Currency Auctions: Portal For Theft Or Vital To Exchange Rates?
Yalla – Baghdad
Economic experts in Iraq have given mixed responses to calls for the abolition of the “currency auctions” organised by the Central Bank since 2004. Some believe the auctions facilitate state theft and smuggling, while others insist it contributes towards stabilising the exchange rate with the dollar.
The Parliament Finance Committee is the loudest opposition to the currency auctions, and has made many attempts to abolish them. Former committee leader Ahmed Chalabi once published documents seemingly confirming the existence of corruption in the auctioning process, and coordination between the organisers and political factions, private banks and fake companies. All attempts to abolish the auctions have failed.
Yalla spoke to MP Majida al-Timimi, a member of the Finance Committee. She voiced deep concerns about the auctions. “Iraq is the only state in the region that sells the dollar through auction, which negatively impacts on the economy, as a majority of oil revenues go abroad through fake imports. Currency auctions sold more than $38 billion in 2015 while the revenues from Iraqi oil sales were $44 billion.
“Traders who buy dollars from the Central Bank submit forged bills or import goods at a lower price than the dollar rate they paid. This happens at the expense of the state cash reserves that decrease daily in the current economic situation.
“Iraq’s oil revenues in the last two months were $3.2 billion but the Central Bank sold $5.8 billion at the auctions. This means that the Central Bank withdrew $2.6 billion from cash reserves.
“Keeping currency auctions is unhealthy, it harms the economy and it benefits a specific group that seeks to increase its wealth at the expense of Iraq.”
Al-Timimi is calling for the abolition of the auctions and believes that the state should use letters of credit to transfer money, which are impossible to forge. She confirmed that the Finance Committee will summon the Governor of the Central Bank Ali Mohsin Ismail, and other officials concerned with matters related to the auctions, to discuss why dollar sales are significantly higher than oil revenues.
Information published by the Central Bank on its website indicate that it deals with 26 banks in addition to 20 money transfer companies. It sold $6.5 billion between 3 January and 9 March at a rate of 1190 dinars to one dollar.
The Parliament Economy Committee told Yalla that there is significant manipulation in currency auctioning conducted by executive political figures and private banks.
“Mystery surrounds the auctions, there are those who talk about problems and corruption in the way it works, and related authorities have inspected some of the forms related to imported goods. They discovered that one form states that 30 million air conditioning units were imported, but Iraq’s population is approximately 30 million – one a/c system for every person contradicts common sense and reality,” MP Noura al-Bajari of the Economy Committee told Yalla.
Al-Bajari says that auctioning currency is bleeding the country’s cash reserves. The Parliament Committees of Economy, Finance, Transparency and the Commission of Integrity haven’t been able to uncover enough evidence to prosecute the offenders. She believes this indicates that powerful political figures are involved with the fraud, and are protecting themselves through political influence. Another indication is the fact that those who have talked negatively about the auctions in the media have received threats.
“Manipulating currency auction deals is carried out with certain private banks. If this continues it will lead to a significant financial collapse. The Central Bank has to take action and implement procedures to ensure the import of essential items only,” Al-Bajari added.
The Central Bank considers currency auctions a taboo subject, and rarely issues statements to selectively clarify pending matters. It refused Yalla’s request for comment.
“The markets need the auctions to cover the needs for the dollar. Abolishing them would reduce the ability of the Central Bank to adjust the exchange rate,” head of the Economic Media Centre Zargham Mohammed Ali said. “Iraqi markets have been reliant on the currency auctions for 12 years and any opposing procedures will enable the plungers to control the markets and expose it to uncalculated risks.
“Any expansion in the sale of dollars should be conducted within the limits of Iraqi dollar revenues, and shouldn’t affect the value of the reserves,” he added. “Affecting the reserves would cause significant instability for the balance of trade.”
Private banks deny accusations made by both the Economy and Finance Committees regarding its involvement in administrative and financial corruption at the auctions.
“There is a lack of clarity about the mechanism of the currency auctions, and from time to time rumours surface accusing the private banks, without officials producing solid evidence. This significantly harms the economy because it targets financial institutions,” the executive director of the Iraqi Private Banks League Ali Tariq Mostaf told Yalla. “The banks act as a link between the traders and the Central Bank, because the law doesn’t allow traders to buy dollars from the Central Bank.”
Mostaf claims that the main objective from the sale of dollars is to meet the country’s needs for the dinar, explaining that Iraq sells oil in dollars. The Finance Ministry sells the dollars to the Central Bank in exchange for dinars to cover the country’s costs such as public sector salaries.
He ended by claiming, “Private banks aren’t responsible for any shortcomings that occur at the auctions, and when a trader submits a forged bill, it’s a matter for specialists at customs.”