The Associated Press
BAGHDAD, Iraq
Iraq's dinar currency has risen to a nearly two-year high against the U.S. dollar, thanks to trading by the central bank at its daily auction, the bank said Thursday.
Most of all the money the Iraqi government earns it gets in U.S. dollars because oil exports are the main source of its income, and the bank has about US$14 billion in foreign assets, said Mudher Qassim, the Central Bank of Iraq's director of statistics.
It sold 35 million U.S. dollars at Thursday's auction, state-run Iraqiyah television reported.
"Our goal is to reduce inflation, which is now running at about 50 percent, by improving the dinar and thereby making imported goods cheaper," Qassim said in a telephone interview.
More than 80 percent of all Iraq's tradable goods are imported, he said.
In a report in August, the International Monetary Fund also said inflation was escalating in Iraq. The 12-month rate of inflation ended 2005 at 31.7 percent, but inflation then accelerated, with 12-month inflation reaching 58 percent in May 2006, the report said.
On Wednesday, the dinar was trading at an auction price of 1,424 against the U.S. dollar, according to the central bank's Web site, its strongest price since March 23, 2004, when it was at 1,420.
Between Nov. 29 and Thursday, the Iraqi currency traded widely at a market price between 1,410 to 1,442 to the dollar, the best the dinar had seen Jan. 26, 2005, when it was at 1,405, the Web site indicated.
"The dinar has steadily increased against the dollar because of the Central Bank's efforts to stabilize the currency and control inflation," said Hussein al-Uzri, president of the state-owned Trade Bank of Iraq.
"Iraqi consumers get oil and food that is government subsidized, so the rise in the dinar won't have an immediate effect on them and the economy. It will take some time. But as Iraqis realize the value of the dinar is rising, they will stop immediately exchanging their currency into dollars," he told The Associated Press.
Wednesday's bipartisan U.S. Iraq Study Group said that by the end of 2006, "The Central Bank of Iraqi will raise interest rates to 20 percent and appreciate the Iraqi dinar by 10 percent to combat accelerating inflation."
Two money changers in Baghdad said Thursday said their businesses haven't been affected by the central bank's intervention yet, but some consumers were watching to see what will happen to the dinar next.
Government employees who are paid in dinars already are benefiting by getting a better deal at the many Iraqi stores that import products such as electronic goods and sell them in dollars only, said one money changer.
The other one said the many poor and unemployed Iraqis who survive by receiving U.S. dollars from relatives overseas — and Iraqis who work for foreign companies and are paid in greenbacks — are worse off.
Both money changers spoke on condition of anonymity to protect their security in Baghdad, where many people are killed in sectarian violence between Sunni Arab insurgent and Shiite militias. Businessmen and store owners often are kidnapped by common criminals seeking ransoms from their relatives.
Mustafa Alani, a senior adviser at the Gulf Research Center in the United Arab Emirates, said he believes the Iraqi government's concerns about inflation will not be addressed by its manipulation of the currency market because the main reasons that the prices of goods are expensive is that companies importing them have to spend so much money providing security to their truck convoys. Many avoid using warehouses in Iraq because they are easily attacked, Alani said in a telephone interview from Abu Dhabi.
Qassim agreed, saying he believes that the cost of security alone increases the cost of importing goods to Iraq from neighboring countries by 15 percent to 30 percent.
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