AJ
IRAQ's PARALLEL MARKET. I'm going to make this post into 2 parts... Here is Part 1 
I'll post Part 2 tomorrow.
The frist thing to know is the central bank of Iraq sets the exchange rate for the Iraqi Dinar,
On February 7, 2023, Iraqi Central Bank adjusted the exchange rate of the dollar against the dinar, as follows:
1300 dinars per dollar, the purchase price from Ministry of Finance.
1,310 dinars per dollar is the selling price for banks.
1,320 dinars per dollar is the selling price by banks and non-banking financial institutions to the final beneficiar
How this works
The Ministry of Finance gets a preferential rate 1300 IQD/USD to facilitate government transactions.
Banks buy dollars at 1310 IQD/USD and sell at 1320 IQD/USD, allowing a small profit margin to cover operational costs.Sell at 1320 IQD/USD to the public.
So the offical rate to the public is 1320 IQD/USD
1. The CBI, led by Governor al-Allaq and its Board of Directors, analyzes the economy and proposes a new exchange rate
2. Then Iraqi Council of Ministers vote on the CBIs decison of a new exchage rate. This is the government’s executive body, led by PM al-Sudani and composed of his cabinet ministers. It sets national policy, including fiscal and economic policies, and has authority over major decisions impacting the economy, such as currency revaluation.
3. After it is approved by the Iraqi Council of Ministers The CBI’s management, led by its governor, implements the new rates and ensures they are enforced across the financial system.
4. The CBI announces the new rate.
April 15th 2024 the WhiteHouse put out this joint statement.
This was when PM Al-Sudani visted the Whitehouse in 2024
The United States and Iraq commit to strengthen their cooperation to achieve greater transparency and collaboration against money-laundering, financing terrorism, fraud, corruption, and sanctionable activity that could undermine the integrity of both countries’ financial systems. The two sides also committed to support the Central Bank of Iraq to fully wind down the wire auction mechanism by the end of 2024 and transition to direct correspondent relationships between Iraqi and international banks, a transformation that will connect Iraqi people and businesses with the international economy.
The wire auction ended on December 29, 2024. Iraq banks transition to direct correspondent relationships between Iraqi and international banks for transfers abroad remittance, credits. However, the parallel market continued.
Ending the parallel market first is considered essential to unify exchange rates, stabilize the economy, and restore government control over monetary policy. This step is to prevent distortions in trade, money smuggling investment, and public spending, ensuring economic reforms.
From a past article... banking consultant Abdul Rahman Al-Shaikhli Explains
Regarding the implementation of the project to remove zeros from the Iraqi currency, banking consultant Abdul Rahman Al-Shaikhli "the first factor that stood in the way of the project was the discrepancy between the official exchange rate (now 1332 dinars per dollar) and the parallel market exchange rate (now rising above 1500 dinars), which constituted an obstacle to the implementation of the project to remove zeros from the Iraqi currency"
Below is "Quotes" from IMF Report Introducing a new currency is a complex process, one that Turkmenistan completed successfully
For example, Turkmenistan redenominated its currency to introduce lower denomination notes.
The first step in the Turkmen currency reform was to unify the exchange rate. In the past, because of a shortage of foreign exchange, there had been a dual exchange rate system made up of an official rate pegged at 5,200 manat per U.S. dollar and an informal parallel market rate of about 23,000 manat per U.S. dollar.
A major gap between the official exchange rate and the informal or market rate meant that Turkmenistan's price system had become complex and inefficient. This, in turn, created complexities in accounting and statistical reporting. So the government decided to introduce a new currency before launching market-oriented reforms. Currency reform was regarded as the foundation for further strengthening the macroeconomic framework, particularly monetary transmission: the more the population relies on the local currency rather than U.S. dollars, the more control the government and Central bank has over macroeconomic policy.
I know this is a long post... so, I'll post the next part, in Part 2 tomorrow.
Here is a link to the the full IMF Report. I've posted this before. If you want to know how a country redenominated its currency. Check it out imf.org/external/pubs/
