The role and strength of the Central Bank through partnerships and commitment to international standards
The role and strength of the Central Bank through partnerships and commitment to international standards
2-18-2025
Researcher Shaza Khalil*
The Central Bank of Iraq plays an important role in shaping the country’s economic landscape by managing monetary policy, supervising the financial system, controlling inflation, and ensuring the stability of the national currency. It operates with a responsibility that goes beyond economic governance alone, but also actively seeks to integrate the Iraqi financial sector into global financial systems, promote sustainable growth, and combat illegal activities such as smuggling.
The primary tasks of central banks, including the Central Bank of Iraq, are several vital functions in the structure of the national economy:
Controlling monetary policy: One of the primary functions of a central bank is to regulate the money supply and interest rates. Through tools such as open market operations, reserve requirements, and discount rates, the central bank ensures price stability, limits inflation, and supports economic growth.
Financial System Stability: The central bank oversees the health of the financial system and prevents systemic risks that could threaten the stability of the economy. It imposes regulations to prevent financial crises and supports the banking sector by ensuring adequate liquidity.
Currency Management: The central bank is responsible for issuing and managing the national currency. It also maintains the stability of the exchange rate to avoid excessive fluctuations that could harm trade and investment.
Lender of last resort: In economic emergencies or liquidity shortages, the central bank steps in to provide emergency funding to commercial banks to prevent bank collapse and ensure the continuity of the financial system.
International cooperation: As the global economy becomes increasingly interconnected, the role of central banks extends beyond national borders. Adherence to international standards such as those set by the Basel Committee on Banking Supervision or the Financial Action Task Force (FATF) is crucial to maintaining credibility and promoting confidence in a country’s financial system.
The first quarterly meetings held by the Central Bank of Iraq with the US Treasury
and the US Federal Reserve are of great importance, as they are an important step towards reforming the banking sector in Iraq, as well as enhancing the efforts made by the Central Bank of Iraq to integrate the financial sector into the global financial system. During these meetings, the steps taken by the Central Bank of Iraq and the Iraqi government to address the challenges facing its banking sector were discussed.
Collaboration with international financial institutions such as the U.S. Treasury and the U.S. Federal Reserve is invaluable to Iraq’s banking reforms. By engaging in these dialogues, Iraq is adopting best practices from some of the world’s strongest financial institutions and aligning its systems with global standards. This partnership also plays a critical role in supporting Iraq’s efforts to reform its banking sector, facilitate foreign investment, and ensure the smooth running of financial transactions.
Impact on the Iraqi economy
The reforms brought about by this cooperation are expected to have broad positive effects on the Iraqi economy:
Increased investment confidence: By aligning Iraq’s banking systems with international standards, foreign investors will have greater confidence in the stability of the country’s financial system. This could lead to capital inflows, which are essential for the diversification and development of the Iraqi economy.
Enhancing economic transparency: A key goal of these reforms is to reduce corruption, enhance transparency, and ensure that financial activities take place in a more regulated environment. This not only enhances confidence among investors, but also improves overall economic governance in Iraq.
Supporting sustainable growth: By implementing a stable and supervised financial system, reforms help promote a sustainable and diversified economy that is less vulnerable to global financial shocks.
Increased availability of credit: Restructuring the banking system and implementing best practices can help increase the availability of credit to both the public and private sectors. This can boost local economic growth, create jobs, and encourage infrastructure development.
Combating smuggling and strengthening currency control
Cooperation between the Central Bank of Iraq and international financial institutions is also an important factor in addressing one of Iraq’s most pressing issues: the smuggling of US dollars. Smuggling and unregulated foreign currency transactions have long been a problem in Iraq, leading to lost revenue and destabilizing the local currency.
Attendees at the quarterly meetings praised the significant development in Iraq’s US dollar cash distribution system, which is now recognized as one of the most closely monitored and controlled in the world. This transformation is a direct step towards combating smuggling by making illicit financial transactions more difficult. With this tighter control, the Central Bank has been able to limit the scope for manipulation, which will have broad benefits for the Iraqi economy.
A well-controlled financial system ensures that foreign currency is distributed in a transparent manner, reducing opportunities for illegal activities, including money laundering or illicit transfers of funds to illegitimate entities. It also facilitates the stability of the Iraqi dinar by reducing external financial pressures resulting from unauthorized dollar transactions.
The Role of Dubai and International Auditing and Consulting Firms
In the context of reforming the Iraqi banking sector, Dubai has played a key role as a hub for international auditing and consulting firms. These firms provide valuable expertise in improving Iraq’s financial systems and ensuring they are aligned with global best practices. Their role in monitoring Iraq’s progress and providing strategic advice is crucial to ensuring that reforms are implemented effectively.
As a global financial hub, Dubai is a vital platform for international cooperation. The presence of international audit and consulting firms there has allowed Iraq to benefit from a wealth of global expertise, helping the country modernize its banking systems and prepare for integration into the global financial network. This cooperation has been crucial in ensuring that reforms are carried out effectively and in line with international standards.
Conclusion: A bright future for the Iraqi banking sector
The positive feedback from international financial institutions and the cooperation between the Central Bank of Iraq, the US Treasury, and the US Federal Reserve reflect the significant progress the country has made in implementing comprehensive reforms in the banking sector. These reforms are expected to enhance Iraq’s economic stability, improve transparency, and increase the attractiveness of foreign investment.
As Iraq continues to strengthen its banking system and combat illicit financial operations, it appears to be on the cusp of a new era of financial stability and economic growth. The controlled distribution of the US dollar, the restructuring of financial operations, and the alignment of the Iraqi banking sector with international standards signal a new era for the future of the Iraqi economy. With sustained reforms and international partnerships, Iraq is on the path to enhancing financial stability and economic prosperity.
Economic Studies Unit / North America Office
rawabetcenter.com
