Source: Iraq's dollar surge driven by political instability impacting exchange rate
Shafaq News/ On Thursday, IraqFuture for Economic Studies and Consultations attributed the rise in thedollar's value against the dinar to a drop in foreign currency transfers and aninability to meet the demand for foreign currency to cover imports, warningthat the dollar could continue to climb, potentially reaching 1,600 dinars inthe coming period.
Key Reasons
The recent rise in the dollarexchange rate against the Iraqi dinar, which has reached around 1,550 dinarsper US dollar, is driven by several factors, according to Manar Alobaidy, headof the economic institution.
Alobaidy told Shafaq News Agencythat the increase is primarily due to a "decline in transfers of othercurrencies, specifically the Emirati dirham and Chinese yuan," resultingfrom significant restrictions imposed by correspondent banks that manage thesecurrencies. He added that banks involved in the Citi-Pilot project are"cautious about opening accounts for new companies," restrictingtheir transactions to those firms they have previously worked with.
The expert further explained thatthe "inability of transfer mechanisms to meet the demand for foreigncurrency" for importing high-value goods, particularly mobile phones andgold, is driving importers to the parallel market to satisfy their needs.
Remedies
Alobaidy pointed out that "the dinar's decline against the dollar isexpected to continue, possibly reaching 1,600 dinars per dollar in the comingmonths unless the problems are addressed with practical solutions:
1.Expandingthe network of correspondent banks worldwide, especially in the UAE and China.
2.Controllingfiscal policy by limiting the entry of certain types of goods to reduce demandrelative to supply.
3.Pressuringbanks participating in the Citi-Pilot project to be more open to accepting awider range of customers.
4.Temporarilybanning the import of certain goods to ease demand for foreign currencies untilmore organized and streamlined solutions for foreign transfers are found."
No Economic Justification
Economic and financial expert AbdulRahman Al-Mashhadani attributed the recent rise in Iraq’s dollar exchange rateto political factors rather than economic ones.
Al-Mashhadani told Shafaq News, “Thedollar had stabilized for a long period at around 149,000 to 150,000 dinars per$100, especially after streamlining the process of converting traveler dollarsat the airport and resolving bottlenecks with currency exchange and paymentcompanies operating there.”
“There are no economic reasons orjustifications behind the rise because the Central Bank is still supplyinglarge amounts for foreign trade, which is the key element covering traders’needs,” he emphasized.
Al-Mashhadani noted that theincrease is likely driven by regional unrest and fears that Iraq could become atarget. “This has led traders to settle accounts between creditors and debtors,especially those with foreign obligations. The fear of instability may cause anincrease in the exchange rate, impacting traders' ability to fulfill theirobligations,” he said.
He added, “The second issue is thepanic among the public during such crises, prompting people to convert theirassets into dollars for fear that the situation could worsen, potentiallyforcing them to travel or even migrate, either within Iraq or abroad,” highlightingthat “the dollar remains the safest option, as it is in high demand in themarkets.”
The local market exchange rate hasclimbed to around 155,000 dinars per $100, following military actions inLebanon, Iran, and Israel.
