The headache of the Iraqi dinar is renewed with the militia banks’ rejection of the American restrictions

The headache of the Iraqi dinar is renewed with the militia banks’ rejection of the American restrictions

3-26-2023

The Iraqi dinar returned to record a new record low against the US dollar in the parallel market, which renews the headache regarding the approaches of the Sudanese government of Muhammad Shia’a to solve the crisis.

And the exchange rate of the dollar exceeded the amount of 1550 dinars, which is the level it reached before the start of implementing the decision that was issued on the seventh of last month, as the Central Bank was able to sell the dollar for an amount of 1300 dinars.

Dealers say that the current difference between the parallel market price and the central bank rate alone constitutes a drain on the state treasury, equivalent to 250 million dinars per million dollars. And since the bank sells between 150 and 200 million dollars per day, the total losses will range between 37.5 billion dinars and 50 billion dinars per day.

The situation is likely to get worse because militia-affiliated banks have many ways to obtain huge amounts of Iraqi dinars

The reason for the low price of the dinar is that militia-affiliated banks are now resorting to the parallel market to buy dollars, because they refuse to submit to the new rules imposed by the Central Bank under the agreement with the US Federal Bank, which dictate the disclosure of the destinations to which money transfers go.

These parties throw billions of dinars into the market in order to obtain dollars that can be transferred or smuggled away from the control tools imposed by the US Federal Reserve.

Under the new restrictions, Iraqi private banks must use an electronic platform to disclose their dealings, which includes details of the sender and recipient of the funds.

In the event that the monitors of the transfers, including American observers working inside the Central Bank of Iraq, conclude that the transfers are suspicious or that they do not match the prior information about the sender and the beneficiary, or if they doubt the nature of the commercial transaction, they can prevent the sender from transferring funds through the official electronic platform that monitors Transfers.

And because the rejection rate is increasing with the availability of more information about the parties that private banks deal with abroad, these banks have resorted to the parallel market to buy dollars and transfer them from the usual cross-border smuggling routes.

The currency window opened by the Central Bank. As for the electronic platform, transfers through it pass through several stages, which sometimes leads to delays in the implementation of transfers, if they are not rejected.

While those militias feel responsible for transferring funds at specific times to cover the needs and salaries of their counterparts in Syria, Lebanon and Yemen.

The pressure of urgent demands is a major reason for the dollar’s rise and the dinar’s decline due to the abundance of it, which creates inflationary pressures that harm low-income people in Iraq due to high prices.

The crisis began last November when the Federal Reserve Board in New York approved stricter controls on international transactions in dollars for Iraqi commercial banks, aimed primarily at stopping the illegal flow of funds to Iran.

Observers say that this situation is likely to worsen, on the one hand, because militia-affiliated banks have many ways to obtain huge amounts of Iraqi dinars, whether through their official shares of the state’s general budget or through their other commercial activities. On the other hand, if it remains unable to obtain dollars from the Central Bank, it will return to throwing those quantities of dinars into the parallel market, which will lead to a further decrease in the price of the dinar, affecting the economy of millions of Iraqis, and increasing the amount of attrition to which the treasury is exposed. the public.

The Sudanese government has nothing to do. On the one hand, because the militias receive more money than their real needs. On the other hand, because these militias are obligated to provide funds to Iran, whether through official transfers or through the parallel market.

And the Governor of the Central Bank of Iraq, Ali Al-Alaq, said last week that “the central bank launched several packages of measures, and that the packages that were launched are dealt with seriously to control the exchange rate of the parallel dollar.”

The current difference between the parallel market price and the central bank rate alone constitutes a drain on the state treasury, equivalent to 250 million dinars for every million dollars.

However, the facts indicate that these measures did not achieve the desired result. This supports the assurances of Jamal Cougar, a member of the Finance Committee in Parliament, who said that “government measures are not sufficient to reduce the gap between the market price and the official price.”

Cougar referred to the process of attrition between the two prices by saying that large corruption operations are taking place in private banks, by dealing with owners of large capitals to divide the profits generated from the difference between the official and parallel prices.

Observers say that the Central Bank’s calls for merchants not to deal with brokers and speculators are useless, because it is closer to calling for these merchants to refrain from obtaining quick profits by dealing with private banks that are ready, in order to fulfill their obligations to Iran, to pay higher amounts in exchange for the dollar, while it is possible These traders can return to the official currency window to buy dollars at the official low rate.

The Sudanese government has one of three options to deal with this crisis. The first is to track the parallel market prices to deny speculators the benefit of the two price differentials, but this can increase inflation factors. The second is to tighten control over private banks and stop cross-border smuggling, which it cannot do. And the third, which is the easiest, is to leave the rope open, and accept the daily bleeding of money, especially since it can say that it is carrying out, at least, its obligations with the US Federal Reserve.

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