Article: "Al-Sudani postpones his visit to the United Kingdom due to regional and international developments"
Article: "What would happen to the Iraqi dinar if the zeros were removed? Comment by Dr. Mahmoud Dagher"
Quote: "Economist Mahmoud Dagher pointed out that deleting zeros will not change...the purchasing power of the dinar...Instead of carrying a bundle of 50,000 dinar notes, it will be possible to compress them into a smaller number of notes after removing the zeros, and this will not change their purchasing power.
The amount of money on offer...is equal to 105 trillion dinars, and after removing the zeros, the amount will be 105 billion dinars, which is exactly the same amount, and the exchange rate will change from 1320 dinars per dollar to 132 dinars per dollar."
Mohammed Ali Tamim, the country’s planning minister, emphasized the significance of developing human resources as a fundamental pillar for achieving sustainable development.
Tamim noted that the government is working to implement a comprehensive reform program aimed at addressing unemployment, supporting vulnerable groups, and combating corruption during the first national conference to improve Iraq’s human capital. He emphasized the need to redirect investments towards the health, education, and social protection sectors.
He explained that human capital enhancement policies and programs are included in the National Development Plan 2024-2028. He also emphasized the significance of the population census, which will be conducted in November to provide a comprehensive database that supports development efforts.
In order to meet the challenges posed by limited resources, Tamim emphasized the need to prioritize funding for human capital investment projects and diversify funding sources.
Article quote "Central Bank seeks to withdraw excess liquidity"
When the central bank of Iraq is removing excess liquidity, that's taking in dinar, what does that do?
Enhances the value of the currency - Supply and Demand. Reduce the note count, the value goes up...That's the way it's always worked and it always will IMO.
In the last week or so...there's probably five or six articles specifically talking about removing zeros from the Iraqi dinar...
Quote: "...this is done by removing a specific number of zeros from the nominal value of the currency."
From the value of the currency not the currency notes but the value of the currency...
Increased Demand for US Dollars in Iraq: 2024 Overview
In 2024, Iraq has experienced a significant surge in the demand for US dollars, influenced by regional geopolitical events and illicit trade activities. This heightened demand has implications for the country's economy and currency stability, as well as its role in the global financial system.
The escalating conflict in Lebanon has driven individuals and groups with connections to Iraq to prepare for potential departure. Fearing Israeli military action that could target sites, figures, or factions within Iraq, these parties are increasing their demand for dollars to facilitate their exit from the country. This trend is exacerbated by Iraq's status as a rentier economy, heavily dependent on oil exports and dollar revenues.
Any disruption to the broader economic framework could directly influence the value of the Iraqi dinar against the dollar, potentially driving up the cost of goods and services.
Parallel Market Dynamics: Illegal Imports and Currency Smuggling
Another factor contributing to the increased demand for dollars in Iraq is the rise in illegal imports, primarily from sanctioned countries such as Iran and Syria. These imports, facilitated through direct transfers or currency smuggling, bypass the scrutiny of the US Federal Reserve and the US Treasury, creating a parallel market for dollars. As a result, the Iraqi dinar has faced fluctuations in its exchange rate against the dollar, with rates exceeding 150,000 IQD in the markets of Baghdad and Erbil.
Central Bank of Iraq's Response
To combat the illicit trade and stabilize the currency, the Central Bank of Iraq (CBI) has taken measures to limit the flow of hard currency, particularly US dollars. Starting January 1, 2024, cash withdrawals and transactions in US dollars were prohibited, and internal trade and transactions were restricted to the Iraqi Dinar. Foreign trade, however, could be settled in other currencies like the Euro, Emirati Dirham, Turkish Lira, and Indian Rupee.
Impact on Iraq's Economy
These measures have had mixed outcomes. On one hand, the CBI's move to regulate wire transfers through an electronic platform for internal and external transactions has helped in reducing the misuse of hard currency reserves and curbing financial crimes. On the other hand, the restrictions have led to a drop in the value of the Iraqi dinar, impacting the economy and causing public discontent.
Conclusion
The increased demand for US dollars in Iraq during 2024, driven by Lebanon's escalating conflict and illicit trade activities, has posed challenges for the country's economy. The Central Bank of Iraq's measures to regulate the flow of hard currency have led to both positive developments in financial oversight and negative consequences for currency stability and public sentiment. Understanding the dynamics of these factors and their impact on the Iraqi dinar is crucial for stakeholders involved in the region's economic activities.
Shafaq News/ Iraq's oil exports are vital to its economy, generating approximately 90% of government revenue and significantly impacting its economic stability. As one of the top producers in OPEC, Iraq's oil supply plays a crucial role in the global market, influencing prices and international energy policy.
Financial and economic experts are warning that the ongoing war in Lebanon, and its potential escalation in the region, could severely disrupt the export of oil and gas from Iraq and the Gulf states through key strategic waterways such as the Strait of Hormuz and Bab al-Mandeb.
