Economic Analysis: The Rise of the Dollar Against the Iraqi Dinar – Causes, Impacts, and Possible Solutions
Economic Analysis: The Rise of the Dollar Against the Iraqi Dinar – Causes, Impacts, and Possible Solutions
6-3-2025
Researcher Shaza Khalil *
The exchange rate of the US dollar against the Iraqi dinar has recently increased. Major markets in Baghdad and Basra closed at a selling price of 142,250 dinars and a buying price of 141,250 dinars. In Erbil, the selling price reached 141,000 dinars and the buying price 140,000 dinars. These increases reflect increasing pressure on the Iraqi dinar, raising concerns about inflation, economic stability, and citizens’ purchasing power.
Reasons for the rise in the dollar price
Decrease in the supply of dollars
The Central Bank of Iraq has taken measures to restrict the sale of dollars to curb smuggling and money laundering, reducing supply in local markets and raising prices due to scarcity.
Smuggling and circumventing sanctions
Reports indicate that dollars sold at Iraqi currency auctions are being smuggled to neighboring countries such as Iran and Syria, which are subject to US sanctions. The US Treasury and Federal Reserve have pressured Iraq to tighten controls, limiting access to dollars through unofficial channels.
Political and institutional turmoil
Political instability in Iraq is eroding investor confidence, as uncertain policies and frequent changes in government reduce foreign investment, weakening the value of the dinar.
dependence on imports
Iraq relies heavily on importing goods from abroad, which are paid for in dollars. As the value of the dinar declines, the cost of these imports rises, increasing demand for the dollar.
Structural economic challenges
The Iraqi economy is almost entirely dependent on oil exports, making it vulnerable to fluctuations in global oil prices. Non-oil sectors are weak and do not provide alternative sources of hard currency.
Effects of the rise in the dollar price
Inflation and rising cost of living
A rising dollar increases the prices of imported goods, raising inflation and placing additional burdens on low-income families.
Decline in purchasing power
As the dinar declines in value, citizens’ salaries and savings become less valuable, especially when purchasing essential goods such as food and medicine.
Pressure on the commercial sector
Companies that rely on imported materials or goods face higher costs, which can reduce profits, raise prices, and reduce demand.
widening social gap
Holders of dollars or dollar-linked assets benefit from exchange rate movements, while the rest of the population suffers, widening the gap between social classes.
Possible solutions
Enhancing transparency in dollar sales
The central bank must control the currency auction and ensure that dollars reach legitimate traders and businesses.
Support for non-oil exports
Iraq must diversify its economy by investing in agriculture, industry, and services to reduce dependence on imports and provide alternative sources of foreign currency.
Strengthening the banking sector
Improving the banking system, developing digital services, and enhancing compliance with international standards can reduce reliance on the black market and stabilize the exchange rate.
Tightening border controls
Border crossing controls should be improved and modern technologies should be adopted to track the movement of goods and currency to reduce smuggling.
Reforming the social support and welfare system
In the short term, targeted cash transfers or social protection programs can help ease the burden on the poor until longer-term reforms are implemented.
Cooperation with international partners
Iraq should strengthen its cooperation with the United States, the International Monetary Fund, and other partners to improve fiscal governance, which could help restore confidence and secure technical and financial support.
Conclusion
The rising value of the dollar against the dinar reflects deep structural and governance challenges in the Iraqi economy. Despite external pressures, solutions lie primarily in internal reforms. Combating corruption, diversifying the economy, and enhancing financial transparency can help stabilize the currency and protect citizens from further economic decline. Overcoming this crisis requires swift and coordinated action by the government, the Central Bank, and international partners.
Economic Studies Unit / North America Office
rawabetcenter.com
