“The dollar is out of control.” What will happen in Iraq’s banks on Sunday?
The spark started from Reuters
An informed banking source in Baghdad expected that next Sunday will be an “unusual day” in all Iraqi banks, and may witness unprecedented overcrowding and crowding at cash withdrawal windows, after a dramatic statement by an official from the Central Bank to Reuters, that withdrawing the dollar in cash will stop as of Early next year, in an effort by the government to limit transactions in dollars to the maximum extent, coinciding with approximately one year since the start of American strictness in transferring money to Iraq.
The banking source in an interview:
The statement of the remittance official at the Central Bank led to a crisis within the bank, and we expect this to affect bank customers.
I expect that customers will rush to the banks on Sunday morning to withdraw their balances in dollars, because things have gotten out of control, especially since the Treasury Department and the US Federal Reserve have not agreed to deliver the dollar in cash to Iraq since last February.
The most affected will be those who depend on periodic external transfers that reach them through Iraqi banks, such as salaries, rents, etc., and it is better for them to look for other banks outside Iraq to receive their money.
Exclusive: Iraq to end all dollar cash withdrawals by Jan. 1 2024 - C.bank official
BAGHDAD, Oct 5 (Reuters) - Iraq will ban cash withdrawals and transactions in U.S dollars as of Jan. 1 2024 in the latest push to curb the misuse of its hard currency reserves in financial crimes and the evasion of U.S. sanctions on Iran, a top Iraqi central bank official said.
The move aims to stamp out the illicit use of some 50% of the $10 billion that Iraq imports in cash from the New York Federal Reserve each year, Mazen Ahmed, director-general of investment and remittances at the Iraqi central bank (CBI), told Reuters
It's also part of a broader push to de-dollarize an economy that has seen the greenback preferred over local notes by a population weary of recurring wars and crises following the 2003 U.S. invasion.
People who deposit dollars into banks before the end of 2023 will continue to be able to withdraw funds in dollars in 2024, Ahmed said. But dollars deposited in 2024 could only be withdrawn in local currency at the official rate of 1,320.
The parallel market rate of the Iraqi dinar sat at 1,560 on Thursday, roughly 15% percent below the official rate.
"You want to transfer? Transfer. You want a card in dollars? Here you go, you can use the card inside Iraq at the official rate, or if you want to withdraw cash, you can at the official rate in dinars," Ahmed said.
"But don't talk to me about cash dollars anymore."
Iraq has already set up a platform to regulate wire transfers that make up the bulk of its dollar demand and that used to be a hotbed of fake receipts and fraudulent transactions that siphoned dollars to Iran and Syria, both countries under U.S. sanctions
Set up in concert with authorities in the U.S., where Iraq's$120 billion in reserves from oil sales are held, that system was now nearly airtight, Ahmed said, providing dollars at the official rate to those engaged in legitimate trade such as imports of food and consumer goods.
But the cash withdrawals have continued to be misused, he said, including by would-be travellers provided with a state quota of $3000 who have found ways to game the system.
Iraq is heavily reliant on Washington's goodwill to ensure oil revenues and finances do not face U.S. censure.
At the same time, the current government, which is backed by powerful parties and armed factions close to Iran, has been careful not to alienate Tehran, nor anger the parties and armed groups with deep interests in Iraq's highly informal economy.
DOLLAR SHORTAGE
Many local banks have already been limiting dollar cash withdrawals in the past months, compounding a shortage that has seen the parallel market exchange rate continue to rise.
Ahmed said some banks were low on dollars because many people were trying to withdraw dollars at once amid a feeling of unease over the financial system, while some banks also had shortages because they provided dollar-denominated loans that were then paid back in dinars.
The CBI had also limited the amount of dollars it was providing as part of an agreement with the Fed to limit cash and shift towards e-payment, he said.
Ahmed said the CBI expected the dinar to lose more value as the new measures went into force but said it was an acceptable side-effect of formalising the financial system and the CBI was providing dollars at the official rate for all legitimate purposes.
