The stabilization of exchange rate of Iraqi dinar against the major currency transaction (US dollar) is necessary and appropriate,and foreign currency auctions held by the Central Bank of Iraq played an important role in maintaining and stabilizing an appropriate level of exchange rate, When any pressure occurs on exchange rates, the central bank is tightening monetary policy, including lifting interest rates on deposits in Iraqi dinars, and to allow greater flexibility in the management of monetary policy.
The Bank has taken several steps to expand the list of tools available to monetary policy, coverage of reserve required to include governmental deposits, and granting facilities on deposits that mature in a short period of time in order to allow banks to manage liquidity in a more effective manner and reducing the risks of liquidity to the Central Bank.
The monetary sector, in any economic system, consists of a Central Bank, commercial banks and other financial institutions. And it is the only sector among the four main sectors covered by the national accounting, which consists of the real sector, the central government, the monetary sector and the external sector.
The objectives of monetary policy to achieve economic growth, reduce unemployment rates, the stability of goods prices and services, the stability of exchange rates in the case of a floating exchange rate, and improve the balance of payments.
These objectives are achieved through the tools of monetary policy direct and indirect, the latter aims to control the public budgets of Iraqi Central Bank, while direct tools targets to control the balance sheets of commercial banks such as a credit ceilings and determine interest. The direct tools lead to efficient use of resources, reducing effectiveness of investment and the multiplicity of exchange rates.
The structural stability of current exchange rates have been granted an opportunity for rebuilding the Iraqi economy and its growth, although prices have not fully stabilized, this is due in part to instability and nature of security and political conditions throughout Iraq.
Within this context, the Central Bank of Iraq has succeeded in collecting the reserve at a high level of foreign exchange,that requires stabilization of exchange rate of Iraqi dinar against US dollar which is appropriate and required at the current stage. In support of this structure, the Central Bank of Iraq is ready to provide the required amounts of foreign currency on the basis of maximum rate in daily auctions.
To allow greater flexibility in management of monetary policy, Central Bank of Iraq has taken a number of steps to expand list of tools available to monetary policy, and the Bank granting coverage of reserve that is required to meet governmental deposits, planning a critique of the years 2005 and 2006 to set predictions about growth in demand for currency, currency in circulation and expectations about economic growth and inflation.
In order to improve management and transparency of Central Bank of Iraq. The Iraqi government commissioned the international company (Ernist and Young) to review of operations and financial statements of the Central Bank to monitor the economic performance and analysis of the essence of the monetary policy pursued by the Central Bank of Iraq in this area with a view to achieving the targets and goals of the monetary policy in Iraq.(Source) Dr.Bata'a Khalifa