Dinar Woes: Iraqi Currency Traders Break Sanctions

Additionally opposition politicians have suggested that the Prime Minister wants to use this alleged control of the Central Bank to help the regimes he appears to support in Iran and Syria.

The Prime Minister wants some control over the Central Bank in order to do two things, Maysoun al-Damlouji, spokesperson for the opposition Iraqiya bloc, said in a press release last month. They want to finance government overspending by and they also want to support the economies of the two neighbouring countries who have been sanctioned.

The US dollar has always been popular in Iraq. Because of the low international value of the Iraqi dinar (IQD1,000 is worth around US$0.85), in order to make any large purchases, buyers would need to quite literally bring a bag of money to the sale. Instead of doing this, locals would simply exchange their bags of Iraqi money for a handful of US cash.

Additionally, for quite a long time locals simply didnt trust the Iraqi dinar it had fluctuated so radically during various conflicts and political disasters that they lost confidence in it.

Many employees in Iraq regularly exchange part of their salaries to US dollars in order not to lose the purchasing power of their money. Samir Ahmad is one of these; every time he gets paid he goes to Sadoun to exchange half his salary, paid to him in dinars, for US dollars. You cant trust the dinar, Ahmad, an employee of a government ministry, complains. And actually some of my colleagues buy gold instead of US dollars, he added.

Officials at the Central Bank of Iraq have said that, before the withdrawal of US troops late last year, the Central Bank was selling US$160 million every day. But that demand has increased dramatically over the past few months. On some days, we sell as much as US$400 million.

And the Central Bank of Iraq does seem to be getting worried about the huge, illicit trade in US dollars. Over the past three months it has tried to stymie this by instituting a series of controls, requesting that all banks and licensed traders submit documents that involve transfers of US dollars.

Reuters reported recently that the bank tightened regulations over who can participate in [currency] auctions Merchants participating in currency auctions are now required to be members of the Iraqi Chamber of Commerce, which means they have to register business more formally, and have to obtain licenses from the trade ministry. It also closed some unlicensed exchange shops.

It is only natural for the Iraqi dinar to be affected by the fact that two neighbouring lands are experiencing economic crisis, the deputy governor of the Central bank, Mathhar Saleh, told NIQASH in a phone interview. Iraqs open door policies, the freedom for foreign exchange and the relative economic stability here are all factors that encourage this illicit trade in foreign country.

Saleh said the lack of Iraqi knowledge about international financial transactions had shocked him. Some clients visit the bank to make transfers and theyre carrying millions of dollars yet they dont even have bank accounts, Saleh noted.