According to the central bank of Iraq, the country will no longer allow any form of cash withdrawals and transactions in US dollar as of Jan. 1 2024, a move to hopefully end illicit dollar use in Iraq.
The decision, as the statement explained, was made to reduce and hopefully end the misuse of Iraq’s hard currency reserves in financial crimes and also curb the growing illicit use of some 50% of the $10 billion that Iraq imports in cash from the New York Federal Reserve each year.
“People who deposit dollars into banks before the end of 2023 will continue to be able to withdraw funds in dollars in 2024, but dollars deposited in 2024 could only be withdrawn in local currency at the official rate of 1,320,” the statement said.
The central bank statement also noted that the ban on cash dollar withdrawals “would only apply to accounts receiving transfers from abroad.”
Giving more detail on the matter, Mazen Ahmed, director-general of investment and remittances at the Iraqi central bank (CBI) said in an interview with Reuters that the decision to ban any form of cash withdrawals and transactions in US dollar in Iraq is also a move to push to de-dollarize the Iraqi economy.
“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, but don’t talk to me about cash dollars anymore,” Ahmed said.
As an immediate after-effect of the Iraqi central bank’s announcement, the parallel market rate of the Iraqi dinar sat at 1,560 on Thursday, roughly 15% percent below the official rate.
Iraq’s dollar-dominated economy and a myriad of challenges
After the US invasion of Iraq back in 2003, the Arab country has been doing international business only in US dollar and the currency has been preferred over local notes. But considering the rise of other currencies and their gaining international status, such as the Yuan of China, the global dominance of the US dollar has been decreasing in the past years and Iraq is also trying to wee its economy off its dependence on the American currency.
What makes international business in dollar so difficult for Iraq is that two of the largest trade partners of Baghdad, namely Iran and Syria, are under heavy US sanctions and doing business with them in dollar is a difficult task to do.
In addition, the dollar shortage that is now affecting nearly every local bank in Iraq has caused the country a lot of troubles, including the continuous growth in the exchange rate between the dollar and the Iraqi dinar. This problem emanates from the flow of the US imported currency to Iraq to the illegal markets.
According to recent reports by the CBI, it is expected that due to this very problem of illicit dollar market in Iraq, the dinar will lose even more value compared to US dollar.
“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, while some banks also had shortages because they provided dollar-denominated loans that were then paid back in dinars,” Ahmad noted, adding that “as long as all transparent and legal financing operations happen via us (at the official rate), the problem of dinar losing its value remains.”