"The cost we are carrying today is nothing compared to this goal," he said.
"We don't have a problem with the 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.'"
He added: "As long as all transparent and legal financing operations happen via us (at the official rate), the rest does not matter."
But signs have emerged that the CBI's plans will not be met with open arms.
On Thursday, video circulated on social media showing a depositor at a Baghdad bank threatening to burn it down if he did not receive his deposit in cash dollars, a scene reminiscent of steps depositors have taken amid Lebanon's banking crisis.
"I swear I will burn it down. I swear I will enter the safe and take my money" the man says.
Reporting by Timour Azhari; Editing by William Maclean
the first article caused such a stir they had to make a rebuttal
Iraq c.bank moving to reduce parallel market exchange rate - statement
BAGHDAD, Oct 5 (Reuters) - Iraq's central bank is taking steps to reduce the parallel market rate of the dinar to the U.S. dollar and there is no indication that the exchange rate will hit 1,700 dinars per dollar, the Iraqi central bank said in a statement. The Iraqi central bank also said that a ban on cash dollar withdrawals as of Jan. 1, 2024 would only affect dollar transfers from abroad, while the account balances of Iraqi citizens in dollars would not be affected.
The statement came as a response to a story published earlier Thursday by Reuters.
Clarification from the Central Bank regarding statements by the official of the Foreign Transfers Department
On Thursday, the Central Bank denied expectations attributed to it that the exchange rate would reach 170 thousand dinars
The Director General of the Department of Foreign Investments and Transfers, Mazen Sabah Ahmed, said in a statement received by the Maalouma Agency, “The statements attributed to us by Reuters included press formulations that the agency reported in an inaccurate form.”
Ahmed stressed, “The Central Bank guarantees dollar deposits, and the citizen who deposited his money in dollars with any Iraqi bank previously or by 2024 has an inherent right to receive these amounts in cash and in US dollars.”
He added, "There was no mention in the press interview of expectations that the exchange rate would reach 1,700, and that the Central Bank has its tools that it uses to reduce the difference between the two prices, and there are no indications that the exchange rate in the parallel market will reach this level. On the contrary, there are measures being taken." "It will contribute to reducing the difference."
He continued, "The reforms undertaken by the Central Bank of Iraq aim to achieve compliance of the bank and the banking system in general with international compliance standards, and to prevent the dollar from reaching parties prohibited from obtaining it or speculating with it."
He continued, "The announcement that the date of 1-1-2024 will be the beginning of stopping cash withdrawals includes transfers received only from outside Iraq according to certain arrangements that guarantee the sustainability of business and does not include in any way citizens’ balances in US dollars."
The Central Bank issues a clarification regarding the ban on cash withdrawals and transactions in dollars early next year
The Central Bank of Iraq confirmed on Thursday that citizens’ deposits in Iraqi banks in US dollars are a guaranteed right for the citizen.
The Central Bank stated in a statement received by Shafaq News Agency: “The statements attributed to the Director General of the Department of Investments and Foreign Transfers, Mazen Sabah Ahmed, in Reuters, included press formulations that were reported by the agency in an inaccurate form
The statement quoted Ahmed as saying, “The Central Bank guarantees dollar deposits, and the citizen who deposited his money in dollars with any Iraqi bank previously or by 2024 has an inherent right to receive these amounts in cash and in US dollars.”
He added, "There was no mention in the press interview of expectations that the exchange rate would reach 1,700 and that the Central Bank has its tools that it uses to reduce the difference between the two prices. There are no indications that the exchange rate in the parallel market will reach this level. On the contrary, there are measures being taken that will contribute to... Reducing the difference.
He pointed out that "the reforms undertaken by the Central Bank of Iraq aim to achieve compliance of the bank and the banking system in general with international compliance standards, in a way that prevents the dollar from reaching parties prohibited from obtaining it or speculating with it."
