Surge in US Dollar Value Against Iraqi Dinar: A Turning Point for Iraq’s Economy, 2 OCT

 Surge in US Dollar Value Against Iraqi Dinar: A Turning Point for Iraq’s Economy, 2 OCT

The US dollar has seen a significant surge in its value against the Iraqi dinar, a trend observed in both Baghdad’s central forex markets and the Kurdistan region. This development has sparked concerns over the potential impact on ordinary Iraqis, already burdened by a fragile economy, and has brought into sharp focus the country’s financial interactions with neighboring Iran.

The Escalating Exchange Rate

The dollar’s exchange rate against the Iraqi dinar has been on an upward trajectory recently. In Baghdad’s al-Kifah and al-Harithiya Central Exchanges, the dollar traded at a rate of 156,150 IQD for 100 dollars, a noticeable increase from the previous rate of 155,700 IQD. In the parallel markets in Baghdad, the selling and buying rates of the dollar were pegged at 157,000 and 155,000 IQD for 100 dollars, respectively. Similarly, in Erbil, the capital of the Kurdistan region, the dollar’s selling and buying rates were at 156,250 and 156,150 IQD for 100 dollars, respectively.

Underlying Factors

The rise in the dollar price started shortly after the new government assumed office in late October of last year. During the previous regime, the rate was relatively stable, hovering between 1,450 to 1,470 dinars to the dollar. The sudden surge has been attributed to the alleged smuggling of U.S. dollars or illegal transfers from Iraq to Iran during the term of the new government, comprised primarily of militias and political groups close to Iran.

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 current 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 combat 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 halt the illegal use of dollars in Iraq.

While these measures are aimed at curbing illicit financial activities, they 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. The way forward requires a delicate balance of strong economic governance, regulatory compliance, and geopolitical diplomacy to ensure the stability and prosperity of Iraq’s economy.

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