Publication Details
Abstract
This research seeks to show through a theoretical study the role of foreign reserves in achieving financial stability in Iraq. Reserves are one of the central bank's most effective tools to manage liquidity, boost confidence in the banking system and support prices. Given the reliance on oil revenues in the Iraqi economy and the through-and-through uncertainties that influence the foreign cash flow, the function of reserves is turning into more and more crucial. This paper focuses on how is being defined foreign reserves, what are the characteristics manners and composition. It further spotlights the idea and significance of fiscal stability which is critical for the banking system to operate smoothly and reduce financial vulnerability. In addition, it explores the channels through which foreign reserves promote this stability by stabilising the dinar's exchange rate, covering the cost of imports, absorbing external shocks, and supporting the state to meet its external commitments.
In conclusion, the study provides a justification for providing foreign reserves enabling Iraq to address the fluctuations in the global oil marketplace, thereby inducing the inflationary pressures which efficiently enhances the financial systems' immunity against shocks. The same statement also highlights that the deterioration of foreign reserves adversely affecting the stability of the financial system because it can increase the transaction cost of exchange rate and capacity gap of the banking system to serve the market demand for international currency.