The US dollar (USD) has been on a downtrend against the Iraqi dinar (IQD) throughout 2023.
This depreciation, exceeding 10%, came in part due to the Iraqi government’s earlier decision to prohibit personal and business transactions in US dollars.
At press time on October 6, the USD/IQD trading pair was trading at 1,309, down 10.2% year-to-date.
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However, that may not be all when it comes to USD’s declines against the Iraqi currency, as the Middle Eastern country prepares to take additional steps to de-dollarize its economy.
Iraq to terminate all USD cash withdrawals by 2024
According to a Thursday report by Reuters, Iraq plans to ban cash withdrawals and transactions in US dollars as of January 1, 2024 – marking the nation’s latest in a series of efforts aimed at restricting the misuse of its hard currency reserves in financial crimes and the evasion of US sanctions against Iran.
The decision comes as the Iraqi Central Bank (CBI) looks to extinguish the illegal use of some of 50% of the $10 billion the country imports in cash from the New York Federal Reserve every year.
Additionally, it is a move within a broader Iraq’s push to de-dollarize the economy after the greenback became a preferred currency over local notes as the population grew tired of recurring wars and crises in the wake of the 2003 US invasion.
According to the CBI’s statement, residents who deposit dollars into banks before the end of 2023 will be able to withdraw their USD funds next year. On the other hand, those who deposit the greenback in 2024 can only withdraw funds in local currency at the official rate of 1,320 IQD per dollar.
New measures could weaken IQD dinar
Several local banks have imposed restrictions on dollar cash withdrawals in recent months, exacerbating an ongoing scarcity issue.
As a result, the parallel market exchange rate has climbed higher. This situation has arisen due to a surge in attempts to withdraw dollars simultaneously, reflecting widespread financial system concerns. At the same time, some banks also faced shortages as they extended dollar-denominated loans later repaid in dinars.
Mazen Ahmed, the director-general of investment and remittances at CBI, said the dinar could lose some additional value in the parallel market as the new measures went into force, although he sees it as an acceptable knock-on effect.
“The cost we are carrying today is nothing compared to this goal,” Ahmed said, adding that the parallel market USD/IQD rate is mostly used for illicit transactions.
“We don’t have a problem with the (parallel) exchange rate hitting 1,700. If they tell me the rate is 1,700, I tell them: ‘You want to import from Iran. You want to smuggle. You have corrupt money that you want to get out.'”
– Ahmed added.
As long as transparent and legal transactions take place via the official exchange rate, the rest isn’t important, he added.
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