Iraq's currency in flux as foreign transfers come under scrutiny

Iraq's currency in flux as foreign transfers come under scrutiny

The dinar's depreciation has sent panic through the Iraqi population, which fears a price surge on imported goods
The dinar's depreciation has sent panic through the Iraqi population, which fears a price surge on imported goods. Photo: AHMAD AL-RUBAYE / AFP/File
Source: AFP

PAY ATTENTION: Never miss breaking news – join Briefly News' Telegram channel!

Iraq's local currency has been on a two-month roller coaster ride following a tightening of procedures for international transfers, with some blaming Washington for the dinar's woes.

While the official exchange rate has been fixed at 1,470 Iraqi dinars against the dollar, the currency was trading at up to 1,600 to the greenback on local markets from mid-November, before settling at about 1,570 dinars, according to state media.

Though the depreciation does not seem particularly dramatic, especially compared to other countries in the region, it has sent panic through the Iraqi population, which fears a price surge on imported goods such as gas and wheat.

"The fundamental reason" for this depreciation is "external constraints", said Muzhar Saleh, a financial adviser to Prime Minister Mohammed Shia al-Sudani.

But other Iraqi officials have placed the blame squarely on the shoulders of one actor -- the United States.

Read also

Pakistan's economy grinding to a halt as dollars dry up

Hadi al-Ameri, a key figure in the pro-Iran former paramilitary Hashed al-Shaabi, has accused the United States of using the dollar "as a weapon to starve nations".

PAY ATTENTION: Сheck out news that is picked exactly for YOU ➡️ find the “Recommended for you” block on the home page and enjoy!

But Iraqi economic expert Ahmed Tabaqchali said that "contrary to current misconceptions, rumours and misinformation, there is no evidence of US pressure on Iraq".

'Shock'

Since mid-November, Iraqi banks have had to comply with certain criteria of the SWIFT international transfer system in order to access their foreign reserves, estimated at $100 billion and held at the US Federal Reserve.

Some Iraqi officials have placed the blame for the dinar's woes squarely on the shoulders of one actor -- the United States
Some Iraqi officials have placed the blame for the dinar's woes squarely on the shoulders of one actor -- the United States. Photo: AHMAD AL-RUBAYE / AFP/File
Source: AFP

"Taking part in the international cross-border fund transfers requires complying with global anti-money laundering provisions, counter terrorist financing provisions, and sanctions provisions -- such as those that apply to Iran or Russia," Tabaqchali said.

Read also

At Davos, war, climate and 'de-globalisation' take centre stage

"The new regulations require high levels of disclosure and transparency," he said, adding that this came as a "shock for many... of our banks, who were not used to this".

According to Saleh, Iraqi banks must now register their dollar transfers "on an online platform that reviews transfer requests".

"The US Federal Reserve examines the requests and if there are any suspicions, it stops the transfer," he said.

Since the adoption of the new mechanism in November, the US Federal Reserve has blocked about 80 percent of transfer requests to Iraqi banks due to doubts over the final destination of these transfers, according to Saleh.

Purchasing power plunges

This has led to a shortage of dollars on the Iraqi market and in turn a depreciation in the dinar's value.

The Iraqi central bank has described the currency fluctuation as a "temporary situation" and the authorities have taken measures seeking to stabilise the exchange rate.

Read also

German economy holds up in 2022, despite Ukraine war fallout

These have included facilitating dollar trade in the private sector through Iraqi banks and opening foreign exchange outlets at state-owned banks for those wishing to travel abroad.

The cabinet has also decided to "oblige all state bodies to sell goods and services in Iraq in dinars at the central bank's exchange rate" of 1,470 to the dollar.

Saleh argued that "these measures are important as they show that the state is there to protect the market and citizens."

Inflation was at a relatively low 5.3 percent year-on-year in October 2022 when it was last registered.

But fears remain over the declining purchasing power among Iraqis.

Saad al-Tai, a retiree who helps his son run a small shop in Baghdad's Karrada district, is feeling the heat of the fluctuating exchange rate, describing it as "a real problem" for both traders and customers.

"When the dollar was valued at 1,470, my pension was worth $336. Today, the exchange rate is 1,570 dinars and my pension is worth $314," he said.

PAY ATTENTION: Сheck out news that is picked exactly for YOU ➡️ find the “Recommended for you” block on the home page and enjoy!

Source: AFP

Authors:
AFP avatar

AFP AFP text, photo, graphic, audio or video material shall not be published, broadcast, rewritten for broadcast or publication or redistributed directly or indirectly in any medium. AFP news material may not be stored in whole or in part in a computer or otherwise except for personal and non-commercial use. AFP will not be held liable for any delays, inaccuracies, errors or omissions in any AFP news material or in transmission or delivery of all or any part thereof or for any damages whatsoever. As a newswire service, AFP does not obtain releases from subjects, individuals, groups or entities contained in its photographs, videos, graphics or quoted in its texts. Further, no clearance is obtained from the owners of any trademarks or copyrighted materials whose marks and materials are included in AFP material. Therefore you will be solely responsible for obtaining any and all necessary releases from whatever individuals and/or entities necessary for any uses of AFP material.