The dollar is out of control in Iraq again
The dollar is out of control in Iraq again
7-10-2024
Iraqi markets witnessed a significant increase in the exchange rate of the dollar against the dinar, as the price of one dollar reached 1515 dinars on Tuesday, amid expectations of a continued increase and warnings of its impact on the overall economic situation, after the exchange market witnessed stability during the past months at 1450 dinars.
Previous decisions by the US Treasury Department to impose sanctions on a number of Iraqi banks due to financial dealings with Iran and others linked to money laundering operations, caused a rapid reaction inside Iraq, leading to a decline in the value of the dinar, in addition to depositors flocking to the sanctioned banks to withdraw their money deposited in dollars.
On this point, economic expert Nasser Al-Kanani told Al-Araby Al-Jadeed, “The reason for the rapid rise in the dollar price in the local market is the decision of the Central Bank of Iraq to prevent the granting of dollars to travelers through exchange companies and banks, and to limit this matter to delivering dollars exclusively at the airport and through government banks only.”
Al-Kanani explained that “this decision caused great confusion in the currency trading market and the work of companies, which led to a significant increase in demand for the dollar in the parallel market, which led to an increase in prices, and there is a very high possibility that this increase will continue daily and gradually, especially since the Central Bank’s decision will be implemented on the ground in the middle of this month.”
According to Al-Kanani, “controlling the exchange rate is done by restricting all transactions in dollars through the electronic platform of the Central Bank of Iraq, and ending dollarization in the Iraqi market and its commercial transactions. We also warn that this increase will have repercussions on the general economic situation and will contribute to increasing the prices of food and other materials in local markets in the coming few days.”
In addition, the Coordination Committee for Exchange Companies Demonstrations announced a general strike in the capital, Baghdad, and other governorates. The committee said in a statement that “due to the insistence of the Central Bank of Iraq on harming companies and pushing them to the forbidden and ignoring the legitimate demands submitted by exchange companies that are in accordance with the law, and after holding an expanded meeting of exchange companies, it was decided to start a general strike and complete closure.” The statement added that “the auction will be abstained from starting today, Wednesday, until further notice in all governorates.”
In contrast, the financial and economic advisor to the Iraqi Prime Minister, Mazhar Muhammad Salih, said in a statement commenting on the return of the dollar’s rise, “The fixed exchange rate system in Iraq is based on an international reserves base that is the highest in the history of Iraq and its monetary policy, as foreign currency covers more than 100% of the total currency currently issued.”
Saleh added that “given the strength of the official central exchange market, the dollar-to-dinar exchange rate in the parallel market today in the country does not constitute any relative importance in influencing the stability of the general price level, which has become stable in its components and trends due to the influence of the official exchange rate factor currently dominating the financing of foreign trade (imports) and amounting to 1320 dinars per dollar, which is a stable trend for the exchange rate and around which the stable external value of the dinar revolves, which is embodied by the state of stability in the relative prices of goods and services to a large extent, as annual inflation in the country does not exceed 3%.”
He explained that “based on the above, and in light of the strength of the foreign reserves supporting the Iraqi dinar, the value of which as liquid foreign assets exceeds 100 billion dollars, the official exchange market, as a general trend, will remain dominant in containing any colored noise or ambiguous information that affects the parallel exchange market in short periods due to urgent international or regional political events here and there or in adapting some instructions regulating the monetary market.”
He stressed that “after the decline of the dollarization phenomenon in domestic transactions, especially in contracts, obligations and payments within the country since last year and its legal prohibition, the parallel exchange market has become such that its general effects today only form a narrow economic scope of prohibited transactions practiced by informal markets and at a rate of 10% of the total supply and demand transactions for the currency, and the stability of the dinar exchange rate that the country is witnessing even in the secondary markets above is a real and solid stability, rather it is derived from the strength of the impact of the price and quantitative factors of the monetary and financial policies and their integration in imposing overall price stability in the country and containing the inflationary expectations that were caused by the forces of the parallel exchange market during the past years.”
Saleh concluded by saying that the secondary (irregular) market, due to the freedom of external transfer, is under the influence of the official exchange market rate, whose operations are constantly expanding in favor of dealing at the fixed official exchange rate.
Although the government approved a package of financial measures, the most prominent of which was fixing the currency exchange rate at 1,320 dinars to the dollar, despite the passage of several months since this decision, the difference is still large between the official exchange rate adopted by the Central Bank of Iraq and the parallel market.
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