Iraq Suffers As Dollar Increases In Value

(Al Sharqiya)

On January 23, Prime Minister Mohammed al-Sudani fired the head of the Central Bank of Iraq Mustafa Ghaleb over the falling value of the dinar against the U.S. dollar. Ghaleb was scapegoated for the crisis in the economy caused by the U.S. Federal Reserve increasing interest rates to fight inflation which has increased the value of the dollar. Politicians have been complaining about the exchange rate and activists from the protest movement are planning on a demonstration on Wednesday over the matter. Since the dinar is pegged to the dollar there is little Baghdad can do about the issue other than attempt face saving measures such as getting rid of Ghaleb.

 

The increase in the dollar rate has been exacerbated by new rules placed on buying the currency by the United States. For years Washington has complained about the abuses of the Central Bank of Iraq’s dollar auctions. The official exchange rate is lower than ones found in other markets so the ruling parties, the Islamic State and foreign countries have bought dollars in the exchange and then converted them for a profit. Much of that money is sent overseas to places like Lebanon, Iran, and Syria. At the end of 2022 U.S. Treasury and Federal Reserve officials were sent to Baghdad where they implemented a new process where an electronic form has to be filled out to buy or transfer dollars which must be approved by the Americans and the Central Bank of Iraq. Up to 80% of the requests have been denied. That is causing a shortage of dollars in Iraq while demand is still high leading it to increase in value even more. This has trickled down throughout the economy. 

 

The Iraqi government has negatively been affected by this new process. Oil is the main source of revenue for Baghdad which is sold for dollars. That money is then converted into dinars at the Central Bank auctions so that the government can pay bills like government salaries and pensions. The administration doesn’t have the money to do that right now because of the new regulations are slowing the process.

 

Average Iraqis and companies are also caught in the middle of this crisis. Prices for basic goods like food and materials for construction have skyrocketed in recent weeks due to the declining dinar. Most commercial transactions are also done in cash with dollars often used but now there is a short supply of them. These provided additional incentives to sacrifice the Central Bank head to try to stave off further complaints at least for the short term.

 

The resolution to this dilemma lies in banks and other institutions figuring out the new standards being set and adopt the proper business practices so that their requests for dollars will be approved. Other will have to learn how to forge the right documents to get around the system. As for the public they will get little relief because the ruling parties are not interested in their plight. The elite only rely upon the people every few years for their votes otherwise they are not a concern thanks to the country’s oil wealth which means the government doesn’t rely upon the population for taxes.

 

SOURCES

 

Ebrahim, Hudhaifa, “US sanctions on Iran cause turmoil in Iraq," Jerusalem Post, 1/20/23

 

Al Hurra, “The dollar crisis in Iraq .. Baghdad is worried about the shock policy and Washington is trying to prevent smuggling to Iran and Syria,” 1/20/23

 

Al Mada, “British report: Iraq is facing a scarcity of its currency that will force it to issue new editions,” 1/21/23

 

Al Masalah, “The forces of change: Wednesday’s demonstrations against the exchange rate of the dollar will be as individuals and personalities,” 1/23/23

 

Salem, Amr, “Iraqi PM relieves CBI governor of his post,” Iraqi News, 1/23/23