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.
