Central Bank of Iraq Refutes Rumors About Exchange Rate and Clarifies Status of Foreign Transfers, 5 OCT

 Central Bank of Iraq Refutes Rumors About Exchange Rate and Clarifies Status of Foreign Transfers

Central Bank of Iraq Refutes Rumors About Exchange Rate and Clarifies Status of Foreign Transfers

Dispelling Misconceptions

The Central Bank of Iraq (CBI) has stepped forward to clarify rumours and dispel fears regarding the exchange rate of the national currency and the status of foreign transfers. The bank has emphatically denied allegations that the exchange rate has dipped to 170 thousand dinars for $100.

 Additionally, the bank clarified the standing of cash withdrawals, stating that the suspension is only applicable to incoming transfers from outside the country. Importantly, the bank reassured that citizens’ assets in US dollars are not affected in any way by this suspension.

US Measures and Their Implications

On July 26, 14 Iraqi banks released a joint statement expressing concerns about the negative consequences of being barred from dealing in dollars. These restrictions, although attributed to U.S. sanctions by the Iraqi government and other sources, have been clarified by the U.S. Department of State. 

They are not sanctions but measures taken by the Treasury Department and Federal Reserve Bank of New York, removing these banks’ access to the Central Bank of Iraq’s foreign currency sale window. This has resulted in a curtailed utilization of the US dollar. The measures are seen as part of the United States’ ongoing efforts to reduce Iran’s access to international financial networks. The primary objective is to curtail Iran’s ability to access US dollars through Iraqi banks and disrupt the flow of funds that could potentially be used by Iran to support activities contrary to US interests. Now, Iraqi banks are required to record any dollar transfers on an electronic platform. The US Federal Reserve assesses the transfers and cancels any transaction deemed suspicious. In the past few months, the Federal Reserve has rejected 80% of requests for money transfers to Iraqi banks, due to concerns about the final recipient of these transfers.

Response and Repercussions

The impacted Iraqi banks responded with a joint statement highlighting the emerging economic consequences of these measures. The dinar-dollar exchange rate dropped from 1470 dinars to the dollar to 1570 dinars to the dollar in two days. The banks affirmed their readiness to challenge the measures and face audits through the Central Bank or an international auditing firm, taking full responsibility for any violations if committed. 

With these restrictions, nearly a third of Iraq’s 72 banks have been blacklisted. Following these changes, demonstrations erupted in front of the Central Bank in Baghdad, protesting the sharp decline in the exchange rates of the Iraqi dinar against foreign currencies.

Moving Forward

Speaking on the sidelines of the 2023 Spring Meetings of the World Bank Group (WBG) and the International Monetary Fund (IMF), the Governor of the Central Bank of Iraq, Ali Al-Alaq, stated that Iraq is taking measures to control the exchange rate of the dinar. He clarified that the US requirements for controlling transfers are not restrictions but the application of laws on money laundering and combating terrorism. 

The problem of the exchange rate is related to pre-audit procedures for external transfers of hard currency and is not linked to an internal financial crisis. The governor also stated that the US Treasury agrees with Iraq on expanding external transfer channels. The Iraqi delegation, led by Al-Alaq, began meetings with the International Monetary Fund and the World Bank in Washington, and the US Treasury Department expressed its willingness to assist the Iraqi Central Bank in achieving stability in the exchange rate of the dollar against the dinar.