With the beginning of the new year, the US dollar enters a new phase in Iraq
With the beginning of the new year, the US dollar enters a new phase in Iraq
2024-12-30
Shafaq News/ US dollar dealers in Iraq are awaiting the arrival of the new year 2025, which is now approaching and will end the work of the electronic platform for monitoring the movement and transfer of currencies outside the country, according to what the Central Bank of Iraq announced.
Financial and banking experts consider the suspension of the dollar selling platform by the Central Bank of Iraq a “bold step” as it has multiple economic and regulatory dimensions, but on the other hand, the suspension of the platform may open the door to new challenges.
Experts confirm that the success of this decision depends largely on how it is implemented. If the Central Bank is able to provide strong regulatory alternatives and ensure comprehensive awareness for traders and importers, it may be able to achieve the desired goals of this step.
However, if the process is not managed carefully, it could have negative effects on the stability of the financial market and the overall economy of Iraq, according to experts.
In detail, Kazem Al-Shammari, a member of the Economic Committee in the Iraqi Council of Representatives, says, “The job of the Central Bank is to maintain the cash reserve and the unified exchange rate, so it is not its job to sell the dollar, but rather it is the job of the banks, but because of the economic situation and legal chaos, the Central Bank has taken control of selling the currency.”
Al-Shammari confirmed to Shafaq News Agency, “The committee is in favor of banks selling the currency, but it must be subject to strict restrictions and monitoring, as there are many uses for the currency, and the US administration has imposed sanctions on many banks because of this matter.”
Al-Shammari believes that “there are Arab or foreign banks that receive more than 40 to 50% of currency sales, and this causes great harm to the Iraqi economy. Therefore, we must focus on Iraqi banks that are not sanctioned and are able to deliver the dollar to those who deserve it, including traders and industrialists.”
He pointed out that “the House of Representatives is currently in legislative recess, and after the resumption of the House’s work, the Governor of the Central Bank will be hosted in this regard, and work will be done to impose strict control over currency exchange and purchase entities.”
Fear of unexpected obstacles
For his part, the head of the Iraqi Economic Alliance, Adi Al-Alawi, says, “Transfers, whether buying dollars for travel or otherwise, were made through a platform linked between the Central Bank of Iraq, the US Federal Reserve, another company for auditing accounts and information, and the Iraqi banking authority. When any of these four entities stops working, the entire process stops.”
Al-Alawi explained the platform’s working method to Shafaq News Agency, saying, “The transfer goes through a series of stages starting with submitting invoices to the bank, which in turn submits them to the platform, then to the Central Bank, the auditing company, and then the US Federal Reserve, to decide whether to proceed with it or return it. If it approves it, it goes to an intermediary bank, which sends the amount to the beneficiary.”
He added, “These stages have been shortened and the new process has become much easier, as the bank sends the transfer directly to the intermediary bank without going through the Central Bank of Iraq and the US Federal Reserve, while the auditing company remains. Thus, the bank that raises the transfer is the decision-maker and responsible before the Central Bank of Iraq and before the entire global financial sector.”
He points out, “But the problem is that the Iraqi banks that have correspondents are only five out of 60 to 70 banks, so only five banks will operate in the next phase, which may cause congestion in withdrawals until things are arranged and organized.”
Al-Alawi points out that “the Central Bank’s step is correct and we support it, but the Central Bank does not have real tools and a supervisory authority to rely on, so there is a fear of unexpected obstacles that usually arise during practical application, which requires quick measures and a response to the requirements of reality, which the Central Bank lacks based on previous experiences.”
Pros and Cons
In turn, international economic expert, Nawar Al-Saadi, says, “The suspension of the dollar selling platform by the Central Bank of Iraq is a bold step as it has multiple economic and regulatory dimensions.”
Al-Saadi told Shafaq News Agency, “The main goal of this measure, as stated by the Central Bank, is to enhance transparency in financial transfer operations, and reduce reliance on a platform that was considered a primary tool for monitoring the flow of dollars.”
He added, “For years, the platform has provided an effective means of regulating dollar sales and ensuring that they are directed to authorized purposes, such as imports and supporting the Iraqi economy, while trying to limit money laundering or smuggling of dollars abroad.”
He believes that “this decision is supposed to be part of efforts to improve compliance with international banking standards, by moving to a more direct system in dealings between local banks and foreign correspondent banks, reducing bureaucracy and simplifying financial operations.”
Al-Saadi added, “Also, this decision could help reduce the operational costs associated with maintaining and managing the platform itself, which could be interpreted as a positive economic step towards rationalizing resources.”
But on the other hand, stopping the platform “may open the door to new challenges, such as the possibility of increasing reliance on the black market to obtain dollars, especially if there are no clear mechanisms to ensure that dollars reach traders and importers,” says Al-Saadi.
“This could lead to a rise in the exchange rate of the dollar against the Iraqi dinar, which would put pressure on local prices and raise inflation rates. In addition, small traders may find themselves in a difficult situation, as their reliance on the platform provided them with easy access to foreign currency,” he added.
