Iraq Confronts Economic Crises With Digital Dinar, Parallel Market Threatened With Extinction
Reports Economy News – Baghdad The Central Bank of Iraq is preparing to launch the digital dinar,
marking the transition to digital currency management. The digital dinar is a digital currency issued by the central bank, officially part of a country's monetary system.
It is similar in value to the traditional dinar, but is traded electronically via digital wallets or approved financial applications.
It
facilitates instant money transfers within the country or across borders,
reduces the logistical burden of issuing paper or metal currency, and
enables broader segments of society to access digital financial services.
This project comes in light of the
significant economic challenges facing Iraq, such as its
heavy reliance on paper money and the phenomenon of
hoarding.
The digital dinar aims to address these challenges by providing a safe and effective digital alternative to paper money.
Central Bank Governor Ali Al-Alaq had previously stated during a speech he delivered at the Finance and Banking Conference and Exhibition that
"the financial and banking system will witness fundamental transformations, including the
decline of paper currencies and their
replacement by digital payments for central banks." He explained that
"the Central Bank is moving to create its own digital currency, which will gradually replace paper transactions, as is the case with some central banks around the world."
Mazhar Saleh Mohammed, the Prime Minister's advisor for financial and banking affairs and former deputy governor of the Central Bank,
highlighted the
importance of the digital dinar and
its relationship to the dollar exchange rate in local markets.
Speaking to Al-Eqtisad News, Mohammed emphasized that the
digital dinar is a global trend in the development of payment systems, particularly in the description of monetary units that will acquire digital rights bearing the same legal force issued by the monetary authority as banknotes in the discharge of debts, as
they are units of
account,
exchange, and
storage of value
within the digital economic community and via a highly sophisticated, rapid, and accurate information system.
He added that these monetary units will be used with
high transparency to
cover various real transactions of goods and services, as well as to
settle small and large obligations. He noted that
all exchange transactions will be transparently recorded between traders, up
to the point of purchasing a loaf of bread, under the supervision of the monetary authority, thus
ending the ambiguous or illegal uses of money once and for all.
Regarding the digital dinar's relationship to exchange rates,
Al-Sudani's advisor explained that the
official exchange rate will be the prevailing and sole rate, the digital exchange rate adopted by monetary policy.
The parallel market will disappear in its current form, as
it is difficult to invent a secondary digital market whose operations operate outside the control of the digital monetary authority. However,
usurious digital markets may emerge among the same traders. He pointed out that the
digital cash system provides the banking system with sufficient digital cash liquidity to grant loans without the risk of liquidity risk within banking markets.
This
encourages investors to borrow easily,
increases economic growth levels, and
promotes sustainable development. It also
facilitates access to global digital exchanges for global payments and settlements.
"Introducing digital currency requires two things," according to the Prime Minister's advisor. He explained that the
first is a high level of public awareness of the digital monetary system, while the
second is the availability of an advanced information, communications, and data technology infrastructure that evolves continuously over time. He pointed to the
need for a legal infrastructure to protect digital currency transactions, particularly in
protecting the rights of users to their income and wealth, which
cybersecurity provides against any dangerous digital breaches.
Many questions are being raised about the digital dinar and its differences from cryptocurrencies, which economic expert Ziad Al-Hashemi answers. Al-Hashemi points to
a "significant difference" between digital currencies and cryptocurrencies:
"The former are issued and regulated by central banks, such as the digital dollar and the digital dirham, while
cryptocurrencies such as Bitcoin are not subject to any official authority and
their value depends on supply and demand, making them highly volatile." He stated that
if the Central Bank of Iraq issues the digital dinar,
it will be the sole entity
controlling the issuance and distribution of the digital currency,
facilitating oversight and
preventing financial crimes,
unlike cryptocurrencies, which operate on a decentralized system that is difficult to control. He pointed out that the
digital dinar will be fully backed by the central bank and have a relatively stable value, similar to paper currency.
However, it will be
traded electronically only through bank accounts and wallets, contributing to
reducing the use of paper money,
achieving financial inclusion, and
reducing reliance on the dollar in daily transactions. Al-Hashemi noted that the
primary goal of this step is to eliminate the phenomenon of cash hoarding, whereby citizens hold large sums of money outside banks due to lack of confidence in the banking system.
This hinders the flow of funds and negatively impacts economic activity.
If the project implemented well, the
digital dinar could help
disburse hoarded liquidity and
stimulate lending and credit.
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