Central Bank of Iraq tightens rules on buying US dollars

[k98nights]

Central Bank of Iraq tightens rules on buying US dollars

Details Published Date Written By Halgord Category: Economy Hits: 44

Abu Hamza used to buy dollars to a value of US$250,000 (Dh918,300) every week at the Central Bank of Iraq's currency auctions without having to offer any proof of what the money was to be used for. But the regulator is now tightening access to hard currency after demand ballooned amid suspicions some of the cash was being smuggled to Iran and Syria, both struggling with intensifying international sanctions.

"They introduced new rules to reduce the number of cash transactions," said Mr Hamza, who runs a currency exchange his family has owned for generations in Baghdad's Karrada district. In February, the central bank asked dealers to submit cheques to identify currency buyers.

Yesterday the rules were tightened further, requiring buyers to include a tax clearance to show the "genuineness" of their need for hard currency. At the end of June, Iraqi traders will have to submit an import licence to prove the cash is being used to bring foreign goods into the country.

Demand for dollars has doubled since November to about $300 million a day, putting pressure on the nation's foreign reserves of about $60 billion.

Syria's currency has declined in value since president Bashar Al Assad's crackdown of an uprising that began a year ago. A US dollar converts to about 95 Syrian pounds on the black market, compared with 48 pounds a year ago. The Iranian rial is now trading at 16,000 to the dollar, versus 12,500 in December.

"The attack on the foreign currency in such a short period of time raised a lot of worries," said Mudher Kasim, the deputy governor at the central bank. "Demand was rising sharply, but it wasn't in correlation with the budget. We didn't see the foreign-exchange transactions translating to higher goods and services. Our interpretation was that the reserves were being affected by what is happening in the region, specifically Iran and Syria," he added.

Demand plunged after the central bank introduced the new rules. "It was very worrisome to see the drastic change. The decrease in demand meant one of two things: that 90 per cent of the clients attending the auctions did not have bank accounts; or that they had worked as 'ghost traders'," Mr Kasim said.

"We don't want to make restrictions, but we want to make sure that the market is well-regulated, that currency dealers are licensed," he added. "In Iraq, everyone is a dealer, and one can round up porters on the street and use their bank accounts to ensure the movement of money is not revealed. We want to make sure that money is actually used for trade finance and is for the benefit of Iraq's economy."

The central bank plans to introduce a series of stringent "know your customer" regulations in the coming days, said Mr Kasim. Currency dealers expressed doubts over whether the regulations would work. "I don't have the right to ask my client what he is going to do with the dollars when he takes it from my shop," said Mr Hamza. "It's almost impossible to track where the money is going, because the currency has been taken to the street." Abu Sajjad, who runs a currency store nearby, said: "Terrorists are being smuggled into Iraq. Don't you think it would be easier to smuggle money out of Iraq?"

SyndiGate.info

PUKmedia 03-04-2012 14:40:58

http://pukmedia.co/english/economy/359-central-bank-of-iraq-tightens-rules-on-buying-us-dollars

[Roadrunner]

This may be a good thing for us. If you are regulating the buying of US dollars, you are in fact regulating the selling of the Iraqi dinar. This is something that we have been waiting on for a long time. Granted the wording is a bit cryptic and he uses the funding of terrorists as the reasoning behind this, but by now most of us are getting pretty good at reading between the lines. When he says that they need to make sure that the exchange is for trade purposes, he is in effect saying that they need to make sure people are not purchasing dinar as an investment. He reinforces this when he talks about the change in the exchange rate of the Syrian pound and the Iranian rial. If you read this in light of the articles that have come out about reducing the value of the US dollar (raising the value of the dinar), the true motivation behind this becomes more obvious.

Roadrunner

[VARusso]

This may be a good thing for us. If you are regulating the buying of US dollars, you are in fact regulating the selling of the Iraqi dinar. This is something that we have been waiting on for a long time. Granted the wording is a bit cryptic and he uses the funding of terrorists as the reasoning behind this, but by now most of us are getting pretty good at reading between the lines. When he says that they need to make sure that the exchange is for trade purposes, he is in effect saying that they need to make sure people are not purchasing dinar as an investment. He reinforces this when he talks about the change in the exchange rate of the Syrian pound and the Iranian rial. If you read this in light of the articles that have come out about reducing the value of the US dollar (raising the value of the dinar), the true motivation behind this becomes more obvious.

Roadrunner

Good point +1

[Argyll]

You may very well be right Roadrunner! +1

[Goeers]

And that's probably why the auctionis only 90 mil today!!!!

[thatoneguy]

Land ho! Land ho!

[TQueezy]

And that's probably why the auctionis only 90 mil today!!!!

And if you look at the detailed document, there was no cash portion of those auctions directly, so whatever had been sold electronically had to be taken out of the reserves of US dollars in those local banks through the electronic funds transfer and balancing act. At least, I'm pretty sure that's how it works. Anyone else know the specific mechanics of how the US dollars get on the street if the auctions show no cash portion?

[uncirculd]

Yeah more safe guards to keep dollars from laundering to Iran and Syria.