Over the past weeks, the Iraqi dinar has suffered from unprecedented fluctuation in its exchange rate with the US dollar, which experts attribute to new measures imposed by the US Federal Reserve on Iraq. As part of a campaign to ensure that sanctions against Iran and Russia are upheld, the US is taking steps to prevent the dollar from reaching several countries, including Iran, Syria, Russia, and Lebanon.
The difference between the exchange rate set by the Central Bank of Iraq and the actual market rate has been as high as 10%. The Central Bank of Iraq set the exchange rate at 1,470 Iraqi dinars per dollar, while in the currency markets, including the black market, the Iraqi dinar trades at prices ranging between 1,590 and 1,620 per dollar.
The financial adviser to the prime minister, Mazhar Salih, told media outlets that the fundamental reason for the volatility of the exchange rate “is an external constraint,” presumably referring to the American campaign.
A source for The Media Line at the Central Bank of Iraq confirmed the presence of representatives of the US Treasury and the Federal Reserve. The agents were sent to ensure the implementation of the new policies aimed at preventing the dollar from reaching Iran and Russia.
“New procedures are being implemented now,” the source said. “Many forms of proof must be submitted by persons or entities wishing to buy the dollar, for whatever purpose.”
“For example, someone studying abroad needs to provide proof that he is a student, and in which country, in addition to providing his travel ticket to, residence permit in, or visa for that country. There is an upper limit of $5,000 per person per month,” he said.
An Iraqi traveling to Russia, Iran, or Belarus will not be allowed to exchange dinars for dollars.
The source explained that Iraqi banks are now required to record any dollar transfers on an electronic platform. The US Federal Reserve assesses the transfers and cancels any transaction it deems suspicious.
“Over the course of two months, the Federal Reserve rejected 80% of requests for money transfers to Iraqi banks, due to doubts about the final recipient of these transfers,” he said.
The Central Bank of Iraq also banned four private Iraqi banks – Al Ansari, Al-Sharq Al-Awsat, Al-Qabid, and Asia – from the foreign exchange auction. This decision came in response to directives from the US Treasury, which has accused these banks of currency smuggling.
Following the new measures imposed by the US, the prices of some imported commodities rose in Iraq, and real estate sales in dollars in upscale areas of Baghdad slowed significantly.
“So far, the movement of real estate sales in the capital, Baghdad, has been affected by the fluctuation of exchange rates. Everyone wants to sell in dollars,” Iraqi real estate agent Rafid Salman told The Media Line.
“Money laundering through the purchase of real estate is still going on, but here I am talking about regular purchases by people, not politicians or militia leaders,” Salman noted.
Iraqi authorities have taken measures to address the crisis, including facilitating the financing of private sector trade in dollars through Iraqi banks and opening foreign currency sales in government banks for those who intend to travel.
The Iraqi Cabinet mandated that all government agencies that sell goods and services inside Iraq must do so in dinars at the central bank rate of 1,470 dinars per dollar. The real estate sector was also recently required to calculate the value of services and units sold at the official exchange rate rather than that of the markets.
The Central Bank of Iraq also announced a significant increase in foreign exchange reserves, to approach $100 billion.
“The volatility of the dinar is linked to the start of Iraq’s compliance with some standards of the international transfer system, which Iraqi banks must comply with as of mid-November in order to access Iraq’s dollar reserves in the United States,” Iraqi economist Ahmed Tabaqchali told The Media Line.
“In order for Iraq to be able to access reserves amounting to $100 billion, it must comply with regulations that require compliance with global anti-money laundering provisions, anti-terrorist financing provisions, and those related to sanctions, such as those applied to Iran and Russia,” he said.
The Federal Reserve’s decision to more strictly regulate dollar transfers has faced criticism in Iraq. Hadi al-Amiri, head of the Shia Islamist Badr Organization and a high-up representative in the Popular Mobilization Forces, which includes factions loyal to Iran, said in a statement published by the media last week that “America is putting pressure on Iraq to prevent its opening up to Europe and the countries of the world.” He went on to say that Americans are using “the dollar as a weapon to starve people.”
Khaled Al-Rifai, a journalist specializing in economic affairs, told The Media Line that the policies imposed so far may be the beginning of a longer process. “The first step to prevent the arrival of dollars to Iran was by preventing the exchange of dollars in the central bank or even in approved banks,” he said.
“Perhaps the next step will be to activate the monitoring tools for banking companies and the parallel market so that it becomes clear who is working to buy dollars from unofficial outlets,” Al-Rifai explained.
Al-Rifai noted that “the new Central Bank of Iraq procedures mean that the US Treasury Department was able to track the banks involved in smuggling the dollar out of Iraq without investing it in goods or services inside Iraq.”
“Iran, Syria, Lebanon, and Turkey, which suffer from difficulties in obtaining dollars, tended to buy dollars from Iraq and smuggle them through the uncontrolled border crossings, especially since the Central Bank allowed customers to buy cash dollars. Cash sales of dollars amounted to $17 million per day,” Al-Rifai said.