Iraqi Central Bank to Restrict Internal Trade to Iraqi Dinar
(Bloomberg) -- Iraq’s central bank will restrict all internal commercial transactions to the Iraqi dinar starting next year, the bank said in a statement, citing governor Ali Al-Allaq.
The step appears aimed at curbing the dealing of the US dollar outside Iraq’s banking sector, as well as limiting smuggling it abroad. It’s also a move to back the local currency.
The central bank next year will end the job of transferring money for foreign trade and instead focus on “supervision and monitoring,” with the job of transfers shifted to licensed Iraqi banks.
Currently, the central bank is the process of opening transfer channels in various currencies, including the Emirati dirham, the Turkish lira, the Indian rupee and the euro, according to the statement.
On Sunday, the dollar was available on the unofficial market at about 1,550 dinars, 17% weaker than the official rate of 1,320.
Public Notice: United Nations Security Council Sanctions Update for Iraq
Published: Friday October 13th, 2023
Public Notice
United Nations Security Council Sanctions Update for Iraq
Pursuant to Section 3A of the International Obligations (Economic & Ancillary Measures) Amendment Act, 2019, supervised financial institutions (SFIs) and the general public are hereby informed that the United Nations Security Council (UN Security Council) has updated its Sanctions List as follows:
FIREFLY: Sudani came on the news and he's saying Iraq is ready to join the BRICS...
FRANK: ...That's highly possible that might be the basket they will eventually float in because even the Iranian currency is in that basket and it is logical to consider this because this is the next step in the monetary reform process.
Your currency does not need a new exchange rate, it needs to float internationally without any restrictions.
It has no restrictions. It is about to float internationally.
FIREFLY: The television said the dinar will be replacing the dollar and the auctions will come to an end, then the CBI can control the exchange rate totally and we will be no black market anymore...
The television says the Federal Reserve is still in control of the financial budgets but expects this to end in two weeks...
Shafaq News/ In a private letter delivered to the White House earlier this month, the prime minister of the Kurdistan Region of Iraq warned that Kurdistan—and Iraq’s post-2003 federal system—faces imminent collapse unless the United States intervenes. Masrour Barzani sent his extraordinary warning amid mounting political and economic challenges for the autonomous region and an increasingly belligerent government in Baghdad.
The Kurdistan Regional Government (KRG) is important to U.S. interests in several ways. Its Peshmerga forces are key partners in the fight against the Islamic State and other extremist groups and crucial to the West’s counterterrorism efforts in both Iraq and Syria. The region has historically constituted a buffer against tumult and turmoil in the rest of Iraq, providing a safe haven for nearly 1 million internally displaced people and refugees, while also containing the ascension of militant Iran-backed militia groups responsible for conducting numerous attacks on Western forces.
However, with Washington now preoccupied by its intensifying rivalry with China and the war in Ukraine, little attention is being paid to Kurdistan. Sensing America’s focus is elsewhere, the KRG’s rivals, including militia groups designated as terrorists by the United States, have started circling. Kurdistan’s collapse would spell upheaval and chaos with implications stretching well beyond Iraq.
The KRG has endured a string of troubles in recent years. Soon after Barzani took office in 2019, his cabinet was confronted with a pandemic, a military escalation between the United States and Iran and its affiliated militias, and an economic crisis after oil revenues took a huge hit when crude prices plummeted in 2020.
Kurdistan has also been undermined by the rivalry between the two largest political parties, Barzani’s Kurdistan Democratic Party (KDP) and the Patriotic Union of Kurdistan (PUK). Their division weakened the Kurds’ bargaining power in Baghdad during negotiations over forming an Iraqi government after the 2021 parliamentary elections. Iran and its allies, including the Popular Mobilization Force (PMF)—the 200,000-strong umbrella militia organization—exploited Kurdish discord by allying with the PUK to expand their influence over the Iraqi state.
Iran-backed groups have also consolidated their control over the Iraqi judiciary, paving the way for a February 2022 ruling that Kurdish oil exports through Turkey were illegal. This influenced an international arbitration decision a year later that came to the same conclusion. Since then, Kurdish oil exports have stopped, crippling the region’s economy and impacting global energy markets—a win for the PMF and its hopes of neutering Kurdistan’s economic independence.
Earlier this month, Iran-aligned groups massacred Kurdish protesters in the disputed oil-rich city of Kirkuk, which Kurdish forces had withdrawn from in 2017 after the PMF mobilized its militias with federal government backing. As part of an agreement between Iraqi Prime Minister Mohammed Shia al-Sudani and Barzani, the KDP was to return to a base in the city, but the PMF moved to torpedo this by blocking a highway connecting Kirkuk to Erbil and other Kurdish provinces in August. The disruption to the lives of people who rely on the highway daily prompted the protests. Following the massacre, the Federal Supreme Court in Baghdad, which is aligned with the PMF, suspended the order for the KDP’s return.
