DINAR REVALUATION REPORT: Impact of Iraq Central Bank's Foreign Exchange Decisions on Dollar Exchange Rates, 11 SEPT

 Impact of Iraq Central Bank's Foreign Exchange Decisions on Dollar Exchange Rates

In September 2024, the Central Bank of Iraq introduced new decisions on foreign exchange prices and the trading of foreign currencies within the country. 1 These decisions are expected to significantly influence the dollar exchange rates in the parallel market due to the anticipated scarcity of the US dollar. 1

De-Dollarisation and Economic Policy Shift

The strategic decision to shift away from the US dollar is a response to prolonged currency instability, leading to escalating prices and civil unrest over the past half-year. 1 This transformation raises questions about the future status of the US dollar as the leading global reserve currency and suggests a move towards a more balanced world economic order. 1

Consequences of Currency Issuance and Expenditure Increases

The issuance of Iraqi dinars, traditionally linked to the inflow of US dollars from oil sales, has reached unprecedented levels, with concerns about the value of all dinars in the market if oil prices remain low. 2 The fluctuation of the Iraqi dinar against the US dollar, exacerbated by US-Iraq relations and economic sanctions, highlights the significant impact of American statements on Iraq's economic situation. 2

Dollar Sales to Travelers and Market Disparity

In an effort to address the ongoing dollar crisis, the Central Bank of Iraq decided to allow state banks to sell US dollars to travelers at the official exchange rate in airports. 3 This move, however, is predicted to widen the gap between the parallel market exchange rate of the US dollar and the official rate set by the Central Bank.  3The potential for travelers to hoard a significant portion of the cash dollars could further escalate the disparity between the parallel and official dollar rates. 3

Conclusion

The Central Bank of Iraq's new decisions on foreign exchange prices and trading mechanisms are likely to have a profound effect on the dollar exchange rates in the parallel market. These measures, driven by economic policy shifts and the need to stabilize the Iraqi dinar, may lead to a scarcity of US dollars and increased disparity between official and parallel market exchange rates.