Iraq to Limit Transactions to Dinar Instead of Dollar Starting Next Year

Iraq’s Central Bank Governor, Ali Mohsen Al-Alaq, has announced that from next year, all domestic commercial and other transactions in Iraq will be limited to the country’s currency, the dinar, rather than the dollar.

Phase Out of External Transfers Planned

According to a report by the Iraqi News Agency, Central Bank Governor Ali Mohsen Al-Alaq stated that the bank plans to gradually phase out external transfers next year. Instead, Iraq will rely on licensed banks within the country to handle correspondent banking for external transfer transactions.

Agreement with the US Federal Bank

Al-Alaq added that this decision followed an agreement between the Central Bank of Iraq and the US Federal Bank. This agreement aligns with the practices of central banks worldwide, where their role is focused on supervision and control rather than executive functions.

Reduction in Transfer Volume

Transfers through correspondent banks currently account for 60% of the total volume of transfers outside of the Central Bank’s electronic platform. Sales of verified transfers make up more than 95% of this volume.

Efforts to Establish Direct Channels with Foreign Banks

During a meeting with the heads and authorized directors of licensed banks in Iraq, Al-Alaq emphasized the Central Bank’s efforts to establish direct communication channels between Iraqi banks and their foreign counterparts. These channels cover correspondence, commercial exchanges, and more. Currently, funds transfer channels are available in various currencies, including Emirati dirham, Turkish lira, Indian rupee, and euro.

Restriction on Domestic Commercial Transactions Using Dinar

In the coming year, there will be a restriction on domestic commercial transactions and other transactions using the Iraqi dinar instead of the dollar, except for those delivered to travelers.

Control of Price Level and Inflation

Al-Alaq highlighted that the majority of traders entering official transfer channels and the availability of dollars at a price of 1,320 dinars have directly contributed to controlling the general price level and reducing the rate of inflation, which is a key indicator of monetary policy effectiveness.

New System Provides Risk Protection and Compliance

The new system for external transfer and sale of dollars provides risk protection for all participants in transactions. It also complies with anti-money laundering and anti-terrorist financing laws. Additionally, it establishes direct relations between Iraqi banks and internationally accredited banks.

Riyadh Bank and its Economic Significance

The meeting also discussed the establishment of Riyadh Bank and its social and economic significance. This bank aligns with the directives and vision of the Prime Minister. The discussion included the contribution of banks to the creation of Riyadh and its working mechanisms. The bank aims to support the opening of small-scale manufacturing and commercial projects, contribute to local economic development, and reduce unemployment rates with the direct support of the Central Bank.

Risks and Measures to Address Misuse of Dollar

A senior US Treasury official recently stated that the Iraqi Central Bank must address ongoing risks related to the misuse of the dollar in Iraqi commercial banks. Failure to address these risks could lead to new punitive measures against the country’s financial sector. The risks include fraud, money laundering, and Iran’s evasion of sanctions.

US Ban on Trading in Dollars

In July, the United States banned 14 Iraqi banks from trading in dollars as part of a broader campaign against the illegal use of American currency. Despite this campaign, the anonymous official mentioned that there are still other Iraqi banks operating with risks that need to be addressed.

Source: Agencies