The divisions between the KDP and PUK have deeply undermined the KRG. Indeed, fraternal rivalry has been the Kurds’ Achilles’ heel for decades. Between 1994 and 1998, the two parties fought a civil war for control of the region, which was finally resolved through U.S. mediation. Their 1998 peace settlement paved the way for a strategic agreement that became the basis for Kurdistan’s golden era after the U.S.-led invasion of Iraq in 2003, which gifted the Kurds outsized influence over the Iraqi state, expanded their autonomy, and precipitated an unprecedented economic boom.
While today’s rivalry represents a clash of personalities within a new generation of Kurdish leaders, it also reflects the two parties’ respective trajectories since 2003. The KDP owes much of its power to its long-standing organizational discipline, which has delivered it electoral success and allowed it to control the prime minister’s office since 2012. The PUK, on the other hand, has been factionalized almost since its inception in the 1970s. In 2021, Bafel Talabani launched a coup to oust his cousin Lahur as co-chair of the party and head of its counterterrorism and intelligence forces.
These violent dynamics have degraded the PUK’s ability to present a serious alternative to the KDP. Instead, it has opted for spoiler tactics, working with Iran-aligned groups in Baghdad to undermine its rival politically and economically. The PUK leadership regularly courts Iran-aligned individuals and factions sanctioned by the U.S. Treasury Department, sometimes against the backdrop of missile and drone attacks on Kurdistan by these groups.
This raises serious questions for Washington and its relationship with the party, but also for the PUK itself. Looking to Iran and Baghdad may help the PUK reassert itself locally, but undermining Kurdistan as a whole to weaken the KDP is dangerously myopic since it relies on the good faith of the PMF, and it is potentially existential as it risks gambling the autonomy of Kurdistan in the long term.
Kurdish woes and Iranian encroachment into Kurdistan have far-reaching implications for U.S. interests. The KRG is a vital ally in the campaign to secure the enduring defeat of the Islamic State. Intra-Kurdish divisions, Iran’s attempts to subjugate the Iraqi state, and Kurdistan’s economic turmoil all undermine the U.S. campaign against the Islamic State and empower Iranian-backed militant groups designated by Washington as terrorists. The U.S. base in Erbil province is one of Washington’s most important military bases and listening posts in the Middle East, serving as a special operations hub and a staging site for operations in both Iraq and Syria.
The very presence of this base requires a political order that is conducive to maintaining the U.S.-KRG partnership, something Iran is hoping to weaken and, eventually, demolish by instrumentalizing the PUK. Iran has proved willing to play the long game to supplant the United States in Kurdistan, as it has done in Baghdad over the past two decades.
Washington must, therefore, step in to pressure the PUK into ending its collusion with Tehran. The PUK and its leadership risk breaching U.S. sanctions that are designed to inhibit the capabilities of the designated Iran-aligned groups and officials the PUK partners with.
These sanctions could underscore an effort by Washington to establish red lines for the PUK, both to contain Iran’s encroachment and to protect the credibility of its sanctions infrastructure. Washington must also discourage the PUK from threatening to return Kurdistan to the dual administrative structure of the 1990s, which would effectively dissolve the autonomy of Kurdistan and its hard-won rights under the 2005 Iraqi constitution. This system saw the two ruling parties govern their stronghold provinces as two separate administrations and empowered Iraq’s neighbors, while undermining U.S. strategic interests in Iraq and the region.
Regional actors such as Turkey can also be brought into play. Ankara has escalated its drone attacks on the fighters and affiliates of the Turkish-Kurdish rebel group, the Kurdistan Workers’ Party (PKK), who have found refuge in Sulaymaniyah, the PUK’s stronghold province. That has destabilized the province and added to the party’s woes, despite the PUK’s efforts to discourage further strikes.
The PUK cannot force the PKK to withdraw, since this would trigger a violent conflict, but it can ill afford further Turkish attacks. However, it could strike a bargain with Ankara premised on a commitment to end its collusion with the PMF, which has PKK affiliates within its ranks. This would ensure that the PUK no longer directly or indirectly enables the PKK. It diminishes Iran’s influence, alleviates Turkish apprehensions, and reduces the geopolitical tensions that result from Turkish incursions.
Moreover, Washington has failed to resist or condemn Baghdad’s punitive measures against the KRG’s economy, which have been engineered by Iran-aligned groups through the subjugation of the judiciary in Baghdad. The suspension of Kurdistan’s oil exports has also stopped 500,000 barrels per day of Kurdish oil from reaching global markets: some 10 percent of Iraq’s total exports, or 0.5 percent of global production. This has reverberations well beyond the region; Europe has relied increasingly on Kurdish oil since Russia’s invasion of Ukraine.
