A crisis of confidence and a cash economy: Around 97 trillion Iraqi dinars are outside the banking system.
A crisis of confidence and a cash economy: Around 97 trillion Iraqi dinars are outside the banking system.
2026-08-21
Shafaq News – Baghdad
Cash held outside the banking system constitutes one of the most prominent challenges facing the Iraqi economy, given the continued reliance of a large segment of citizens and merchants on cash transactions and keeping part of their money outside banks.
While money outside the banking system does not necessarily mean that it is entirely hoarded, its sheer size raises questions about the weakness of banking transactions and the ability of banks to attract savings and convert them into loans and financing for projects and investments.
This reality reopens the file on the relationship between citizens and banks, the reasons for the continued preference for cash, and the repercussions of a cash economy on the movement of money and economic activity, especially with the presence of dozens of banks operating in the country.
Money outside banks
The Prime Minister’s financial advisor, Mazhar Muhammad Saleh, told Shafaq News Agency that “the fact that some cash remains outside the banking system represents one of the challenges facing the Iraqi economy, given the limited benefit the banking sector derives from these funds in deposit and credit operations, and in financing projects and investments.”
Saleh explains that “money hoarded in cash, whether by households or companies, remains outside the scope of financial intermediation, which limits the ability of banks to employ savings in financing economic activity, and increases reliance on cash and the informal economy, in addition to the high cost of cash transactions and weak financial transparency.”
He emphasizes that “the problem does not lie in the use of cash itself, but rather in its transformation into a means of hoarding savings instead of directing them through financial channels towards investment and production.”
He points out that “returning these funds to the economic cycle requires building trust in banks and providing real incentives for saving, through developing savings products, offering competitive returns on deposits, enhancing depositor protection, improving banking services, reducing the cost and procedures for opening accounts and transfers, and expanding electronic payments, digital wallets, and points of sale.”
Saleh concludes that “the process should not stop at the transfer of money from homes to banks, but should move from deposits to credit, from credit to investment, and ultimately to production and job creation.”
The amount of money outside banks
In contrast, financial expert and former Director General of the Central Bank, Mahmoud Dagher, offers a different interpretation of the nature of funds outside banks, stressing that they do not all represent hoarded funds.
Dagher told Shafaq News Agency that “the amount of cash issued is about 105 trillion dinars, of which about 8 trillion dinars are inside the banking system, while about 97 trillion dinars are outside it.”
He explains that “about two-thirds of the money outside the banking system is used to settle cash payments between merchants, real estate sales and purchases, and pay salaries and wages, while hoarding may represent about a quarter of the money outside banks.”
Dagher links the continued reliance on cash to “insufficient trust in banks, along with prevailing customs in Iraqi society and the slow transition to electronic payment,” noting that “the transition to a broad electronic payment system requires a long period of time, with the continued development of banks and payment tools.”
The figures for monetary issuance highlight the importance of the discussion regarding the amount of money circulating outside banks. However, monetary issuance does not necessarily mean that the entire amount represents money hoarded by citizens, nor does its increase automatically mean the printing of new money.
According to Dagher’s reading, the majority of money outside banks enters the market and settles cash payments, which makes distinguishing between circulating cash and hoarded money essential when assessing the size of the problem.
Cash presence
Despite the presence of a large number of banks, cash transactions still occupy a large part of economic activity in Iraq.
The number of operating banks reached 72, including 7 government banks and 65 private banks. However, the large number of banks does not necessarily mean a high level of banking transactions, as the main challenge remains the extent to which citizens and companies use banks for saving, payment and financing.
The Central Bank is working to promote financial inclusion and expand the customer base of the banking system, in addition to expanding electronic payment methods and spreading financial literacy.
First choice for Iraqis
Economic expert and professor of political science at Dhi Qar University, Najm Abdul Tarish, told Shafaq News Agency that “the continuation of the cash economy is linked to a set of overlapping factors, including weak confidence in banks, deeply rooted habits of dealing in cash, the expansion of the informal economy, as well as the limited use of electronic payment in some activities.”
He adds that “the problem does not lie in the existence of cash within the economy, as it is a natural part of any financial system, but rather in cash becoming the primary means of settling transactions and holding savings, which reduces the money that passes through banks and limits their ability to create credit and finance economic activity.”
Available data indicates that the number of payment cards in Iraq has exceeded 20 million, but their actual use is still less than their widespread use, while a number of cardholders primarily use the accounts to withdraw salaries rather than use them for daily purchases and payments.
Possible solutions
Addressing the problem does not stop at returning the funds to the banks, as the ultimate goal is to bring them back into the economic cycle more efficiently.
When money is converted into deposits, it can give banks greater ability to provide credit, and when credit is converted into investment and productive projects, this can be reflected in growth, job creation, and increased economic activity.
Therefore, the challenge facing Iraq is not only the amount of money outside the banks, but also building a banking system that makes the citizen and the merchant find in the bank a safer, more useful and easier way than keeping money and dealing with it in cash.
Ultimately, the large amount of cash outside the banking system reveals the continued dependence of the Iraqi economy on cash transactions, at a time when the banking sector is seeking to increase its role in savings, credit, and financing the economy.
While Mazhar Muhammad Saleh believes that returning funds to the banking system requires restoring confidence and stimulating savings, Mahmoud Dagher points out that the largest portion of funds outside banks actually moves in the market and does not represent complete hoarding, while Najm Abdul Tarish links the continuation of the cash economy to weak confidence, prevailing habits, and the limited use of electronic payment.
The transition from a cash-based economy to one more reliant on banks and electronic payments remains linked to the banking sector’s ability to restore confidence, provide more efficient services, and transform funds from mere cash transactions into deposits, credit, investment, and production.
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