The Central Bank of Iraq (CBI) is taking active steps to control the exchange rate in the parallel market, also known as the black market, which operates outside the realm of formal economic activities. This move is seen as a response to manage the country’s economic conditions and aims to stabilize the economy, control inflation and encourage legitimate trade.
US-Iraq Discussions on Foreign Trade Financing
Recent discussions between Iraq and the United States have centered around plans to provide technical support for financing Iraq’s foreign trade in other currencies apart from the dollar. The Central Bank of Iraq revealed that the aim of these discussions is to ease demand for the greenback in the local market. Assistant Treasury Secretary Elizabeth Rosenberg and the Governor of the Central Bank of Iraq, Ali Al Alaq, held talks on bilateral relations and measures taken by the bank to fight money laundering and terrorist financing.
Technical support in the field of foreign trade financing through reputable banking channels was also discussed. These channels will use mechanisms that enable legitimate foreign trade financing in different currencies, including the Euro, the Chinese Yuan, and the UAE Dirham. The US ambassador to Iraq, Alina Romanowski, emphasized that progress on international anti-money laundering and banking reform will help combat corruption and support international investment in Iraq.
Central Bank Measures to Control the Exchange Rate
One of the key issues in Iraq’s economy is the flow of the dollar through the foreign currency auction run by the Central Bank of Iraq to countries under US sanctions, including Iran, Syria, and Lebanon. Strict measures have been applied by the Federal Reserve Bank of New York on requests for international transactions from Iraq, which has led to an increased demand for the US dollar on the black market in Iraq, causing a decline in the value of the Iraqi dinar against the greenback.
To counter this, the Central Bank of Iraq has introduced a series of measures to make the hard currency available at the official rate to traders and ordinary Iraqis wanting to travel abroad. However, these measures have failed to control the exchange rate and have only exacerbated the crisis. The Central Bank plans to restrict all internal trade to the Iraqi dinar starting next year, a move that aims to help control the black-market exchange rate.
New System for Foreign Transfers
The Central Bank of Iraq has announced a new system focusing on the execution of all foreign remittances and documentary credits via an electronic platform. This platform allows for meticulous pre-audit checks, verification of the final beneficiary, and safeguards all parties from both domestic and international risks. It also facilitates personal remittances abroad for education, healthcare, personal needs, and retiree salaries for residents abroad through international money transfer companies like Western Union and MoneyGram.
Impact on Iraq’s Economy
These steps by the Central Bank of Iraq could potentially lead to a more balanced economic environment in the country and might have implications for the financial stability of Iraq. It is expected that these decisions will help to curb the illegal flow of dollars, encourage legitimate trade, and stabilize the economy. However, the success of these measures will largely depend on their implementation and the adherence of traders and ordinary Iraqis to the new rules.
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