Reuters reports that Iraq’s central bank, struggling to stem an illicit tide of dollars into sanctions-bound Iran and Syria, has had some success in steadying its own dinar by pumping dollars to Iraqis through two state-run banks.
Late last month the central bank allowed U.S. dollars to be sold at a fixed rate through two state-run banks, Rafidain and Rasheed, helping to push the dollar from 1,280 dinars to 1,210 dinars and closing the gap between the official rate and the market price.
The central bank has started channeling $6 million a day through the two banks, Mudher Kasim, deputy governor of the Central Bank of Iraq (CBI), told Reuters. "The difference in the value of the Iraqi dinar between the central bank price and the market was seven percent but now it is less than four percent ... We are expecting it to drop below two percent in a few weeks", he said.
The central bank usually sells about $250,000 to private banks and $75,000 to currency exchange and money transfer shops on a weekly basis.
For months, traders have been snapping up dollars at the central bank’s daily auctions for sale in neighboring Syria and Iran, buying up to $400 million on some days in December from a previous average of $150 million, according to central bank data.
Kasim said the CBI had since extended the clearance period to six months to allow for more flexibility in the importing process. Four private banks have also asked the CBI for permission to sell dollars at a fixed rate.
The CBI has said Iraq’s large foreign reserves, which have risen to a record $60 billion on the back of high oil prices, will shield its financial system from damage.
However, some economic analysts say the measures may not sustain dinar stability in the long run.
"We are still importing more than 85 percent of our needs and there is still pressure from Syria and Iran," said economic expert Majid al-Souri.