Multiple exchange rates
12/8/2025 Dr. Nabil Rahim Al-Abadi
In the heart of Baghdad, amidst the constant monitoring of currency exchange rates, the Iraqi economy breathes with every fluctuation in the dollar's value.
With each rise or fall, voices of anxiety rise, or the pulse of the markets slows, reflecting the fragility of an economic structure still reliant on a single resource.
Today, with expectations of increased global oil supply and falling crude prices, crucial questions arise: How can Iraq safeguard its economy? And can a selective exchange rate policy be part of the solution?
Expert readings indicate that this policy, if implemented as part of a comprehensive reform package, could constitute a smart mechanism for adapting to international storms and protecting the citizen at the same time.
The Iraqi currency market is currently experiencing relative stability, with the dinar's exchange rate against the dollar recently rising in the parallel market.
In Baghdad, it reached 1420 dinars for selling and 1415 dinars for buying. Experts attribute this stability to several factors, most notably the trend of traders using the official Central Bank platform to purchase dollars, improved confidence resulting from relative security and the success of the recent elections, and the effectiveness of the Central Bank's oversight measures in curbing smuggling.
However, this calm may be temporary. The international landscape suggests the possibility of an oil crisis with the potential return of oil supplies from countries like Iran, Venezuela, and Russia should geopolitical conditions shift.
Such a scenario, while hypothetical in the short term, could lead to an unprecedented global oversupply and a sharp drop in prices, placing the Iraqi economy, which relies on oil for approximately 90% of its budget, on the brink of an existential crisis.
In the face of these challenges, the idea of adopting a selective or multi-level exchange rate system emerges. This idea is based on a simple but profound economic principle of directing the state’s limited resources to protect the citizen and stimulate local production, instead of paying the bill for importing luxuries.
How does this policy work?
A subsidized exchange rate is granted for the import of basic and vital goods that are part of the citizen’s daily life, such as wheat, medicines, raw materials for local production, and agricultural machinery.
• An intermediary exchange rate may be applied to intermediate sectors or to specific strategic sectors that need reconstruction.
A free or high exchange rate is applied to the import of luxury goods, such as luxury cars, modern electronics, perfumes and luxury products.
• Potential benefits:
Protecting the poor and middle class by securing basic goods at reasonable prices, thus limiting imported inflation in essential goods.
Encouraging local production makes importing raw materials for production cheaper, while imported luxury goods become expensive, thus stimulating demand for local products.
Rationalizing government spending and hard currency: Directing precious oil dollar reserves towards what is truly necessary for the economy and the citizen.
• Increased government revenues: through the price difference achieved from selling dollars to import luxury goods at a higher price.
However, many economists warn against viewing any exchange rate adjustment, including multiple exchange rates, as a magic bullet or a one-off solution. Economist Mahmoud Dagher emphasizes that “changing the exchange rate cannot be the sole cure for the crisis, as long as it is not accompanied by a set of complementary measures.”
The idea of multiple exchange rates in Iraq is not mere economic fantasy; it is a difficult strategic choice that requires political courage and administrative acumen.
It is not a magic wand to rescue an economy suffering from chronic structural problems, but it could be a smart defense mechanism that protects vulnerable segments of society and preserves the country's resources in the lean years that may lie ahead.
The decision now is one of will: Will Iraq begin, now, to build a productive and resilient economy, or will it remain captive to rent-seeking and the dominance of a single revenue stream? The answer will be determined by the decisive measures the next government takes on the path to genuine and comprehensive reform. LINK
