NADER FROM MID EAST: Summary of Iraq’s Efforts to Combat Dollarization and Strengthen the Iraqi Dinar

Summary of Iraq’s Efforts to Combat Dollarization and Strengthen the Iraqi Dinar

Dr. Amar Ali Fawi, Governor of the Central Bank of Iraq, discussed significant steps taken over the past two years to address the widespread dollarization in Iraq’s local market. Dollarization refers to the practice where many goods and services were priced in US dollars instead of the national currency, the Iraqi dinar. This phenomenon posed challenges to monetary stability and economic sovereignty.

Key points from Dr. Fawi’s interview with Aleria Business during the International Monetary Fund’s Fall Meetings include:

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  Government Policy and Support:
  There is a clear and direct government strategy aimed at reducing dollarization. This policy has received active backing from government authorities, reflecting in improved market dynamics.

• Loans and Currency Use:
  The central bank has shifted the financial system such that loans are now predominantly issued and repaid in Iraqi dinars, moving away from foreign currencies, especially the US dollar. This measure is crucial for reinforcing the national currency’s role in the economy.

• Convertibility and Currency Reserves:
  The Iraqi dinar is  convertible to the US dollar and other foreign currencies due to the Central Bank of Iraq’s substantial foreign currency reserves. These reserves are a key financial strength, quantified as follows:

  Metric	Value
  Foreign currency reserves as % of broad money supply	Approximately 80%
  Foreign currency reserves as % of total domestic currency issued	Over 130%

• Implications for Market Confidence:
  These figures indicate a high level of reassurance and confidence in the Iraqi market. The robustness of the reserves acts as a protective buffer for the Iraqi dinar, enhancing its stability and credibility.

Key Insight:
The central bank’s strategy to reduce reliance on foreign currencies and bolster the Iraqi dinar is supported by strong foreign reserves, signaling a confident and controlled monetary environment in Iraq.