Iraq Central Bank sets the record straightIraq Central Bank has officially announced the receipt of another routine delivery of US dollar currency from the US Federal Bank. This statement contradicts reports from unidentified sources suggesting a halt or reduction in cash shipments to Iraq.
The Central Bank of Iraq (CBI) clarified that the dispatch of dollars from the US Federal Bank continues per a predefined schedule and agreed-upon timings between the two monetary institutions.
Iraq Central Bank addresses currency concerns
The decline of the Iraqi dinar against the US dollar in recent months has led to a surge in prices for essential goods, prompting public concern in Iraq. This depreciation is attributed to the illicit movement of dollars out of Iraq, particularly to neighboring Iran.
The Central Bank of Iraq (CBI) issued a statement denying these claims in response to media reports suggesting a cessation of cash shipments to Iraq. The CBI affirmed that the latest routine cash shipment arrived as scheduled on Thursday and called on the media to exercise accuracy in reporting Iraq’s monetary policies. The statement did not specify particular media outlets.
Last month, the head of the CBI, Ali Mohsen al-Alaq, announced a significant change in transaction practices within Iraq. Starting in 2024, all internal commercial and other transactions will be conducted exclusively in Iraqi dinars, except those involving travelers. This decision stems from the continued lower value of the Iraqi dinar against the US dollar compared to the rate set in the federal budget.
Alaq highlighted that most business figures have transitioned to official conversion channels, where one dollar is exchanged for 1,320 Iraqi dinars. He emphasized that this shift has been crucial in reducing the inflation rate.
Mazen Ahmed, the Director-General of Investment and Remittances at the Central Bank of Iraq (CBI), explained that the decision to transition to the Iraqi dinar for domestic transactions aims to combat the illicit use of approximately 50% of the $10 billion that Iraq annually imports in cash from the New York Federal Reserve.
The Iraqi federal budgets for 2023, 2024, and 2025, approved in June, set the exchange rate at $1 to 1,300 Iraqi dinars. However, ongoing smuggling activities have prevented this proposed value from being realized, and the dollar’s value currently hovers around 1,570 IQD in Iraq and the Kurdistan Region’s currency markets.
In July, the US imposed a ban on transactions with 14 Iraqi banks due to alleged violations of its rules. That further contributed to the depreciation of the Iraqi currency.
In January, the value of a US dollar was set at 1,750 IQD – the highest since the issuance of new banknotes in 2003. The decline in the value of the Iraqi dinar was attributed to factors including corruption, illicit dollar smuggling, and pressure from the United States.
Iraq’s plan to de-dollarize
On Thursday, a senior official at Iraq’s central bank announced that the country is initiating an accelerated yet phased plan to de-dollarize its economy by 2024. This move aims to curb the efforts of fraudulent entities and sanctioned individuals seeking to acquire billions of dollars through Iraq’s currency auctions.
In late September, the Central Bank of Iraq (CBI) said it would confine all domestic trade and transactions to the Iraqi dinar starting next year. However, it will still permit Iraq’s foreign trade to be settled in currencies other than the dollar, such as the euro, Emirati dirham, Turkish lira, and Indian rupee. The CBI senior official informed on Thursday that the new measures would prohibit cash withdrawals and transactions in US dollars.
Individuals who deposit dollars in banks before the end of 2023 will retain the ability to withdraw funds in dollars in 2024, clarified Mr. Ahmed. However, dollars deposited in 2024 will only be accessible for withdrawal in the local currency at the official exchange rate. The CBI emphasized that the ban on cash dollar withdrawals, effective January 1, will solely impact dollar transfers from abroad and will not affect the dollar account balances of Iraqi citizens.
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