The Iraqi Central Bank agrees with the US Federal Reserve to strengthen bank balance

The Iraqi Central Bank agrees with the US Federal Reserve to strengthen bank balance

November 13, 2023

The Iraqi Central Bank agrees with the US Federal Reserve to strengthen bank balanceAfter intense negotiations that lasted for several days between the Central Bank of Iraq on the one hand and representatives of the Federal Reserve Bank (the US Central Bank), in the Emirati capital, Abu Dhabi, the two sides reached an agreement to enhance the Iraqi banks’ balance of hard currency, through their financial credits to a number of banks. And international banks.

According to Iraqi officials, this ensures that huge sums of money in dollars are not leaked to Iran and Damascus, as Washington began imposing a strict policy on Baghdad with regard to financing its requests from the dollar to complete foreign import operations and maintain the value of the dinar locally.

The Central Bank of Iraq entered into previously agreed-upon negotiations with US Federal Reserve officials in Abu Dhabi last Thursday, Friday and Saturday, and over the course of the three days, a number of files were discussed, focusing in general on mechanisms to prevent the transfer of the dollar to countries and entities imposed upon by US sanctions, most notably Iran, the Assad regime, and the Hezbollah Party. Lebanese God.

For its part, the official Iraqi News Agency quoted, on Sunday evening, an unnamed Iraqi financial official that the window for selling the dollar through the Central Bank of Iraq will stop as of next January 1, 2024.

The source added that this decision came within the recent agreement with the American side, which also stipulates enhancing the balance of 10 Iraqi banks in the dollar currency, 5 of which are through Citibank, and the other five are through the American bank JP Morgan, meaning that those Iraqi banks It will finance commercial activities, including import and other operations, which must be in dollars with other countries.

According to the same source, other Iraqi banks will have their balances in Chinese yuan strengthened through the Singapore Development Bank by 13 banks, while the number of banks that have strengthened their accounts in Indian rupees with the Singapore Development Bank is two, and other banks will be added during the next two weeks.

The source added that the negotiations culminated in a number of decisions and mechanisms that contribute to facilitating the procedures for foreign financial transfers related to imports through the foreign currency sales window, and it was agreed to enhance the advance balance of five Iraqi banks in their accounts in dollars with Jordanian banks through JP Morgan Bank. American.

He confirmed that the problems related to the rejected transfers had been resolved and it was agreed that the rejection of transfers would be based on strong reasons, adding that other meetings brought together one of the Emirati banks, the Central Bank of Iraq, and the American side to implement the mechanism of enhancing balances in the Emirati dirham for Iraqi banks.

Jordanian banks
Iraqi banking sources revealed to Al-Araby Al-Jadeed that two Jordanian banks entered as parties between 5 Iraqi banks on the one hand and the American bank JPMorgan on the other, with the aim of accelerating the financing of Iraq’s foreign trade.

The same sources, who requested to remain anonymous, said that the job of the Jordanian bankers is to audit the transfers issued by these five Iraqi banks and send them to JPMorgan Bank for implementation, explaining that the share of each bank does not exceed $100 million per month.

The sources indicated that the selection of the five banks was based on compliance and combating money laundering and terrorist financing, which is an important step in expanding dealings with American banks, as in the past months, trade was financed in the dollar currency through 4 banks operating in Iraq that have an account in the American “Citibank”. .

She confirmed that other Iraqi banks will work to finance trade with the UAE in the dirham currency through the First Abu Dhabi Bank, indicating that financing trade with China in the yuan currency and India in the rupee currency through the Singapore Development Bank.

She pointed out that the 22 Iraqi banks sanctioned by the US Treasury are not included in financial transfers to any country, given that the settlement of the amount between the dinar or the Chinese yuan and any other currency is in the dollar currency, because the Iraqi economy is linked to the dollar currency.

Selection of banks
In this context, economic expert Manar Al-Obaidi said that opening new banks using new currencies will lead to increasing the channels necessary to receive merchants and importers, as well as diversifying the beneficiaries and countries to be in the currencies of the countries on which Iraqi trade depends heavily, namely China, the Emirates, and India.

Al-Obaidi added, in an interview with Al-Arabi Al-Jadeed, that the selection of the five new banks that were agreed upon was made according to a set of specifications, the most important of which is their ownership of a group of correspondent banks approved by the American side, their previous commercial activity, and criteria set by the US Federal Reserve.

He added that the five banks that were added to the list of approved banks are the International Development Bank, the Iraqi Islamic Bank, the Islamic South Bank, the Assyria Bank, and the RT Bank, by adopting dealing in dollars, the UAE dirham, the Chinese yuan, and the Indian rupee.

Al-Obaidi stated that this mechanism gives the necessary space for merchants to enter into official commercial operations to reduce the pressure on the five previous banks represented by the Iraqi Trade Bank, the National Bank, the Bank of Baghdad, Al-Mansour Bank, and the Abu Dhabi Islamic Bank.

He explained that trade exchange with a group of countries prohibited from dealing in dollars, and some goods that are smuggled and cannot be officially imported, puts pressure on the parallel market and leads to an increase in demand for the dollar, which makes it difficult for the exchange rate to decline.

The exchange rate is not affected
On the other hand, banking expert Abdul Rahman Al-Sheikhli confirmed that the recent central bank measures with its American counterpart and the opening of new bank credits have no relation to the current dollar exchange rate crisis in Iraq.

Al-Sheikhli told Al-Arabi Al-Jadeed that the absence of other rentier sources of Iraqi national income, represented by industry and tools for trade in Iraqi exports, contributes to the recovery of the black market that controls the exchange rate of the dollar circulating in the market.

He pointed out that the Central Bank of Iraq is keen not to interfere in the black market and has nothing to do with the cash trading operations that take place through speculators and parties that are able to obtain the dollar allocated to travelers by means of deception and circumvention, as he described it.

Al-Sheikhly stressed that opening new channels for foreign trading with international banks in the currencies of different countries was a means of putting pressure on the US Federal Bank and not relying completely on the dollar to provide merchants with the costs of goods imported from these countries.

He explained that the Central Bank is trying to provide foreign currencies for the purpose of import, because the window for selling currency for foreign transfers will stop at the beginning of next year 2024, which requires providing financial alternatives to merchant suppliers.

He added that some local banks in Iraq do not have international banking relationships, and that there is a gap between foreign banks and Iraqi banks, with the exception of the ten banks that were agreed upon, as they have financial credits with reputable international banks.