Such disruptions could lead to the collapse of global supply chains that rely on the Middle East, triggering a global crisis in oil markets.
Rentier Economy
A rentier economy refers to an economic system in which a significant portion of national income is derived from the rent of natural resources, rather than from productive activities like manufacturing or agriculture.
Given that Iraq's economy is predominantly oil-based and heavily reliant on dollar revenues, any disruption to the broader economic framework will directly influence the value of the Iraqi dinar against the dollar, potentially driving up the cost of goods and services shortly, according to economic experts.
For several consecutive days, the exchange rate of the US dollar against the Iraqi dinar has exceeded 150,000 IQD in the markets of Baghdad and Erbil. On Monday, the opening prices of Al-Kifah and Al-Harithiya central stock exchanges in Baghdad recorded an exchange rate of 151,650 IQD per $100. In Erbil, the dollar also saw an increase in exchange offices, with the selling price reaching 151,450 IQD.
Economic researcher Ahmed Eid explained that "the rise in the dollar's exchange rate is not directly related to the war in Lebanon, as there is no significant direct trade between the Iraqi and Lebanese markets. However, certain factors tied to the ongoing events in Lebanon, such as the increasing demand for dollars, are contributing to the upward pressure on the currency."
Who Demands the Dollar?
Eid explained to Shafaq News Agency that the increased demand for dollars "is driven by individuals and groups connected to the ongoing events in Lebanon. These parties are preparing to leave Iraq with their families in case Israel begins targeting sites, figures, or factions within Iraq."
Additionally, according to Eid, there is rising demand in the parallel market due to increased illegal imports, either through direct transfers or currency smuggling. "This is primarily for imports from sanctioned countries like Iran and Syria, which bypass the scrutiny of the US Federal Reserve and the US Treasury."
Eid further noted that the Iraqi market is fragile and highly susceptible to regional security and political developments. "The rise in the dollar could lead to higher prices for goods and services in the near future unless the market is regulated and those exploiting the current situation are penalized."
Meanwhile, economic expert Abdulrahman al-Sheikhly stressed that political and social unrest in any country inevitably affects its economy. Since Iraq relies on a rentier system, with its income largely dependent on oil and dollar revenues, any disruption in the broader economic framework will impact the value of the dollar, either driving it up or down.
Al-Sheikhly told Shafaq News Agency, "two weeks ago, there was already a slight increase in prices due to a shortage of dollars offered by the Central Bank of Iraq (CBI). The bank had been selling limited cash amounts rather than allowing for external transfers, causing a minor price increase even before the escalation of events in Lebanon."
As demand for dollars increases, particularly from those seeking to secure their assets amid uncertainty, a parallel market emerges that invites exploitation.
Exploitation
Al-Sheikhly continued, "Following the escalation in Lebanon, many traders are attempting to exploit the security, military, and political turmoil across the region, including Iraq. The spread of rumors suggesting imminent strikes on vital areas in Iraq may hinder the flow of imported goods to consumers."
He added, "Some traders have started doubling the prices of imported goods, particularly essential items that people need daily. This is viewed as an opportunity for certain traders to reduce supply and raise prices, which is an unacceptable form of exploitation."
On the other hand, financial and banking expert Mustafa Hantoush shed light on how the conflict in Lebanon affects Iraq’s economy. He explained that "Iraq does not rely on essential supply chains to and from Lebanon, so economically, Iraq’s economy and trade balance are unlikely to be significantly impacted. As long as global supply chains remain intact, prices in Iraqi markets should not increase due to competition."
Hantoush further added to Shafaq News Agency, "Iraq also has substantial dollar reserves and a steady flow of oil revenue in US dollars, which ensures that the local market’s demand for the currency can be adequately met. Therefore, there’s no need for citizens to be concerned about exchange rates or to feel compelled to hoard dollars."
However, the overall market stability remains precarious, especially if regional tensions continue to escalate, raising concerns about a potential global crisis.
Global Crisis
Hantoush noted, "However, if the war in the region continues without solutions, it could expand. Consequently, any disruption in the export of oil and gas from Iraq and the Gulf through the Strait of Hormuz and Bab el-Mandeb could lead to a global crisis in oil markets, making exports difficult and triggering a significant spike in prices."
He emphasized, "At that point, most global supply chains to and from the Middle East would collapse, which must be avoided at all costs."
The potential ramifications of a global crisis extend beyond just Iraq, making it imperative for stakeholders to resolve the ongoing conflict.
In recent days, fears have escalated regarding the potential for the conflict between Israel and Hezbollah to escalate into a full-scale war, particularly following Israel's aggressive attacks on various areas in Lebanon, in addition to the assassination of Hezbollah’s Secretary-General Hassan Nasrallah.
Meanwhile, Lebanese Health Minister Firas Abiad announced, on Sunday, that there have been 1,640 fatalities, including 104 children and 194 women, along with 8,408 injuries since the onset of hostilities between Israel and Hezbollah nearly a year ago.