He pointed out that "the declaration that the date of 1/1/2024 will be the beginning of stopping cash withdrawals includes transfers received only from outside Iraq according to certain arrangements that guarantee business sustainability, and does not in any way include citizens’ balances in US dollars."
Central Bank: The dollar will not reach 170 thousand dinars. We have stopped external transfers only
Clarification from the Central Bank of Iraq
The Director General of the Department of Investments and Foreign Transfers, Mazen Sabah Ahmed, issued a clarification regarding the statements attributed to him by Reuters, saying that they included press formulations that were reported by the agency in an inaccurate form. Ahmed confirmed:
1. The Central Bank guarantees dollar deposits, and the citizen who deposited his money in dollars with any Iraqi bank previously or by 2024 has an inherent right to receive these amounts in cash and in US dollars.
2. It was not mentioned in the press interview that there are expectations that the exchange rate will reach 1700, and that the Central Bank has its tools that it uses to reduce the difference between the two prices, and there are no indications that the exchange rate in the parallel market will reach this level. On the contrary, there are measures being taken that will contribute to Reducing the difference.
3. The reforms undertaken by the Central Bank of Iraq aim to achieve compliance of the bank and the banking system in general with international compliance standards, and to prevent the dollar from reaching parties prohibited from obtaining it or speculating with it.
4. The announcement that the date of 1-1-2024 will be the beginning of stopping cash withdrawals includes transfers received only from outside Iraq according to specific arrangements that guarantee business sustainability and does not include in any way citizens’ balances in US dollars.
Central Bank of Iraq
Government source: The financial situation in Iraq is good and there is no shortage of dollars in cash
A government source announced that the financial situation in Iraq is good and there is no shortage of the monetary supply of the dollar, especially indicating that Iraq received today a shipment amounting to 500 million dollars.
this is on the CBi website
Clarification from the Central Bank of Iraq
The Director General of the Department of Investments and Foreign Transfers, Mazen Sabah Ahmed, issued a clarification regarding the statements attributed to him in Reuters, saying that they included journalistic formulations that were reported by the agency in an inaccurate form. Ahmed confirmed:
- The Central Bank guarantees dollar deposits, and the citizen who deposited his money in dollars with any Iraqi bank previously or by the year 2024 has an inherent right to receive these amounts in cash and in US dollars.
- There was no mention in the press interview of expectations that the exchange rate would reach 1,700, and that the Central Bank has its own tools that it uses to reduce the difference between the two prices, and there are no indications that the exchange rate in the parallel market will reach this level. On the contrary, there are measures being taken that will contribute to reducing the difference. .
- The reforms undertaken by the Central Bank of Iraq aim to achieve compliance of the bank and the banking system in general with international compliance standards, and to prevent the dollar from reaching parties prohibited from obtaining it or speculating with it.
- The announcement that the date of 1/1/2024 will be the beginning of stopping cash withdrawals includes transfers received only from outside Iraq according to certain arrangements that guarantee the sustainability of the business and does not in any way include citizens’ balances in US dollars.
Central Bank of Iraq
The Iraqi Central Bank explains the mechanisms for withdrawing dollars in response to Reuters
The Central Bank of Iraq said in a statement reported by Reuters that it is taking steps to reduce the price of the dinar against the dollar in the parallel market, and there is no indication that the exchange rate will reach 1,700 dinars per dollar. The Central Bank of Iraq added that the ban on cash withdrawals in dollars as of January 1, 2024 will only affect dollar transfers from abroad, while Iraqi citizens’ account balances in dollars will not be affected.
The statement came in response to a report published by Reuters earlier, Thursday.
Reuters quoted an official in the Central Bank of Iraq as saying that Iraq will end all cash withdrawals in dollars by January 1, 2024, and that deposits in dollars made before the end of 2023 will remain eligible for withdrawal in dollars in 2024. He expected an increase in the dinar’s exchange rate against the dollar. But there is no problem with it reaching 1700 to the dollar.
