Measuring And Analyzing the Impact of Money Supply Components on Foreign Reserves After Implementing the Electronic Platform in Iraq for the Period (2022-2024)

Abstract

This study examines the impact of money supply components on foreign reserves in Iraq during the period (2022–2024) following the implementation of the electronic platform. Due to the platform's restrictions, net restricted foreign reserves became the primary driver of money creation through the monetary base. After the electronic platform was implemented and in accordance with international standards, Iraq was required to move its reserve funds to finance international trade, making foreign reserves dependent on the monetary base. As a result, increasing demand for the local currency leads to higher foreign reserves through a current account surplus, contributing to the stability of the currency and exchange rate. On the other hand, an excess supply of local currency reduces foreign reserves and limits their flexibility in adjusting to exchange rate fluctuations through monetary sterilization policies. The monetary policy of the Central Bank of Iraq is governed by the components of the monetary base, which is constrained by oil revenues through the state budget. The monetary base expands through increases in net domestic credit or net foreign reserves. If the Central Bank increases domestic credit under the conditions of Iraq and other oil-dependent rentier countries, an increase in the money supply will lead to a reduction in foreign reserves due to the fixed exchange rate in the Iraqi economy most of the time.