Quantum Financial System Activation and Its Impact on Iraq's Currency Revaluation in 2024
The activation of the Quantum Financial System (QFS) in 2024 marks a significant shift in global finance, with a notable impact on Iraq's currency dynamics [1]. As of September 14, 2024, the International Monetary Fund (IMF) has completed its Article IV consultation with Iraq, highlighting the country's economic progress and the challenges it faces due to fiscal expansion and oil price fluctuations [1].
Economic Progress and Challenges
Recovery and Fiscal Expansion
Iraq has experienced a strong recovery in its non-oil economy following the contraction in 2022, thanks to a large fiscal expansion initiated in 2023. This expansion supported by the QFS has been instrumental in boosting economic activities [1].
Fiscal and External Imbalances
However, the ongoing fiscal expansion has exacerbated imbalances, leading to a deterioration of fiscal and external accounts. The risk of medium-term sovereign debt stress is high, and external stability risks could emerge if policy adjustments are not made [1].
Currency Revaluation
Impact of Fiscal Policies
The currency revaluation in Iraq, effective as of February 2023, has played a crucial role in controlling inflation, which declined to 4 percent by the end of 2023 [1]. This stabilization was a direct result of lower international food prices and the normalization of trade finance, facilitated by the QFS.
Access to Dollars and Dinar's Value
In a separate development, the United States has restricted Iraq's access to its dollars, aiming to curb money laundering benefiting Iran and Syria [2]. This has led to a drop in the value of the Iraqi dinar, causing public unrest and impacting the dinar's exchange rate, which has jumped to around 1,750 to the dollar in some parts of the country [2].
Policy Adjustments and Structural Reforms
Need for Sound Policies
The IMF Executive Board has underscored the need for sound macroeconomic policies and structural reforms to secure fiscal and debt sustainability in Iraq [1]. These reforms are critical for advancing economic diversification and achieving sustainable, inclusive, and private sector-led growth.
Negotiations and Domestic Procedures
Iraqi officials are working to meet the requirements set by the Federal Reserve to reduce the scarcity of hard currency in the country [2]. New domestic procedures are being rolled out, and negotiations between Iraqi and U.S. officials are scheduled to address the currency issues [2].
Conclusion
The activation of the Quantum Financial System in 2024 has brought about a pivotal moment for Iraq's currency revaluation and financial readiness. While the initial impact has been positive, with improved domestic stability and economic recovery, the country faces significant challenges. Strategic policy adjustments and structural reforms are crucial to ensure long-term fiscal health and external stability [1].
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