He added: “United Nations agencies and diplomatic missions may continue to be allowed to withdraw cash in dollars.”
He stressed that the bank provides dollars at the official rate for all legitimate trade and travel activities, considering that the dollar shortage in some local banks is linked to the high demand for it and the dollar loans provided by the banks. (Reuters)
The Iraqi Central Bank is moving to reduce the exchange rate in
the parallel market
The dollar crisis is worsening in Iraq: quarrels within private banks
Iraqis who have accounts in private banks complain of the inability to receive their money transfers that reach them from abroad in hard currency, even though they have contracts for their salaries, official books, and documents related to their companies and interests, while banks refrain from delivering dollars to Iraqis under the pretext of a government decision prohibiting the circulation of the dollar and dealing in the dinar . Iraqi only, what observers consider the beginning of an economic crisis and a new global isolation for Iraq.
The Iraqi Council of Ministers issued a decision, last April, obligating all companies and banks to use the dinar only in their transactions, including the salaries of employees of foreign companies , which were in dollars and paid in dinars, and the official rate is 1,320 dinars, with the exception of diplomatic missions, which are paid in dollars, and in turn the bank The Iraqi Central Bank circulated this decision to the Iraqi banks to adhere to it, which implemented the decision and forced companies to receive all their incoming transfers in dinars and at the official rate, knowing that the exchange rate of the dollar in the markets is close to 1,600 Iraqi dinars.
Representative and member of the "Al-Asas" coalition, Hussein Arab, published a video clip on his account on the "X" platform (formerly Twitter), showing Iraqis angry that they had not received sums of money allocated to them in dollars, but the banks were refraining from giving them dollars.
He wrote: “A non-local private bank’s seizure of the amounts of financial transfers via the electronic dollar platform, estimated at 70% of Iraq’s transfers, is abnormal and catastrophic. We will have a clear position on manipulating the fate of the country’s economy. We will not remain silent.”
For his part, the independent representative in the Iraqi parliament, Hadi Al-Salami, said, “The current failure in the US dollar issue is borne by all the Iraqi governments that have ruled the country since 2003 until now, and the government of Muhammad Shiaa Al-Sudani has pledged to solve the crisis by establishing mechanisms to prevent currency smuggling.” "It was difficult, but it did not succeed in this file."
Al-Salami added, in an interview with Al-Araby Al-Jadeed, that “reforming the banking system and the dollar crisis requires controlling the currency auction, which is still selling large quantities of dollars, and we do not know where it goes,” noting that “the problem is big in Iraq, and we are facing challenges.” Huge amounts that may lead to a crack in the current system, especially since the United States of America has often warned against smuggling the dollar to neighboring countries.”
According to an advisor to the Sudanese government, “The United States of America warned the Sudanese government eight times, publicly and clearly, against the continued sale of the dollar in large quantities through the currency auction window of the Central Bank, and it provided ample evidence that the majority of buyers of the dollar are smuggling it to Iran, Syria, and Lebanon.” He explained to Al-Arabi Al-Jadeed that “this sale led to the monopoly of the dollar among merchants, and a decline in its presence in local and private banks.”
Reuters also quoted the Director General of Investment and Transfers at the Central Bank of Iraq, Mazen Ahmed, as saying, “Iraq will ban cash withdrawals and transactions in US dollars as of January 2024,” considering that “the ban is the latest campaign to limit the misuse of Iraq’s currency reserves.” "Hard currency in financial crimes and evasion of US sanctions on Iran."
But the researcher in economic affairs in Iraq, Wissam al-Jubouri, pointed out that “the government’s continued failure to deal with the dollar file, and depriving Iraqis of receiving their salaries and managing their economic and commercial affairs, is pushing them to leave Iraq, and will lead to discouraging financial transfers from abroad in the future.” .
