Iraq is set to enforce a ban on cash withdrawals and transactions in US dollars starting January 1, 2024.
According to a senior official from the Iraqi central bank, this substantial policy shift aims to address financial crimes and bypass US sanctions imposed on Iran.
Mazen Ahmed, the Director-General of Investment and Remittances at the Iraqi Central Bank (CBI), revealed that the initiative seeks to address the improper use of nearly half of the $10 billion that Iraq annually sources in cash from the New York Federal Reserve. Moreover, this strategic move is part of a broader endeavour to diminish the economy’s dependence on the US dollar. This practice has been prevalent since the 2003 US invasion due to regional instability.
For those who deposit dollars into banks by the end of 2023, dollar withdrawals will still be permissible in 2024. Conversely, deposits made in 2024 will be restricted to withdrawals in the local currency, using the official rate of 1,320 Iraqi dinars for every dollar. Notably, this rate is considerably less than the current parallel market rate, showcasing a disparity of around 15%.
Despite phasing out cash dollar withdrawals, Ahmed highlighted that electronic dollar transactions within Iraq would persist, albeit at the official exchange rate. The central bank’s release clarified that this prohibition would apply mainly to accounts procuring international transfers.
Efforts to Stabilize Iraq’s Economy
Through collaboration with US officials, Iraq has rolled out an effective wire transfer system, curbing deceptive transactions benefiting US-sanctioned countries like Iran and Syria. However, challenges stemming from dollar shortages and a thriving parallel market exchange rate continue.
Several local banks have curtailed dollar cash withdrawals to manage the soaring demand. Simultaneously, the CBI has slashed its dollar reserves, pivoting towards digital payments.
Ahmed opines that the potential further devaluation of the dinar is an acceptable trade-off to formalize the financial system and suppress illegal dealings. He firmly asserts that the parallel market rate’s significance dwindles when transparent, legitimate financing operations occur at the official rate.
As Iraq distances itself from the dollar, the global community keenly observes potential repercussions on its financial steadiness and diplomatic ties with the US and Iran.