Another challenge that may arise, according to Al-Saadi, is “the issue of the lack of strict oversight that the platform used to provide, as the platform allowed for close monitoring of financial transfers, thus reducing illegal activities such as money laundering or terrorist financing.”
“In the absence of an effective alternative, there may be a risk of these activities increasing, putting Iraq in a sensitive position on the international financial scene,” Al-Saadi said.
The international economic expert confirms that “the success of this decision depends largely on how it is implemented. If the Central Bank can provide strong regulatory alternatives and ensure comprehensive awareness for traders and importers, it may be able to achieve the desired goals of this step.”
“However, if the process is not managed carefully, it could have negative effects on the stability of the financial market and the overall economy of Iraq,” Al-Saadi said.
Potential damage to the economy
The financial and economic researcher, Diaa Al-Mohsen, agrees with what Nawar Al-Saadi said about the potential damages, whether to Iraqi traders or to the Iraqi economy in general, as a result of stopping the platform.
Regarding the most prominent damages, Al-Mohsen explained to Shafak News Agency, “It is likely that the suspension will lead to an increase in demand for the dollar in the parallel market, which will push its price to rise significantly.”
He added, “There is also a negative impact on the economy, which may lead to an increase in the prices of imported goods and services, which in turn leads to an increase in the inflation rate and a reduction in the purchasing power of citizens.”
He added, “In addition to the decline in commercial activity resulting from traders’ reluctance to import due to high shipping costs, which leads to a shortage of goods in the markets and an increase in their prices.”
“There may also be difficulty in obtaining the dollars needed to import goods, which affects their business,” Al Mohsen added.
Al-Mohsen points to the possibility of “an increase in unemployment rates as well, given that any slowdown in business activity results in increased unemployment, especially in sectors that depend on imports, which may generate social unrest such as protests and demonstrations.”
He points out that “the damages may not appear immediately, and may take some time to fully appear, noting that the severity of these damages depends on many factors, such as the duration of the suspension, the economic policies followed, and the general economic situation of the country.”
To avoid damage to the monetary authority, the financial and economic researcher calls for the importance of “taking alternative measures, such as gradually increasing the supply of dollars in the market, facilitating procedures for traders to obtain dollars, and supporting the affected economic sectors.”
The possible reasons for stopping the platform, according to Al-Mohsen, are “an attempt to control the parallel market, as the Central Bank wants to reduce the difference between the official and market exchange rates by reducing the supply of dollars in the market.”
Al-Mohsen adds that it also “represents a step to reduce corruption and tax evasion, and the Central Bank of Iraq is also trying to protect foreign reserves from depletion.”
Platform Termination Statement
According to a statement by the Central Bank on September 4, the electronic platform for foreign transfers began at the beginning of 2023 as a first phase to reorganize financial transfers in a way that ensures proactive oversight of them instead of subsequent oversight by the Federal Reserve auditing daily transfers.
The statement added that this was “an exceptional measure, as the Federal Reserve does not usually do this, and a gradual shift was planned towards building direct relationships between banks in Iraq and foreign correspondent and approved banks, mediated by an international auditing company to conduct a preliminary audit of the transfers before they are executed by correspondent banks.”
He continued: “During the year 2024 and until now, 95% of the transfer process from the electronic platform to the correspondent banks mechanism directly between it and Iraqi banks has been achieved, which means that only about 5% of it remains within the platform, which will be transferred using the same mechanism before the end of this year and according to the plan.”
The statement of the Central Bank of Iraq indicated that “some expectations about possible effects on the exchange rate and transfer operations are baseless, because the process will not be sudden or in one payment at the end of this year, but rather it was achieved in the past period with effort and careful follow-up, except for the remaining small percentage that will be accomplished in the coming short period.”
The Central Bank of Iraq confirmed that trade with the UAE, Turkey, India and China represents about 70% of Iraq’s foreign trade as imports, which prompted the Central Bank of Iraq to find channels for transfer in euros, Chinese yuan, Indian rupees and UAE dirhams, through approved correspondent banks in those countries.
He added in this regard: “13 Iraqi banks have actually started conducting transfer operations with the prior audit mechanism that has been agreed upon and approved, in addition to transfers in dollars, with the provision of channels for personal transfers for legitimate purposes and external purchases through electronic payment channels and international money transfer companies and cash sales to travelers, and the payment of cash dollars for incoming transfers to the parties and purposes specified in the Central Bank’s published instructions.”
The bank noted that it has placed foreign transfer operations and fulfilled dollar requests on sound paths consistent with international practices and standards and the Anti-Money Laundering and Terrorist Financing Law.
The Central Bank’s statement concluded that “providing the aforementioned channels for all purposes at the official dollar price makes this price the true indicator of economic practices, which is proven by the reality of price stability and control of inflation. Any other price traded outside of these channels is an abnormal price that those with unorthodox or illegal practices resort to, who avoid official channels in their dealings, and bear the additional costs alone by purchasing at a higher price than the official price to deceive others about the difference between the official price and the other.”
shafaq.com
