DINAR REVALUATION REPORT: Central Bank of Iraq's Decision to Halt Currency Auctions, 15 SEPT

 Central Bank of Iraq's Decision to Halt Currency Auctions

In a significant move aimed at strengthening the Iraqi dinar and curbing illicit financial flows, the Central Bank of Iraq (CBI) has announced plans to stop the daily currency auctions. 1 The decision, expected to take effect by the end of 2024, marks a shift in Iraq's financial policy to combat corruption and financial crimes related to currency exchange. 4

Background on Currency Auctions

Historically, the CBI has conducted daily currency auctions to sell U.S. dollars to private banks and companies, converting oil revenues into Iraqi dinars. 5 This mechanism has been central to Iraq's foreign exchange market, but it has also been a source of concern due to potential misuse and illicit cash flows, particularly to neighboring Iran. 1

The Decision to Halt Auctions

The CBI's decision to halt the currency auctions is driven by a commitment to financial reform and integration into the global economy.  6 By terminating the electronic auction platform for international financial transfers, the CBI aims to prevent dollar leakage and money laundering while maintaining the stability of the Iraqi dinar against foreign currencies. 6

Impact on the Iraqi Economy

The cessation of the currency auctions is expected to have far-reaching effects on Iraq's economy. On one hand, it could lead to a reduction in the availability of Iraqi dinars, affecting the government's ability to pay public sector salaries and meet other financial obligations. 5 On the other hand, the move is anticipated to strengthen the dinar by reducing uncontrolled dollar outflows and enhancing the integrity of Iraq's financial system. 4

Future of Financial Transactions in Iraq

Following the closure of the currency auction window, Iraqi banks will be required to establish correspondent relationships with foreign banks for conducting international transactions.  6 This transition to direct commercial banking transactions is part of a broader effort to reform Iraq's financial and banking sectors. 6

Conclusion

The Central Bank of Iraq's decision to stop the currency auctions by the end of 2024 is a bold step toward financial reform and economic stability. While the move may present short-term challenges, it is anticipated to have positive long-term effects on the Iraqi dinar and the country's financial integrity. 1