The U.S. has so far been a bystander to both the intra-Kurdish escalation and Iran’s encroachment. Washington may believe that these problems are internal Kurdish matters, but this is a mistake. The ascension of the PMF and, therefore, its ability to exploit Kurdish discord can be directly tied to the legacy of U.S. engagement in Iraq over the past two decades, including Washington’s acquiescence to the group’s takeover of Kirkuk in 2017.
The KRG has proved resilient, but this has its limits. A full collapse of the region’s economy would ultimately force it to capitulate to Iran. In practice, this means giving Iran a greater say over the contours of the KRG’s institutions, its armed forces, borders, and, most importantly, the future of the U.S. base in Erbil.
Preventing this would require the United States to mediate intra-Kurdish tensions to unify Kurdish ranks in Baghdad to protect the KRG’s autonomy and restore its budgetary entitlements and its right to electorally contest disputed territories such as Kirkuk without being subjected to the coercive tactics of the PMF—while maintaining a healthy democratic rivalry at home.
If Washington is serious about safeguarding its interests, it could start by convincing the PUK that its best hope of reversing its decline is by addressing its internal crisis, and not by turning to Iran—a self-defeating exercise. The PUK will struggle to match the KDP’s political supremacy: At best, it can hope to slow its rival’s ascension. At worst, its collusion with Iran gambles the fates of both the party and Sulaymaniyah.
Secondly, the U.S. could focus its mediation on Kurdistan’s gas reserves, potentially addressing global shortages in the long term while propping up the KRG’s economy. The KDP has the political and constitutional legitimacy to move the sector forward and attract investors—but gas reserves are located primarily in PUK-controlled areas.
The U.S. could encourage dialogue over developing these gas fields and securing Kurdistan’s position in what the International Energy Agency has described as a “golden age” of natural gas. It is precisely here—at home, and not in Baghdad or Tehran—where the PUK, with U.S. support, can push for its economic stake through a comprehensive arrangement with the KDP that includes a revenue-sharing agreement.
Such a transactional engagement could be a stepping stone toward a wider settlement. The PUK blames the KDP for hoarding revenues and the fact that Sulaymaniyah has lagged behind other provinces, but that argument is weakened when Sulaymaniyah’s degradation is a reflection of the degradation of the PUK.
The correlation is not coincidental. By continuing with its current path, the PUK risks detaching Sulaymaniyah’s 700,000 inhabitants from the economic transformation being led by Barzani, which will only add to the frustration of its supporters. That reform agenda could rescue Kurdistan from dependence on oil by diversifying the economy, improving efficiency, and promoting good governance.
The alternative for the United States—standing by and watching the collapse of the KRG—would be a disaster for Iraq’s Kurds and for U.S. interests in the region. The KRG’s fate will play an important role in determining the contours of the wider Middle East.
Boston Fed President Signals Potential Interest Rate Hike Amid Inflation Concerns
In a recent statement, the Federal Reserve Bank of Boston President, Susan Collins, suggested that further increases in interest rates might be necessary depending on incoming data. This follows the release of the meeting minutes from the Fed’s September gathering, where officials discussed the possibility of raising rates again, despite cooling inflation pressures. The potential for higher rates comes as the central bank continues to grapple with the economic effects of the ongoing pandemic and the challenges of maintaining economic stability.
Collins emphasized the need for the central bank to maintain rates at restrictive levels until there is evidence of sustained inflation. Additionally, she highlighted the importance of patience in decision-making and risk management, given the potential economic impacts of a tighter policy. “Further tightening could be warranted depending on future information,” Collins noted, indicating the need for a cautious and data-driven approach to monetary policy.
Economic Resilience in the Face of Fed Action
Despite the potential for tightening policy, Collins noted that the U.S. economy has shown remarkable resilience. She expressed optimism that price stability can be achieved with a “soft landing,” suggesting that a modest increase in the unemployment rate could be a part of this process. Her comments reflect the delicate balance central banks must navigate between stimulating economic growth and preventing runaway inflation.
The Historical Context of Interest Rate Decisions
The Federal Reserve’s decisions on interest rates have long been a critical tool for managing the U.S. economy. By adjusting the cost of borrowing, the Fed can either stimulate economic activity or cool it down to prevent overheating. Over the years, the central bank has had to navigate numerous economic crises, from the inflationary pressures of the 1970s to the financial crisis of 2008. Today, the challenges posed by the COVID-19 pandemic represent a new form of economic turbulence requiring careful management.
Future Implications for Stakeholders
The potential for higher interest rates has significant implications for various stakeholders. For borrowers, it could mean higher costs for loans, including mortgages and credit card debt. On the other hand, savers and investors might see higher returns. Businesses, particularly those reliant on borrowing, could face increased costs, impacting their profitability and potentially leading to job losses. As such, the Fed’s decisions on interest rates will be closely watched by households, businesses, and financial markets alike.
