Hamid Rahim al-Rubaie, this is the tool of the important means (that were not the most important) among other tools (the discount rate, the statutory reserve) followed by central banks to control the money supply for the economics of the free. The main open market operations the process of buying and selling government bonds (public debt), ie the State to borrow from banks or public versus specific repayment period and interest rate.
The resort has a central bank if they wanted to make a change in the size of the money supply process shall IPO (bond issue) and it is part of the withdrawal of liquidity if they wanted a reduction in mass and the cash to buy these bonds if they wanted to pump cash into the economy.
What is important in this medium that has a double impact, it is the part dealing with the phenomenon of the steady increase prices (inflation) or give a boost operational economy in recession, on the other hand is an effective way to finance the budget deficit without getting any unwanted side effects by , Taxes as a means of financing the deficit could have a deflationary effect on the economy as vulnerable cause the purchasing power per capita and higher costs for projects, and this is reflected negatively on the size of the demand.
The style version of the new money to finance the budget deficit has its inflationary effects, while open market operations is only a process of transition liquidity from hand to hand without any increase or decrease, or side effects, so the movement of liquidity here free movement involuntarily often subject criteria for differentiation economic for individuals and banks between bond-buying or selling and between other economic activity, and this feature is missing her taxes, they are forced to impose on an individual or project without having a choice but to pay, hence the tax impact of a deflationary although It is the process of transferring cash from one hand to the other as well.
As for the Iraqi scene With all the efforts by the central bank in light of the successful management since 2003, which focused on maintaining slight fluctuations allowed in the exchange rate of style (floating orbit to determine the exchange rate) and succeeded in doing so through an auction currency and the continuing rise in the volume of currency reserves, but as a result of the failure of the banking sector and the weakness of the dealings between them and the audience made it (the discount rate and the legal reserve) means is effective to control the money supply, not to mention the actions of fiscal policy for the state and based on the allocation of the bulk of the budget of the consumer spending that left significant problems including:
1 – cluster size up massive cash, according to the annual statistical bulletin of the Central Bank in 2011, to (51,743,489 trillion Iraqi dinars).
2 – atrophy of the productive sector with political factors Born significant weakness in investment opportunities.
3 – Lack of investment opportunities with social values of Iraqi society has led to a rise in the marginal propensity to consume for the increase in income.
4 – rising consumption means an increase in the import multiplier and thus more leakage of hard currency abroad. Hence, the central bank should resort to the method (open market) and for the following reasons:
A – It does not require a bank ahead of an organ, but you need to financial market but were not high-tech.
B – The Iraqi individual inclined to deal confidently with the state because of social factors and the weakness of the private sector.
C – the possibility of issuing bonds at low interest rates. Here, open market operations will have impact in the reduction of consumption Kamali and reduce the leakage of hard currency in addition to the revitalization of the financial market, and the impact of other important is the possibility to rely on bonds to finance the budget deficit and keeping government requests continuing to pull the currency reserves in the Central Bank to finance deficits general budget, even in the absence of a deficit in the public budget can customize aspects of investment spending to revenues.