He confirmed to Al-Arabi Al-Jadeed that "all recent government decisions are in line with smugglers, and do not serve the Iraqi economy. Rather, they lead to weak financial dealings between Iraq and the countries of the region and the world."
Earlier, American officials confirmed that Washington had imposed sanctions on 14 Iraqi banks by preventing them from conducting transactions in dollars, as part of a comprehensive campaign to combat the leakage of American currency to Iran, considering that banks and exchange companies were able to achieve huge profits from their transactions in dollars, through the use of operations. Fraudulent import.
The US sanctions included the banks “Al-Mashshar, Al-Qartas, Al-Tayef, Elaf, and Erbil, in addition to the International Islamic Bank, Trans-Iraq Bank, Mosul, Al-Rajeh, Sumer, Al-Thiqah, Or, Al-Tayef, Al-Alam, and Zain Iraq,” and according to Iraqi sources, these banks are affiliated with religious parties, militias, and armed factions loyal to Iran.
Over the past years, an average of $170 million was sold daily through what is known as the dollar auction, in which merchants, banks, and companies participate, without monitoring the end of that money, which is classified as import trade for the local market in most cases, or foreign transfers, knowing that The actual need for dollars in the markets and among merchants does not exceed $50 million per day, according to experts.
The Bank of England pledges to support the efforts of the Central Bank of Iraq to achieve financial stability in Iraq
The Bank of England pledged to strengthen cooperation with the Central Bank of Iraq and support its continued efforts for economic growth and financial stability in Iraq.
The Iraqi embassy in London stated in a statement, “Deputy Governor of the Bank of England, Dave Ramsen, received in the bank building his Iraqi counterpart, Deputy Governor of the Central Bank of Iraq, Ammar Hamad, and in the presence of representatives of the Iraqi embassy, Counselor Ahmed Muhammad Khaled and First Secretary Ali Al-Khair Allah, and from the British side, Ben Norman is Deputy Executive Director of the Center for Central Banking Studies (CCBS) at the Bank of England, and Mohammed Al-Masari is Development Policy Advisor to the UK Embassy in Baghdad.
The statement added, “During the meeting, the following was discussed:
- Deposits of the Central Bank of Iraq, where the Deputy Governor of the Bank, Ammar Hamad, provided valuable insights into the size of the Central Bank of Iraq’s deposits with the Bank of England, stressing the importance of this financial cooperation.”
- Building the capabilities of Central Bank employees: The two sides stressed the importance of strengthening the capabilities of the employees of the Central Bank of Iraq, stressing their commitment to enhancing the skills and expertise of employees in the Central Bank.
- British banks in Iraq: The meeting also focused on encouraging British banks to participate more in Iraq, with the aim of strengthening financial ties between the two countries.
According to the statement, Ramsen emphasized “the historical relationship between the two institutions and the long-term relations between the United Kingdom and Iraq,” stressing “the Bank of England’s commitment to strengthening this partnership.”
The statement continued, "This meeting represents an important step towards strengthening economic and financial relations between the United Kingdom and Iraq. The Bank of England pledged to strengthen cooperation with the Central Bank of Iraq and support its continued efforts for economic growth and financial stability in Iraq."
New measures to restrict the dollar... The passenger quota is threatened with cancellation, according to a source in the Central Bank
source at the Central Bank of the 964 network:
All banks located in Iraq will be subject to instructions issued by the Central Bank, which stipulate that foreign transfers in dollars are prohibited.
The decision to ban remittances was supposed to be in effect since the end of last September, but the banks did not fully adhere to it, and even the Central Bank did not impose penalties on those who delayed implementing the decision.
The decision aims to transfer financial dealings in Iraq to dinars only, and to prevent any dealings in dollars definitively and permanently.
Financial speculation: According to the beliefs of the senior leadership of the Central Bank, what controls the currency market now in Iraq is the dollar that is disbursed to travelers.
This matter prompted the bank to consider stopping granting the dollar to citizens traveling at the official rate during the next short period.
