Central Bank: Closing the electronic platform enhances financial stability. LETS GO!!!!!

Central Bank: Closing the electronic platform enhances financial stability. LETS GO!!!!!

2025/01/16

Two weeks after the Central Bank of Iraq implemented its decision to close the electronic platform for foreign transfers, opinions differed in economic circles regarding the impact of this measure on the financial situation in Iraq, especially in light of the current economic and political conditions.

Despite the initial criticism the decision sparked, many experts and observers believe it is a “necessary step” to address the economic challenges Iraq is currently facing, especially in terms of reducing pressure on the central bank’s reserves and enhancing the stability of the exchange rate in the local market.

The Central Bank of Iraq confirmed that closing the platform will not affect the movement of remittances at all, as remittances through this platform until 12/23/2024 represent less than 7 percent of total sales, according to a source in the bank.

The source explained to Al-Sabah that “the aim of this step is to control financial operations and work within the international scope in the process of foreign transfers and adopt the method of correspondent banks, which contributes to enhancing the stability of the financial sector in light of the current circumstances.”

The Central Bank also indicated that the strengthening of the balances of Iraqi banks that have correspondent banks abroad will continue as is, explaining that this does not mean stopping the “currency sale” operations, but rather a change in their mechanisms within a method followed all over the world. He added that the mechanism for strengthening bank balances has changed, as it is now done directly through the accounts of Iraqi banks with correspondent banks, instead of the accounts that were done through the Central Bank, and that this new mechanism is dedicated to meeting the needs of imports and foreign trade of goods, commodities and services, which contributes to supporting the financial and economic stability of Iraq.

For his part, the economic advisor to the Prime Minister, Mazhar Mohammed Salih, explained that the Central Bank had previously financed foreign trade through the currency sale window to perform two basic functions: the first is to intervene in the money market to absorb liquidity and maintain the stability of the exchange rate, and the second is to finance foreign trade for the private sector. However, the Central Bank faced major challenges due to the requirements of the Federal Reserve and the US Treasury to ensure that the dollar is not used in ways that conflict with US foreign policy and national security. Salih added to Al-Sabah that “the new transfer system is based on a direct relationship between local Iraqi banks and foreign correspondent banks with a focus on compliance issues and combating money laundering.”

He pointed out that the Central Bank has strengthened the dollar accounts of Iraqi banks in foreign correspondent banks, which has reduced the direct intervention of the Central Bank and allowed a greater role for foreign banks in auditing commercial operations.

Saleh stressed that the Central Bank has taken steps to diversify the foreign currency portfolio, including the use of the Euro, the UAE Dirham, and the Chinese Yuan, to facilitate transactions with major trading partners, noting that the new mechanisms aim to facilitate foreign trade and enhance control over money transfer operations, while ensuring that goods and services reach the country properly and without violations.

The financial advisor to the Prime Minister also noted that “these new measures do not affect the flow of supplying the Iraqi economy’s need for dollars, but they are a major development aimed at enhancing transparency and compliance with international and local laws.”

In contrast, financial and banking researcher Mustafa Hantoush believes that the Central Bank of Iraq is trying to avoid the damage caused by exporting the dollar by adopting monetary policies and currency management that ensure reducing its liability without affecting its financial strength.

Hantoush told Al Sabah that he believes that the Central Bank seeks to avoid this responsibility by authorizing foreign banks that have accounts in correspondent banks with the approval of their branches or foreign owners.

He also pointed out that if the Central Bank wanted to reduce the gap in the dollar, it should open the door to competition between banks and rely on a basket of currencies to expand the options available in the market, calling for amending the criteria for evaluating local banks and raising their financial capabilities, which would contribute to achieving stability and increasing competitiveness, and thus stabilizing the dollar price.

He also suggested the possibility of transferring the dollar to trading platforms in the stock market, to be sold to those entitled to it through direct transactions instead of sending the dollar exclusively to banks, stressing the need to organize these operations by switching to the “Forex” market, and implementing mechanisms that ensure that funds are not transferred until the goods arrive with the banks’ guarantee.

He explained that these measures would increase tax revenues and limit illegal trade, which would contribute to strengthening the national economy.

For his part, economic expert Nabil Jabbar Al-Tamimi said: “The transfer platform at the Central Bank of Iraq was a mechanism for conducting financial transfers for merchants and importers through local banks, as the platform supervised these operations.”

He added to Al-Sabah, saying: “The Central Bank has created the necessary conditions for conducting transfers by establishing direct relations between local banks and international banks through major correspondent banks, which means that transfers can be conducted in accordance with international standards without the need for an electronic platform.”

Al-Tamimi explained that the Central Bank has replaced the electronic platform with regular and natural transfer mechanisms, through solid local banks, which provides merchants with direct ways to transfer money, stressing that these mechanisms contribute to their obtaining the dollar at the official price, which helps in gradually reducing inflation as a result of the stability of the official dollar price.

He also stressed that “with this measure, the need to deal in the unofficial dollar on the black market is reduced, which enhances the stability of the financial market in Iraq.”

alsabaah.iq