Iraq's Central Bank Suddenly Halts Dollar Cash Withdrawals

Owners of currency exchange companies demonstrated in front of the Central Bank of Iraq (Reuters)
Owners of currency exchange companies demonstrated in front of the Central Bank of Iraq (Reuters)
TT
20

Iraq's Central Bank Suddenly Halts Dollar Cash Withdrawals

Owners of currency exchange companies demonstrated in front of the Central Bank of Iraq (Reuters)
Owners of currency exchange companies demonstrated in front of the Central Bank of Iraq (Reuters)

The Central Bank of Iraq (CBI) said it will ban cash withdrawals and transactions in US dollars in a move that surprised markets.

The move aims to stamp out 50 percent of the use of $10 billion that Iraq imports in cash from the New York Federal Reserve each year.

The abrupt decision has sown confusion in the Iraqi financial markets. It is expected to lead to massive withdrawals, as predicted by several Iraqi bankers anticipating a significant wave next Sunday.

The CBI director-general of investment and remittances, Mazen Ahmed, told Reuters that Iraq will ban cash withdrawals and transactions in US dollars as of Jan. 1, 2024.

Ahmed indicated it is a push to curb the misuse of its hard currency reserves in financial crimes and the evasion of sanctions on Iran.

However, an hour after the report, a statement clarified that the ban on cash dollar withdrawals would only apply to accounts receiving transfers from abroad and under no circumstances affect the dollar balances of Iraqi citizens.

Ahmed explained that people who deposit dollars into banks before the end of 2023 will continue to be able to withdraw funds in dollars in 2024.

Refuting expectations that the exchange rate would skyrocket to 1,700, Ahmed emphasized that the CBI was taking steps to reduce the parallel market exchange rate, and there was no indication that the market rate would hit 1,700.

Some signs of frustration with dollar shortages have already begun to emerge.

According to an official statement, the CBI reforms aim to ensure the bank and the broader banking system's compliance with international standards, preventing the dollar from reaching entities prohibited from acquiring it or using it for speculative purposes.

Dozens of Iraqis have reportedly protested outside the CBI headquarters in Baghdad, calling for control over the dollar exchange rate.

Despite governmental measures believed to stabilize the exchange rate, stemming the deterioration in the dinar's value, which stood at 1,550 per dollar as of Thursday, seems challenging.

Demonstrators, including Baghdad-based currency exchange business owners, argue that the failure to stabilize the exchange rate has unsettled the markets and inflated the cost of essential goods.

For months, the CBI has been imposing restrictions on dollar exchanges, responding to the stipulations set by the US Federal Reserve, which observed suspicious activities related to dollar smuggling, according to official data.

Bank officials attribute the dinar's decline to the rising demand for dollars and the proliferation of speculators facing severe penalties.

The exchange rate continues to witness unprecedented surges, with the rate standing at 1,550 per dollar as of Thursday, accompanied by sharp increases in essential goods and services prices.

The crisis began months ago when the CBI announced controls on dollar exchange rates after the US Treasury Department imposed restrictions on 14 Iraqi banks suspected of smuggling dollars abroad.

Recently, the CBI stated that the sanctioned banks have begun adhering to required transparency guidelines, noting that Iraq is considering adopting other currencies to facilitate foreign transfers by opening direct channels.



Dollar Tumbles as Investors Seek Safe Havens after US Tariffs

US Dollar banknote is seen in this illustration taken July 17, 2022. REUTERS/Dado Ruvic/Illustration/File Photo
US Dollar banknote is seen in this illustration taken July 17, 2022. REUTERS/Dado Ruvic/Illustration/File Photo
TT
20

Dollar Tumbles as Investors Seek Safe Havens after US Tariffs

US Dollar banknote is seen in this illustration taken July 17, 2022. REUTERS/Dado Ruvic/Illustration/File Photo
US Dollar banknote is seen in this illustration taken July 17, 2022. REUTERS/Dado Ruvic/Illustration/File Photo

The dollar weakened broadly on Thursday, while the euro rallied after President Donald Trump announced harsher-than-expected tariffs on US trading partners, unsettling markets as investors flocked to safe havens such as the yen and Swiss franc.

The highly anticipated tariff announcement sent shockwaves through markets, with global stocks sinking and investors scrambling to the safety of bonds as well as gold.

Trump said he would impose a 10% baseline tariff on all imports to the United States and higher duties on some of the country's biggest trading partners.

The new levies ratchet up a trade war that Trump kicked off on his return to the White House, rattling markets as fears grow that a full-blown trade war could trigger a sharp global economic slowdown and fuel inflation, Reuters reported.

The dollar index, which measures the US currency against six others, fell 1.6% to 102.03, its lowest since early October.

The euro, the largest component in the index, gained 1.5% to a six-month high of $1.1021.

Trump has already imposed tariffs on aluminium, steel and autos, and has increased duties on all goods from China.

"Eye-watering tariffs on a country-by-country basis scream 'negotiation tactic', which will keep markets on edge for the foreseeable future," said Adam Hetts, global head of multi-asset and portfolio manager at Janus Henderson Investors.

The risk-sensitive Australian dollar added 0.56% to $0.63365, while the New Zealand dollar climbed 0.9% to $0.5796.

The yen strengthened to a three-week high against the dollar and was last up 1.7% at 146.76 per dollar, while the Swiss franc touched its strongest level in five months at 0.86555 per dollar.

"Negotiations are now going to be front of mind. This is probably the other big part of why we're seeing some of these currencies outperform," said Nicholas Rees, Head Of Macro Research at Monex Europe.

"It's very difficult actually to see how other countries make concessions that would encourage the US to lift these tariffs. And I think that's a big underpriced risk."

Investors are worried that some US trading partners could retaliate with measures of their own, leading to higher prices.

EU chief Ursula von der Leyen described the tariffs as a major blow to the world economy and said the 27-member bloc was prepared to respond with countermeasures if talks with Washington failed.

Worries about a global trade war have intensified since Trump stepped into the White House in January, combining with a slew of weaker-than-expected US data to stoke recession fears and undermine the dollar.

The dollar index is down more than 5.7% this year.

"These tariffs have certainly significantly increased the risks to the downside for global growth, so on balance we think that will eventually start to become more supportive again for the dollar," said Lee Hardman, senior currency analyst at MUFG.

In Asia currencies, China's onshore yuan slid to its weakest level against the dollar since February 13. China's offshore yuan also hit a two-month low.

The Vietnamese dong slumped to a record low.

Elsewhere, the Mexican peso and Canadian dollar strengthened.

Canada and Mexico, the two largest US trading partners, already face 25% tariffs on many goods and will not face additional levies from Wednesday's announcement.