Dollar’s Rise Against Iraqi Dinar: A Seismic Shift in Iraq’s Economy, 1 OCT
As Iraq grapples with political and economic turmoil, the U.S. dollar has seen a significant increase in its exchange rate against the Iraqi dinar. The surge has been witnessed in both Baghdad’s central forex markets as well as in the Kurdistan region, signaling a seismic shift in the country’s economy. This development has fueled concerns over the potential impact on ordinary Iraqis, already burdened by a fragile economy, and has brought into sharp focus the country’s financial dealings with neighboring Iran.
The Escalating Exchange Rate
The dollar’s exchange rate against the Iraqi dinar has experienced an upward trend in recent times. In Baghdad’s al-Kifah and al-Harithiya Central Exchanges, the dollar was traded at a rate of 155,700 IQD for 100 dollars, marking a 300 IQD increase from the previous rate. In parallel markets in Baghdad, the selling and buying rates of the dollar were pegged at 156,750 and 154,750 IQD for 100 dollars, respectively. Similarly, in the capital of the Kurdistan region, the dollar’s selling and buying rates were at 155,500 and 155,450 IQD for 100 dollars, respectively.
Underlying Factors
The rise in the dollar price began shortly after the new government assumed office in late October of last year. During the previous regime, the rate was stable at between 1,450 to 1,470 dinars to the dollar. The sudden surge has been attributed to the smuggling of U.S. dollars or illegal transfers from Iraq to Iran during the term of the new government, which is primarily composed of militias and political groups close to Iran. These allegations have been raised on several occasions by U.S. officials with Prime Minister Muhammad Shia al Sudani.
Iran, currently grappling with a severe economic crisis due to sanctions, has seen the U.S. dollar’s value against the Iranian rial reach an all-time high. Iraq’s regular imports of gas and electricity from Iran, exempt from U.S. sanctions, are paid in Iraqi dinars to accounts in Iraqi banks owned by Iranians.
Given the present circumstances, Iran needs U.S. dollars to control rising prices and stabilize its economy, which has resulted in the illegal trafficking of U.S. dollars.
However, the smuggling of currency is not confined to Iran, with Iraqi militias reportedly smuggling money to Syria and Turkey as well.
Policy Measures and Implications
To address this issue, the Iraqi central bank has prohibited four Iraqi banks from using U.S. dollars.
These include Al Ansari Islamic Bank for Investment and Finance, Al Qadhaf Islamic Bank for Finance and Investment, Asia Iraq Islamic Bank for Investment and Finance, and the Iraqi Middle East Investment Bank.
The central bank is also auditing several other banks and financial organizations in an attempt to stop the illegal use of dollars in Iraq. While aimed at curbing illicit financial activities, these measures might inadvertently affect the functioning of the Iraqi banking sector and the broader economy.
The escalating exchange rate has triggered protests in Iraq, with citizens demanding a reduction in the dollar price.
They argue that the rising dollar rate has led to an increase in the prices of commodities, including food products, thereby escalating the cost of living in Iraq.
The Iraqi government has responded by raising the value of the Iraqi dinar against the U.S. dollar to limit the impact of the dollar’s appreciation on Iraqi citizens.
However, the effectiveness of this measure remains to be seen.
Looking Ahead
The rising dollar’s exchange rate against the Iraqi dinar presents a complex challenge for Iraq’s economy. It underscores the need for stringent financial regulations to curb illegal activities and maintain economic stability.
At the same time, it highlights the importance of geopolitical considerations in the country’s economic affairs, particularly its financial dealings with Iran.
As Iraq navigates this economic conundrum, the government’s policy measures and their implications will be closely watched by domestic and international stakeholders.
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