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Iraq's Foreign Trade Currency Options in 2024
The economic landscape of Iraq has been undergoing significant changes in 2024, especially concerning its foreign trade currency options. In an effort to diversify its currency transactions and reduce dependency on the US dollar, Iraq has expanded its list of accepted currencies for foreign trade. This move follows a series of financial reforms aimed at modernizing the country's banking system and tackling money laundering.
Diversifying Currency Options for Foreign Trade
Merchants in Iraq now have the option to use the euro, Chinese yuan, Turkish lira, Emirati dirham, and Indian rupee for financing foreign trade. This shift is particularly significant for merchants importing goods from countries like China, who can now pay in Iraqi dinar to Iraqi banks, avoiding the need for US dollars.
Impact on Trade and the Economy
International Transactions Through SWIFT
The adoption of the international financial messaging system known as SWIFT by Iraq's banking sector has facilitated a substantial increase in overseas dollar transactions. This move is part of a broader strategy to reduce the misuse of hard currency reserves for financial crimes and to evade sanctions, particularly those imposed by the United States on Iran.
Trade Dynamics
Iraq's primary exports, notably crude oil, have traditionally been traded in US dollars. However, the diversification of currency options is expected to enhance trade with countries preferring alternative currencies. The country's main export partners in 2022 included India, China, the United States, South Korea, and Greece, while imports came chiefly from the United Arab Emirates, China, Turkey, India, and South Korea.
Challenges and Opportunities
Reducing Oil Dependence
With a significant portion of its economy tied to oil, Iraq faces medium-term vulnerabilities due to oil price volatility. The government is focusing on reducing oil dependence and ensuring fiscal sustainability while protecting social and investment spending. This will require controlling the public wage bill and increasing non-oil tax revenues.
Boosting Economic Growth
Higher economic growth is necessary to absorb the rapidly expanding labor force and boost non-oil exports. This will involve enabling private sector development, including labor market reforms, modernization of the financial sector, and restructuring of state-owned banks, pension, and electricity sector reforms.
Conclusion
The diversification of currency options for foreign trade in Iraq reflects the country's ongoing efforts to modernize its financial systems and reduce economic vulnerabilities. By expanding the range of accepted currencies, Iraq aims to strengthen its trade relations, improve fiscal sustainability, and foster greater economic growth.