Stability Amid Chaos: The US Dollar’s Dance with the Iraqi Dinar,19 OCT
In the heart of Baghdad, where the exchange of US dollars for Iraqi dinars has been a daily ritual for decades, a quiet stability has emerged, a rarity in the tumultuous world of currency markets. The US dollar’s exchange rates held steady against the Iraqi dinar, concluding at 159,800 IQD per $100. This stability was mirrored in the Al-Kifah and Al-Harithiya markets, the central hubs of currency exchange in the capital.
The Dollar’s Dance with the Dinar
Local exchange shops in Baghdad reflected this equilibrium, with selling rates at 160,750 IQD per $100 and buying rates at 158,750 IQD per $100. The calm, however, was slightly disrupted in Erbil, the capital of the Kurdistan Region, where the dollar’s exchange rate experienced a mild climb. Selling rates here were at 160,000 IQD per $100, and buying rates at 159,900 IQD per $100.
In a Central Bank auction, foreign exchange sales surged by 78%, culminating in $163 million in cash sales. The auction witnessed the exchange of $199,123,090 at a rate of 1,305 IQD per dollar, designated for documentary credits and international settlements for electronic cards. For foreign remittances and cash transactions, the rate stood at 1,310 IQD per dollar. A significant portion of the bank’s sales aimed to reinforce foreign balances through transfers and credits, amounting to $163,593,090. Five banks purchased cash dollars, while 21 banks fulfilled requests to boost foreign balances abroad. A total of 60 exchange and intermediary companies took part in the auction.
(Read Also: Iraq’s Central Bank Boosts Foreign Exchange Sales Amidst Global Currency Woes)
Iraq’s Economic Evolution
The Trade Minister of Iraq, Atheer Al-Gheriri, communicated Iraq’s eagerness to augment trade exchange with Saudi Arabia. He underlined the fundamental economic changes sweeping through Iraq and the country’s increasing reliance on the private sector for development and economic growth. Al-Gheriri spotlighted the pivotal role of the Iraqi-Saudi Coordination Council in fortifying bilateral relations and executing projects that foster long-term cooperation.
Despite these developments, the Central Bank of Iraq has been grappling with halting the depreciation of the dinar against the dollar in the parallel market for the past eight months. The struggle to meet the demand for dollars to cover foreign trade, along with restrictions on oil exports, has exacerbated this situation. The electronic platform launched by the Central Bank has not been able to restore stability to the parallel market. Most transfers continue to take place outside the platform, particularly with nations subjected to US sanctions.
The Road Ahead
In response to these challenges, Iraq plans to prohibit transactions in US dollars starting from January 2024, with the objective of curbing misuse, financial crimes, and currency smuggling. However, apprehensions linger that this measure may worsen the cash crisis and trigger monetary inflation if not executed judiciously.
There have been calls for the Central Bank to adopt a new currency to supplant the dollar. Suggestions include the euro, Chinese yuan, or Emirati dirham. This move could alleviate the pressure on the dollar in the parallel market and offer an alternative for countries facing US sanctions. It is also crucial for the Central Bank to manage the dollar exchange rate and prioritize stability in the foreign currency market. Private banks should be incentivized to provide better services and compete to attract cash hoarded outside the banking system.
The stability of the exchange rate between the US dollar and the Iraqi dinar in Baghdad is a positive development. However, challenges persist in the parallel market and the broader economic situation in Iraq. The country’s efforts to increase trade exchange with Saudi Arabia and implement economic reforms are commendable. The recent bombings targeting US military bases and the calls for the withdrawal of foreign forces underscore the security risks faced by Iraq. The proposed ban on transactions in US dollars from 2024 and the suggestion to adopt a new currency highlight the complexities of Iraq’s economic landscape. The role of the Central Bank in managing the exchange rate and promoting stability, along with the efforts of private banks, will be crucial in shaping the economic future of Iraq.
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