Fluctuating Dinar: economic experts urge action as dollar soars in Iraq
Shafaq News/ Iraq’s dinar continuesits erratic trajectory against the US dollar, with no resolution in sightdespite years of governmental and central bank efforts, experts attributed theinstability to weak policies and unchecked market manipulation.
Root Causes of Volatility
The dollar is surging against thedinar at Baghdad’s main currency exchanges, Al-Kifah and Al-Harithiya,surpassing 1,510 dinars per $1. On the streets, exchange shops are marking upselling prices to more than 1,520 dinars.
“The instability in dollar pricesreflects the Iraqi Central Bank and government’s inadequate monetary policies,which fail to address the core of the issue,” said Mustafa Faraj, an economicexpert. “Their hesitant measures have left them unable to control the dollar’svalue.”
Faraj cited US sanctions onneighboring Syria and Iran as a major factor. “The lack of legitimate tradechannels with these countries, combined with restrictions on dollar transfersto them, has led to dollar smuggling, driving up its price,” he told ShafaqNews Agency.
“When the dollar rises, it pushes upthe cost of basic goods, food, and even commercial activity. This cascade ofprice hikes stems from a failure to find comprehensive solutions and punishmanipulators,” Faraj explained.
Emerging Pressures
New dynamics have exacerbated thecrisis. Ahmed Eid, an economic researcher, linked heightened demand for dollarsto the fallout from the conflict in Syria. “The shift in Syria has disruptedthe interests of militia leaders and influential figures, many of whom are nowstockpiling dollars to secure alternative income streams,” he said.
Eid pointed to the closure ofSyria’s border with Iraq as a catalyst, forcing traders to seek new suppliersin countries like Turkiye and Egypt. “This transition requires substantialdollar liquidity, which further squeezes the market,” he said.
Currency smuggling and moneylaundering also continue to erode market stability. “These illicit activitiespersist unchecked, compounding the dollar’s rise,” Eid warned.
Future Uncertainty Amid PolicyShifts
Concerns are mounting about theimpact of Iraq’s planned phase-out of its electronic transfer platform fordollar transactions. Introduced in early 2023, the platform was designed tomonitor transfers more effectively. However, the Iraqi Central Bank announcedin September that it would be discontinued by year-end.
“The Central Bank’s plan to shiftdollar transactions exclusively to foreign banks with correspondentrelationships is a blow to local banks,” said economist Ahmed Abdul Rabih.“Four dominant banks will monopolize the sector, sidelining smaller institutionsand creating a bottleneck for dollar supply.”
“These banks will dictate theexchange rate, likely driving up prices. The Central Bank must advocate forlocal banks to establish accounts with international institutions like J.P.Morgan and Citibank,” Abdul Rabih urged.
Reassurances from the Central Bank
In response to public concerns, theIraqi Central Bank has downplayed fears of major disruptions.
In a statement, it described thetransition as part of a phased strategy to align with international standards,emphasizing that 95% of transfers had already shifted from the platform todirect banking relationships.
“The transition will be completedgradually, ensuring continuity,” the bank stated, adding that partnerships withforeign banks in China, India, Turkiye, and the UAE would facilitate tradeusing non-dollar currencies, such as the yuan and euro.
Thirteen Iraqi banks have alreadybegun operations under the new framework, offering pre-approved transfers andenabling global payment systems for personal and commercial needs, thestatement said. These steps aim to “stabilize the currency and curb inflation,reinforcing official exchange rates as the benchmark for legitimate economicactivities.”
“The official rate reflects realmarket dynamics,” the Central Bank stressed, warning against unofficial ratesdriven by “those engaging in unauthorized practices.”
The bank emphasized that it hasstructured external transfer operations and the fulfillment of dollar demandalong proper channels, aligned with international practices, standards, and theAnti-Money Laundering and Counter-Terrorism Financing Law.
"Providing these channels forall purposes at the official dollar exchange rate makes this rate the truebenchmark for economic practices, as evidenced by price stability and inflationcontrol. Any other rate traded outside these channels is considered irregularand utilized by those engaging in non-compliant or illicit practices who avoidofficial channels in their dealings. These individuals bear the additionalcosts of purchasing at higher rates than the official price to create theillusion of a disparity between the official and unofficial rates." Thestatement concluded.
Despite reassurances, skepticismlingers among economic experts, who argue that without stricter enforcement andcomprehensive reforms, the dinar’s fluctuations will persist. For many Iraqis,the cost of living remains tightly bound to the fate of the dollar.
