Central bank clampdown to safeguard foreign exchange reserves and de-dollarise the economy
05 October 2023 - 14:43
byTimour Azhari
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Iraq will ban cash withdrawals and transactions in dollars from January 1 next year in the latest push to curb the misuse of its hard currency reserves in financial crimes and the evasion of US sanctions on Iran, an Iraqi central bank official said.
The move aims to stamp out the illicit use of about 50% of the $10bn that Iraq imports in cash from the New York Federal Reserve each year, said Mazen Ahmed, director-general of investment and remittances at the Central Bank of Iraq.
It's also part of a broader push to de-dollarise an economy that has seen the greenback preferred to local notes by a population weary of recurring wars and crises since the US invasion in 2023.
People who deposit dollars before the end of 2023 will continue to be able to withdraw funds in dollars in 2024, Ahmed said. But dollars deposited in 2024 could only be withdrawn in Iraqi dinars at the official rate of 1,320/$.
The parallel market rate of the Iraqi dinar was at 1,560 on Thursday, about 15% more expensive than the official rate.
“You want to transfer? Transfer. You want a card in dollars? Here you go, you can use the card inside Iraq at the official rate, or if you want to withdraw cash, you can at the official rate in dinars,” Ahmed said. “But don’t talk to me about cash dollars any more.”
Iraq has already set up a platform to regulate wire transfers that account for the bulk of its dollar demand and that used to be a hotbed of fake receipts and fraudulent transactions that siphoned dollars to Iran and Syria, both of which are under US sanctions
Set up in concert with authorities in the US, where Iraq’s $120bn reserves from oil sales are held, that system was now almost airtight, Ahmed said, providing dollars at the official rate to those engaged in legitimate trade such as imports of food and consumer goods.
But the cash withdrawals have continued to be misused, he said, including by would-be travellers provided with a state quota of $3,000 who have found ways to buck the system.
Iraq relies heavily on Washington’s goodwill to ensure oil revenues and finances don’t face US censure.
At the same time, the government, which is backed by powerful parties and armed factions close to Iran, has been careful not to alienate Tehran or anger the parties and armed groups with deep interests in Iraq’s highly informal economy.
Dollar shortage
Many local banks have already been limiting dollar cash withdrawals in recent months, compounding a shortage that has seen the exchange rate continue to rise on the parallel market.
Ahmed said some banks were low on dollars because many people were trying to withdraw dollars at once amid a feeling of unease over the financial system. Some banks also had shortages because they provided dollar-denominated loans that were then paid back in dinars, he said.
The CBI has also limited the amount of dollars it provides as part of an agreement with the US Federal Reserve to limit cash and shift towards e-payment, he said.
Ahmed said the CBI expected the dinar to lose more value as the new measures went into force, but said it was an acceptable side-effect of formalising the financial system and the CBI was providing dollars at the official rate for all legitimate purposes.
“The cost we are carrying today is nothing compared to this goal,” he said. “We don't have a problem with the exchange rate hitting 1,700. If they tell me the rate is 1,700, I tell them: ‘you want to import from Iran. You want to smuggle. You have corrupt money that you want to get out.’
“As long as all transparent and legal financing operations happen via us [at the official rate], the rest does not matter.”
But signs have emerged that the CBI’s plans won’t be met with open arms. On Thursday, a video circulated on social media showing a depositor at a Baghdad bank threatening to burn it down if he did not receive his deposit in cash dollars, a scene reminiscent of steps depositors have taken during Lebanon’s banking crisis.
“I swear I will burn it down. I swear I will enter the safe and take my money” the man says.
Support our award-winning journalism. The Premium package (digital only) is R30 for the first month and thereafter you pay R129 p/m now ad-free for all subscribers.
Iraq pulls plug on local transactions in dollars
Central bank clampdown to safeguard foreign exchange reserves and de-dollarise the economy
Iraq will ban cash withdrawals and transactions in dollars from January 1 next year in the latest push to curb the misuse of its hard currency reserves in financial crimes and the evasion of US sanctions on Iran, an Iraqi central bank official said.
The move aims to stamp out the illicit use of about 50% of the $10bn that Iraq imports in cash from the New York Federal Reserve each year, said Mazen Ahmed, director-general of investment and remittances at the Central Bank of Iraq.
It's also part of a broader push to de-dollarise an economy that has seen the greenback preferred to local notes by a population weary of recurring wars and crises since the US invasion in 2023.
People who deposit dollars before the end of 2023 will continue to be able to withdraw funds in dollars in 2024, Ahmed said. But dollars deposited in 2024 could only be withdrawn in Iraqi dinars at the official rate of 1,320/$.
The parallel market rate of the Iraqi dinar was at 1,560 on Thursday, about 15% more expensive than the official rate.
“You want to transfer? Transfer. You want a card in dollars? Here you go, you can use the card inside Iraq at the official rate, or if you want to withdraw cash, you can at the official rate in dinars,” Ahmed said. “But don’t talk to me about cash dollars any more.”
Iraq has already set up a platform to regulate wire transfers that account for the bulk of its dollar demand and that used to be a hotbed of fake receipts and fraudulent transactions that siphoned dollars to Iran and Syria, both of which are under US sanctions
Set up in concert with authorities in the US, where Iraq’s $120bn reserves from oil sales are held, that system was now almost airtight, Ahmed said, providing dollars at the official rate to those engaged in legitimate trade such as imports of food and consumer goods.
But the cash withdrawals have continued to be misused, he said, including by would-be travellers provided with a state quota of $3,000 who have found ways to buck the system.
Iraq relies heavily on Washington’s goodwill to ensure oil revenues and finances don’t face US censure.
At the same time, the government, which is backed by powerful parties and armed factions close to Iran, has been careful not to alienate Tehran or anger the parties and armed groups with deep interests in Iraq’s highly informal economy.
Dollar shortage
Many local banks have already been limiting dollar cash withdrawals in recent months, compounding a shortage that has seen the exchange rate continue to rise on the parallel market.
Ahmed said some banks were low on dollars because many people were trying to withdraw dollars at once amid a feeling of unease over the financial system. Some banks also had shortages because they provided dollar-denominated loans that were then paid back in dinars, he said.
The CBI has also limited the amount of dollars it provides as part of an agreement with the US Federal Reserve to limit cash and shift towards e-payment, he said.
Ahmed said the CBI expected the dinar to lose more value as the new measures went into force, but said it was an acceptable side-effect of formalising the financial system and the CBI was providing dollars at the official rate for all legitimate purposes.
“The cost we are carrying today is nothing compared to this goal,” he said. “We don't have a problem with the exchange rate hitting 1,700. If they tell me the rate is 1,700, I tell them: ‘you want to import from Iran. You want to smuggle. You have corrupt money that you want to get out.’
“As long as all transparent and legal financing operations happen via us [at the official rate], the rest does not matter.”
But signs have emerged that the CBI’s plans won’t be met with open arms. On Thursday, a video circulated on social media showing a depositor at a Baghdad bank threatening to burn it down if he did not receive his deposit in cash dollars, a scene reminiscent of steps depositors have taken during Lebanon’s banking crisis.
“I swear I will burn it down. I swear I will enter the safe and take my money” the man says.
Reuters
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