Despite Government Measures, Iraqi Dinar Continues to Fall against USD

The Governor of the Central Bank speaks before the Parliamentary Finance Committee about the exchange rate. (Iraq News Agency)
The Governor of the Central Bank speaks before the Parliamentary Finance Committee about the exchange rate. (Iraq News Agency)
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Despite Government Measures, Iraqi Dinar Continues to Fall against USD

The Governor of the Central Bank speaks before the Parliamentary Finance Committee about the exchange rate. (Iraq News Agency)
The Governor of the Central Bank speaks before the Parliamentary Finance Committee about the exchange rate. (Iraq News Agency)

The Iraqi dinar continued to fall against the US dollar, despite the government’s vigorous measures. This decline negatively affected commercial transactions in most of the wholesale markets in Baghdad and the provinces.

On Monday, the exchange rate reached IQD 1,540 to the dollar in the parallel market, compared to IQD 1,320 to the dollar in the official currency auction approved by the Central Bank.

A wholesaler in the Shorja commercial souk in Baghdad told Asharq Al-Awsat that the market was witnessing a great stagnation, adding that the movement of buying and selling has declined recently due to the fluctuating exchange rates.

He noted that traders are worried that the Iraqi dinar would continue to fall against the dollar, touching the ceiling of IQD 1,700 for one dollar, as happened at the beginning of 2023, thus contributing to the rise of commodity prices and basic materials.

The trader did not rule out that the recent US sanctions on 14 Iraqi banks and the central bank’s ban on dealing with them in dollars was behind the new exchange crisis, although the central bank is pumping more money into the currency auction.

Last week, the US Treasury imposed sanctions on 14 Iraqi banks in a crackdown on Iran’s dealings in dollars.

The Wall Street Journal quoted US officials as saying they were taking action against the banks after uncovering information that they engaged in money laundering and fraudulent transactions, some of which may have involved sanctioned individuals and raised concerns that Iran could be benefitting from the dealings.

The continuous decline in the exchange rates of the dinar against the dollar prompted Prime Minister Mohammad al-Sudani to meet with the Governor of the Central Bank, Ali al-Alaq, on Sunday, in the presence of financial advisors and the director general of investment in the bank.

According to a statement, al-Sudani was briefed on “clarifications about the most important facilitations provided by the Central Bank, which include allowing small merchants and individuals to finance their imports without the need to establish a company, through government and private banks that have direct relations with correspondent banks.”

Participants in the meeting also emphasized the need to maintain the compensation for citizens and companies who buy dollars at the unofficial rate.

During the meeting, al-Alaq revealed “the bank’s intention to resume selling cash dollars through licensed banks in Nineveh governorate.”



ECB's Lagarde Renews Integration Call as Trade War Looms

FILE PHOTO: European Central Bank President Christine Lagarde and Governor of the Bank of Finland Olli Rehn arrive at the non-monetary policy meeting of the ECB's Governing Council in Inari, Finnish Lapland, Finland February 22, 2023. Lehtikuva/Tarmo Lehtosalo via REUTERS//File Photo
FILE PHOTO: European Central Bank President Christine Lagarde and Governor of the Bank of Finland Olli Rehn arrive at the non-monetary policy meeting of the ECB's Governing Council in Inari, Finnish Lapland, Finland February 22, 2023. Lehtikuva/Tarmo Lehtosalo via REUTERS//File Photo
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ECB's Lagarde Renews Integration Call as Trade War Looms

FILE PHOTO: European Central Bank President Christine Lagarde and Governor of the Bank of Finland Olli Rehn arrive at the non-monetary policy meeting of the ECB's Governing Council in Inari, Finnish Lapland, Finland February 22, 2023. Lehtikuva/Tarmo Lehtosalo via REUTERS//File Photo
FILE PHOTO: European Central Bank President Christine Lagarde and Governor of the Bank of Finland Olli Rehn arrive at the non-monetary policy meeting of the ECB's Governing Council in Inari, Finnish Lapland, Finland February 22, 2023. Lehtikuva/Tarmo Lehtosalo via REUTERS//File Photo

European Central Bank President Christine Lagarde renewed her call for economic integration across Europe on Friday, arguing that intensifying global trade tensions and a growing technology gap with the United States create fresh urgency for action.
US President-elect Donald Trump has promised to impose tariffs on most if not all imports and said Europe would pay a heavy price for having run a large trade surplus with the US for decades.
"The geopolitical environment has also become less favorable, with growing threats to free trade from all corners of the world," Lagarde said in a speech, without directly referring to Trump.
"The urgency to integrate our capital markets has risen."
While Europe has made some progress, EU members tend to water down most proposals to protect vested national interests to the detriment of the bloc as a whole, Reuters quoted Lagarde as saying.
But this is taking hundreds of billions if not trillions of euros out of the economy as households are holding 11.5 trillion euros in cash and deposits, and much of this is not making its way to the firms that need the funding.
"If EU households were to align their deposit-to-financial assets ratio with that of US households, a stock of up to 8 trillion euros could be redirected into long-term, market-based investments – or a flow of around 350 billion euros annually," Lagarde said.
When the cash actually enters the capital market, it often stays within national borders or leaves for the US in hope of better returns, Lagarde added.
Europe therefore needs to reduce the cost of investing in capital markets and must make the regulatory regime easier for cash to flow to places where it is needed the most.
A solution might be to create an EU-wide regulatory regime on top of the 27 national rules and certain issuers could then opt into this framework.
"To bypass the cumbersome process of regulatory harmonization, we could envisage a 28th regime for issuers of securities," Lagarde said. "They would benefit from a unified corporate and securities law, facilitating cross-border placement, holding and settlement."
Still, that would not solve the problem that few innovative companies set up shop in Europe, partly due to the lack of funding. So Europe must make it easier for investment to flow into venture capital and for banks to fund startups, she said.