Last week the federal supreme court ruled in favor of the government's request to have the Central Bank of Iraq (CBI), along with the Independent High Electoral Commission, the Integrity Commission, and the High Commission for Human Rights, put under the supervision of the cabinet. This is bad news for the central bank.
Up to now, the CBI has been under the supervision of the parliament, as stipulated by the constitution. There is a good reason for this. Under the parliament, the central bank is not answerable to any single politician. Under the cabinet, it could potentially be directly controlled by one man.
A dangerous opportunity has been created for the government to increase the money supply arbitrarily. Saddam Hussein tried this during the 1990s. The result was hyperinflation.
Iraq’s US$ 50 billion in forex reserves are also at risk. There will be a big temptation to use these for local patronage projects with foreign currency-denominated expenses. If this happens, the CBI could be saddled with significant losses. It could even end up having to be recapitalized.
The court's ruling is great news for anyone who might some day be in a position to "wet his beak" at the CBI's expense. Bad news for everyone else.