DINAR REVALUATION UPDATE: IRAQ MOVE TOWARDS ENHANCE ITS MONETARY SOVEREIGNTY, 23 AUGUST

Iraq's De-Dollarization Program in 2024: A Strategic Shift in Economic Policy

In a significant move towards enhancing its monetary sovereignty, Iraq embarked on a de-dollarization program in 2024. 1 This strategic shift aims to reduce the country's dependence on the US dollar and promote the use of the Iraqi dinar in domestic transactions and international trade. 3

Background and Motivation

Iraq's decision to de-dollarize is rooted in a series of economic and political considerations. The country has faced challenges with currency instability, escalating prices, and waves of civil unrest.  3 The dinar's vulnerability to fluctuations in the US dollar has led to significant economic risks, including financial vulnerabilities and reduced monetary sovereignty.  3 The move is also a response to stringent US regulations governing international money transfers, which have impacted Iraq's economy negatively. 3

Implementation and Objectives

Iraq's Central Bank has taken the lead in implementing the de-dollarization program. Effective January 1, 2024, Iraq banned all transactions involving the US dollar. 5 The primary objectives include wresting control over the fluctuating black market exchange rate and bolstering the utilization of the Iraqi dinar. 3 This strategic transition is expected to contribute to the diversification of currency reserves, helping to mitigate risks associated with the oscillating value of the US dollar. 3

Impact on the Economy and Society

The de-dollarization program holds promise for Iraq's economy on multiple fronts. By reducing reliance on the US dollar, Iraq aims to strengthen economic stability and foster conditions conducive to economic diversification. 3 The adoption of the dinar in more transactions can lead to improved monetary sovereignty and reduced exposure to external economic shocks. 3

Challenges and Opportunities

Iraq faces several challenges in its de-dollarization journey, including the need to strengthen domestic financial institutions and the banking sector. 4 The Central Bank plans to gradually cancel the dollar auction during 2024, leading to its complete cancellation by the end of the year. 4 This move is part of a broader strategy to enable Iraqi banks to establish solid banking relationships with the global and regional banking sector. 4

Global Implications

Iraq's shift towards de-dollarization raises questions about the future standing of the US dollar as the predominant global reserve currency. 3 The move could signal a trend towards a more multipolar world order in terms of international trade and currency usage. 3