more of the private sector borrowed from state banks instead, in the process increasing their share from 59% to 63% of all private sector lending. The ultimate effects of budget surpluses and deficits on loan growth and quality can also be seen from the above chart.
(Source: Central Bank of Iraq (CBI), Asia Frontier Capital (AFC))
The same story is repeated with private sector deposits which for commercial banks peaked in 2013 and declined since then. The flight to quality was again evident in the slower decline in total deposit growth and its pick-up in 2017 as the expansionary effects of the recovery in oil prices and the ending of conflict were being felt. In the process, the state banks increased their share of total private sector deposits from 61% to 68%.
Trade Finance 2010-2017
(Source: Central Bank of Iraq (CBI), Asia Frontier Capital (AFC))
The only area where commercial banks increased their share was that of trade finance for the private sector- increasing from 71% to 87%. However, trade finance suffered significantly in this period as trade declined due to investment cuts and the slowdown in consumer spending. This further hurt the commercial banks as it was a major source of revenues and growth.
Its logical to conclude that the sea change which has taken place in the government’s financial health would reverse the trends seen in the charts above as the significant stimuluses to non-oil GDP should lead to sustainable economic activity, providing room for the banks to recover and grow again.
It should be noted that these are aggregate figures for the whole sector which hide significant variations in the performance of individual banks. The pains of 2014-2017, including the recent pressure on FX margins, would have exposed the structural weaknesses of many of the banks and will likely lead to failures among the weaker ones. However, the stronger banks that weathered the storm and addressed any structural weaknesses should benefit disproportionally from the expected benefits from a recovering economy.
Mr Tabaqchali (@AMTabaqchali) is the CIO of the AFC Iraq Fund, and is an experienced capital markets professional with over 25 years’ experience in US and MENA markets. He is a non-resident Fellow at the Institute of Regional and International Studies (IRIS) at the American University of Iraq-Sulaimani (AUIS). He is a board member of the Credit Bank of Iraq.
His comments, opinions and analyses are personal views and are intended to be for informational purposes and general interest only and should not be construed as individual investment advice or a recommendation or solicitation to buy, sell or hold any fund or security or to adopt any investment strategy. It does not constitute legal or tax or investment advice. The information provided in this material is compiled from sources that are believed to be reliable, but no guarantee is made of its correctness, is rendered as at publication date and may change without notice and it is not intended as a complete analysis of every material fact regarding Iraq, the region, market or investment.