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"The crisis is reeling." Iraqi government's moves hit the dollar wall


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"The crisis is reeling." Iraqi government's moves hit the dollar wall

"The crisis is reeling." Iraqi government moves hit the dollar wall » Baghdad Today News Agency


Economy | Today, 22:32 | 


Baghdad Today - Baghdad

On the seventh of last month, the Iraqi authorities decided to raise the value of the official exchange rate of the dinar against the dollar by 10 percent, from about 1470 dinars to 1300 dinars per dollar, but weeks after the decision, the exchange rate in the local market is still very high and far from the official rate.

Exchange rates in the so-called parallel market (private exchanges and currency traders) currently exceed the barrier of 1550 dinars to the dollar, which has led many to question the measures taken by the Iraqi authorities to control the market.

Iraq's currency crisis began last November when the Federal Reserve in New York approved stricter controls on international dollar transactions for Iraqi commercial banks.

The move was aimed at stemming the illicit flow of dollars into Iran and exerting more pressure on U.S. sanctions over Tehran's nuclear program and other disputes, making it harder for Tehran to obtain dollars.

Under the new restrictions, Iraqi banks must use an online platform to disclose their transactions and details about the sender and beneficiaries.

U.S. officials can object to suspicious transfer requests.

Experts and financial officials say the measures have created a gap as banks, which were reluctant to register on the online platform, resorted to duty-free shops in Baghdad to buy dollars, creating a deficit and exceeding demand over supply.

"There are two main problems that caused the crisis to continue, the first is punishing some private banks and removing them from the currency window, and the second is the application of the electronic platform in which auditing takes place in several stages," said economist and academic Abdul Rahman al-Mashhadani.

"The unwillingness of Iraqi private banks to operate on the electronic platform or deal with the requirements of the Federal Reserve has caused the rejection of many foreign remittances," al-Mashhadani added.

"At one stage, the rate of rejection, whether by the Federal Reserve Bank or the Central Bank of Iraq, amounted to about 80 percent of the remittances required to finance foreign trade," he said.

Al-Mashhadani pointed out that "the exchange rate of the dinar will not stabilize soon, given that the government measures are far from solving the crisis and were not serious," describing them as as close as possible to "patchwork" and aimed at solving the problem "temporarily and not radically."

In late December, the Central Bank of Iraq approved a package of measures to stabilize the exchange rate against the dollar, including facilitating the financing of private sector trade in dollars through Iraqi banks and opening outlets for selling foreign currency in government banks to the public for travel purposes.

The bank called on traders to deal "with banks directly and not to resort to intermediaries and speculators to avoid incurring undue commissions and expenses on their imports".

Iraqi government officials have stressed on more than one occasion that stabilizing the exchange rate will not be long for long.

In subsequent statements, the prime minister's adviser for financial affairs, Mazhar Mohammed Saleh, confirmed that "the central bank's packages will accelerate the levels of meeting the demand for foreign currency," explaining that the rise in prices in the parallel market "is artificial and based on false information called color noise and does not match the strength of the financial situation."

But al-Mashhadani believes that "the estimates of the Central Bank of Iraq were wrong when it talked about the return of the exchange rate and its regularity within a month of applying the new rate." He predicted that "Iraq will need at least three to four months to achieve this."

Last Tuesday, the governor of the Central Bank of Iraq, Ali Al-Alaq, said that "a decline in the parallel dollar exchange rate will occur during the coming period."

"The central bank has launched multiple packages of measures, and the packages that have been launched are being dealt with seriously to control the parallel dollar exchange rate," al-Alaq said.

But Jamal Kojar, a member of the parliamentary finance committee, has a different opinion, arguing that "government measures are not enough to reduce the gap between the market price and the official price."

"The disparity is very large and the government's steps have not affected the value of the dinar much and are useless so far," Koger said.

"The Iraqi government has not been able to overcome the obstacles faced by traders in order to ensure that their remittances quickly reach the final beneficiary," he said.

He pointed out that there are "major corruption operations in private banks, which have begun to deal with large capitalists in order to divide the profits achieved from the difference between the two prices, official and parallel."

The Central Bank of Iraq has allowed banks and private exchange companies to buy dollars at the official rate and sell them to eligible traders at a small profit margin.

But what is happening on the ground is that some banks buy millions of dollars from the Central Bank in cooperation with some traders, and then sell them in the local market at a profit margin of more than two hundred and fifty dinars per dollar, according to Koger.

Koger also pointed to "the continuation of dollar smuggling operations, with the complicity of investors, large traders and some banks."

"The members of the Finance Committee sat down with the governor of the central bank and other officials and we told them of these concerns, but they have not been resolved until today," Koger said.

"The exchange rate crisis is likely to continue to teeternate between taking one step and taking two steps back,"

Koger accused "influential political parties of being behind currency smuggling operations in cooperation with large banks that represent fronts for political parties and figures".

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