Political factions involved in speculation and dollar smuggling operations have suffered a significant blow as Iraqi authorities are set to ban external transactions in the US currency starting in January.
A government official, speaking to Asharq Al-Awsat, affirmed that Washington is looking to reduce the circulation of physical dollars to prevent their use in suspicious activities, even months after the implementation of the US Federal Reserve’s restrictions.
Companies and individuals in Iraq will be required to conduct financial transactions in the local dinar at the official exchange rate.
However, this process is expected to take a considerable amount of time before the Iraqi market fully adapts, unless political forces discover new ways of circumventing these restrictions, as indicated by an Iraqi banking official.
According to journalistic and financial sources, Washington rejected Iraq’s request for a billion dollars in cash from the Federal Reserve Bank due to concerns over Baghdad’s conflicting efforts to curb the use of physical US dollars and halt illicit flows to Iran.
Washington routinely dispatches shipments of dollars to Iraq through US military aircraft, but since the end of last year, it has imposed restrictions and mechanisms to track e-transfers involving these funds.
As a result, Iraq’s Central Bank has been forced to reduce the allotments of currency exchange companies in physical US dollars by more than half.
This will have future implications on the exchange rate of the Iraqi dinar against the dollar in the parallel market, and it will almost halve Iraq’s imports from Iran.
Talk of the ban has forced political parties within the “Coordination Framework” coalition to discuss “ideas on how to swiftly change the leadership of the Central Bank,” according to Iraqi lawmakers who spoke with Asharq Al-Awsat.
However, what hinders this decision is the political timing, which raises US concerns.
The Central Bank of Iraq was supposed to succeed in channeling dollar sales through the official exchange window, but political entities with financial and commercial interests have found a way to trade dollars in an off-the-grid parallel market beyond the state’s control.
