Shatha Khalil *
Hoarding is defined economically as “holding money and locking it out of circulation.” It may be that money is buried or kept in boxes inside the house and is not taken out to trade in money and capital markets.
The prevalence of the phenomenon of hoarding in developing countries is due to the weakness of the banking culture, which generates a vicious circle of forces that are opposite to the movement of economic and social development. Data of underdevelopment widen the phenomenon of hoarding which leads to a reduction in the volume of positive savings; it means the reduction of the investment which restricts the General income growth and the movement of social and economic development necessary for the development of Third World countries.
One of the negative effects of hoarding, and its impact on economic activity in developing countries, is the division of income according to economic considerations into two parts: a section that is spent on consumer requirements, and another goes to savings.
If, in the short term, income is assumed to be constant, the individual can only increase his savings by reducing his consumption expenditure.
In Iraq, the governor of the Central Bank Ali al-Aalak said that the phenomenon of financial hoarding outside the banking system is dangerous, as it is recorded that 77% of the currency traded outside the system of the banking system which is in a state of Hoarding. In order to employ these resources and pay them towards savings and the direction of the banking sector, we need a great and wide effort at all levels. ”
The economic expert Raed Fahmy pointed out , “Securing internal resources and mobilizing in the case of savings is very important, and this poses a serious risk and concern for the funds in the case of hoarding”
He pointed out that “the state of hoarding means there is a lack of confidence in the banking sector in attracting deposits and this is a major challenge because it is not only a financial and administrative challenge, but also harms the economic reality and the security reality and the political reality , and here the role of banks emerges in strengthening the citizen trust to deposit his money in banks .
The director general of financial operations and debt management in the Central Bank of Iraq, Dr. Mahmoud Dagher, said that the lack of confidence of the citizen to the banks face all backward countries, including Iraq, where private banks grew in an unstable situation and despite all the changes and improvements, but banks are still unable on the confrontation, and we are still witnessing the dominance of government banks such as Rafidain and Rashid, on most deposits and banking assets and therefore this created a dilemma for private banks to play its role .
Dagher pointed to “bank irregularities of the instructions of the Central Bank, especially in the sale of the dollar, pointing to the transformation of Iraq into a market economy in which its conditions are supply and demand.
He pointed out that there is high demand for the dollar because of instability and can not be restrained pointing out that previously the central bank before 2014 covers all the quantity and now we do not cover the amount required by importers or those with assets or foreign transfers and this is a pressure on the economy .
The citizens’ lack of confidence in banks is due to the following:
• The government does not pay the dues of the private sector, contractors and farmers, despite the passage of years of maturity, in addition to the lack of cash liquidity in banks, especially the civil ones, when the citizen comes to withdraw his money, he is shocked by the inability of the bank to meet his dues.
• The Iraqi citizen loses about 5% of his money because of exchange rate difference once deposit money in dollars in his bank account and then withdrawn, and this is a great suffering on him , and the central bank has to monitor the private banks and government in the fixing and set a fixed ceiling for the amount of foreign exchange, but we see there is a process of Manipulation and corruption in this matter.
• The most serious situation faced by citizens with private banks is that they close its doors without warning and without any legal accountability to them, so we see that most citizens have fled dealing with private banks.
• The delay in the service and some banks don’t keep pace with modernity and routine in the private banking system, which was supposed to overcome, and these things have its role and impact.
• Lack of awareness among individuals of the importance of a private banking sector. This view means the need to expand the scope of financial coverage, which means the delivery of banking services to all citizens, whether in the government or private sector.
The financial and economic adviser, Dr. Madhar Mohammed Saleh, said that the manifestations of the hoarding in Iraq take different dimensions, namely: material – hoarding such as gold, jewelry and precious valuables, and the hoarding by Iraqi dinar, which accounts for 77% of the currency exported outside the Central Bank of Iraq and hoarding by using foreign currency.
The hoarding weakens the strength of the national economy by diverting its savings, which support the income and production cycles, to stumbling leaks, in the income cycle, or weaken production opportunities and sustain economic activity.
Here is the demand for cash or wealth like the money for the purpose of caution “uncertainties”.
The history of the Iraqi banking has witnessed during the last century the phenomenon of exchanging gold in paper currency by placing gold as a hostage at the jeweler, or moneylenders for interest , as the demand for money here helps through the guarantee of gold by taking out the official hoarded coins from the cycle of monetary leaks to the spending cycle, and activate the economy , but with illegal market instruments, and thus demand for cash will be for purposes of transactions but for cycles of income which is not necessarily complete and does not lead to real economic balance.
Saleh also pointed to an important event in the history of the Iraqi economy, in the sixties of the last century, as a government bank called the Mortgage Bank was established / a legal and official alternative to the phenomenon of moneylenders and the whole illegal market , as it provides loans guaranteed by gold managed by the Bank of mortgages, to provide cash loans in exchange to keep the gold held by the Borrower until the maturity of the Loan or to pay for interest charged by the mortgage Bank to cover the operating costs and part of the risk of fluctuating the value of the same security of the Jewelry and occupied gold pieces .
Saleh highlights the bank’s cancellation at the beginning of the 1970s for unknown reasons.
Banks remained in a semi-banking relationship with customers in the provision of services, as bank funds or personal bank vaults remained available to citizens and available for use within each bank, especially the government, including Rafidain and Rashid.
The citizen can keep his precious jewelries and important documents in safe vaults with 100% safety, for a monthly or annual fee.
This positive phenomenon has receded not long ago which contributed to bring the citizen closer to the atmosphere of the bank or the banking environment and to identify it as a legal institution and with the absence of this safe service, one of the bonds was cut off between the citizen and the bank as an entity that preserves the wealth of the society and strengthens the connection between the citizen and the bank.
Saleh called on the Iraqi Central Bank to conduct a study, to grant a license to the Iraqi Bank of Mortgages, to mortgage gold and jewelry for cash money (which boosts bank credit and turns a quasi hoarded wealth into a guarantor force in generating demand for money for purposes of transactions and supporting economic activity.
He considered that as one of the institutional channels in the elimination of the phenomenon of hoarding like Quasi money such as gold and others , and maximize the atmosphere of confidence between banks and citizens, to receive their gold jewelry and other precious valuables in the safe vaults at the banks for soft wages.
The citizens demanded the establishment of a deposit guarantee company to reassure their bank deposits of the risks of banks ‘exposure and failures; because it reduces the demand for liquid cash as a hoarding , which is an unstable indication , very concerned , highly correlated with the interpretation of the impact of uncertainty on individuals’ demand for cash in its rolling form , hoarding ( Or quasi-money, and to prevent it from being included in the income cycle and deprivation cycle of economic activity.
Economic Studies Unit
Rawabet Center for Research and Strategic Studies