The Central Bank of Iraq (CBI) has ruled out a threat to hard currency reserves as a result of borrowing.
While noting that the oil market recovery maximizes the reserve, it stressed that changing the exchange rate had created competition between local producers and importers.
According to the Iraqi News Agency (INA), Director General of the Accounting Department at the CBI Ihssan Shamran said that “the CBI’s dollar reserve is not directly affected by the Finance Ministry’s borrowings from banks,” stressing that “its impact is indirect and limited.”
The CBI monitors and ensures that the Iraqi dinars handed over to traders to buy dollars are not forged.
Changing the exchange rate will help marketing local products after the value of imported goods increased by 22 percent, Shamran said.
The oil market recovery would maximize the need for hard currency and reduce the deficit in the 2021 general budget, he noted.
“The dollars levied from the differences in the sale of oil will increase the CBI’s foreign currency reserves and reduce the pressure on the bank’s local currency reserves.”
On Dec. 19, the CBI announced it will devalue the dinar by over 20 percent in response to a severe liquidity crisis brought on by low oil prices.
In a statement, the Central Bank set the new rate for the dinar, which is pegged to the US dollar, at 1,450 IQD when selling to the Iraqi Finance Ministry.
The dinar will be sold to the public at 1,470 IQD and to other banks at 1,460 IQD.
The bank justified the devaluation saying it was the product of “intense deliberations” with the prime minister, finance minister and lawmakers, and stressing it would be a one-time occurrence.
“The Central Bank will defend this price and its stability with the support of its foreign reserves,” which it maintained are still at stable levels.
