DINAR REVALUATION UPDATE: HOW IRAQ IS REDUCING THE INFLUENCE OF THE US DOLLAR IN THE LOCAL MARKET, 23 AUGUST

 Iraq's Economic Strategy to Lower the Dollar Exchange Rate in 2024

In the midst of a complex global financial landscape, Iraq has been implementing measures aimed at stabilizing its economy and reducing the influence of the US dollar in its local market. 

As of August 23, 2024, these efforts have been met with a degree of success, according to economic experts. 3 The Central Bank of Iraq's (CBI) measures to control the usage of foreign currencies have led to a stabilization of the dollar exchange rate, which had soared to an unprecedented 1,700 dinars per dollar before gradually declining to a range between 1,470 to 1,450 dinars per dollar.  3 These developments are significant in the context of Iraq's economic challenges and its efforts to diversify its economy and reduce dependency on oil revenues.  2

The Central Bank's Measures

The CBI's platform, designed to manage foreign currency requests specifically for financing foreign trade in the private sector, has played a critical role in controlling the dollar's exchange rate.  3 The platform's effectiveness has been evident in the stabilization of the dollar rate, despite fluctuations in demand. However, the budget increases have widened the gap, leading to higher total demand and consequently increasing pressure on the dollar.  3

Challenges and Solutions

The Iraqi government's decision to suspend the use of the Chinese yuan in foreign transactions, following accusations from the US Federal Reserve, has added to the complexity of the situation. 4 This move has been described as a "misstep" by economists, who warn that it could lead to an increase in the dollar exchange rate and inflation, negatively impacting Iraqi families. 4 In response, three potential solutions have been suggested for the CBI to maintain remittances to China: increasing assets in yuan through the Singaporean Development Bank, boosting assets in UAE dirhams, and negotiating for euro-denominated assets for trade with the EU. 4

The Broader Economic Context

Iraq's economy, heavily dependent on oil revenues, has faced significant challenges in recent years, including the impact of the COVID-19 pandemic and volatile oil prices.

 2 The country's efforts to diversify its economy and reduce its reliance on oil have been crucial in the face of these challenges. The World Bank has noted that Iraq's economy is gradually recovering from the shocks of 2020, with both oil and non-oil sectors showing growth. 2

Conclusion

Iraq's journey toward stabilizing its economy and reducing the influence of the US dollar is a multifaceted endeavor.

 While the CBI's measures have yielded some success, challenges such as budget increases and geopolitical tensions continue to impact the country's economic stability. 

The government's decision to halt yuan transactions and its impact on the dollar exchange rate highlight the delicate balance between domestic policy and international relations in shaping Iraq's economic future.

 As of August 23, 2024, Iraq's ongoing efforts to diversify its economy and stabilize its currency remain critical to its long-term economic health and resilience.