The problem facing the Central Bank now is that Iraq sells oil in dollars, pays salaries in dinars, and manages all the country's financial needs in dinars, which means that the monetary mass of the local dinar will be unable to meet the actual need of the market, because the government has a dollar and the market needs the dinar.
The new restrictions on dealing in dollars were supposed to be implemented after Iraq switched to electronic trading, as the market dispenses with cash (cash dinars), and thus the need for cash liquidity does not increase as is happening now.
Merchants will work to open accounts with the TBI Bank, which in turn will deal with specific banks in all countries of the world. When purchasing goods, the merchant will present the dinar to the banks in Iraq, and then it will be converted into a dollar in the country from which it is imported.
Iraq Asked for $1 Billion in Cash. This Time, Washington Said No.
The U.S. is trying to cut off the illicit flow of dollars through Iraq to Iran, but Baghdad says it needs the money from its oil sales
Iraq is seeking a special shipment of $1 billion in cash from the Federal Reserve Bank of New York, but U.S. officials have withheld approval, saying the request runs counter to their efforts to rein in Baghdad’s use of dollars and halt illicit cash flows to Iran.
Since the U.S. invasion of Iraq two decades ago, the U.S. has supplied $10 billion or more a year to Baghdad on semimonthly cargo flights carrying massive pallets of cash, drawn from Iraqi oil sales proceeds deposited at the Fed. In Iraqi hands, the bank notes have become a lucrative source of illicit dollars for powerful militias and corrupt politicians, as well as for Iran, U.S. officials say.
In making a request for an extra shipment of $1 billion, Iraq says it needs the cash to help prop up its stumbling currency. After the U.S. denied Iraq’s initial appeal last month, the Central Bank of Iraq last week submitted a formal request, which the Treasury is still considering, a senior Iraqi official said.
The behind-the-scenes wrangling highlights Baghdad’s unique dependence on the dollar and the little-known system for supplying it with prized U.S. currency. A vast amount of dollars flows through loosely regulated Iraqi banks and currency-exchange shops, which U.S. and some Iraqi officials say are rife with fraudulent transactions and money laundering. Since last November, Washington has banned 18 Iraqi banks from dealing in dollars and adopted stricter rules for electronic dollar transfers from its banks.
Treasury officials told the Iraqi central bankers that sending a large extra shipment is contrary to Washington’s goal of reducing Iraq’s use of U.S. bank notes in favor of more easily traceable electronic transactions, Iraqi officials said. U.S. officials have said there is strong evidence that for years some of the dollars going to Iraq have been smuggled to Iran in cash, as well as to Turkey, Lebanon, Syria and Jordan.
“The U.S. continues to support Iraq with U.S. dollar bank notes and has not restricted” access to ordinary Iraqis and businesses, a Treasury spokeswoman said about the Iraqi cash request. “We will continue to work with our CBI colleagues,” she said, referring to the Central Bank of Iraq. The U.S. supports Iraqi steps to “promote the use of the local currency inside of Iraq,” she added.
The initial U.S. refusal angered some Iraqi officials, who say they asked for the additional $1 billion in their own funds because the country’s cash reserves had dropped after Washington’s attempts to restrict the dollar flow set off panic buying of greenbacks and hoarding of dollars by exchanges, the officials said.
Since July, Iraq’s unofficial currency-exchange rate has jumped to 1,560 dinars to the dollar, up from 1,470 dinars, raising import prices and alarming Iraqi officials ahead of provincial elections scheduled for December. The official exchange rate is 1,300 dinars to the U.S. dollar.
Iraqi officials with ties to powerful militias deeply involved in dollar transactions have denounced new restrictions imposed by Washington, calling them an infringement on Iraqi sovereignty.
“The American side is making excuses to not give Iraq its legal, legitimate money,” said Moeen Al Kadhimi, a member of the Iraqi Parliament on the finance committee and of the Badr Organization, a Shiite militia group closely aligned with Iran.
The Central Bank of Iraq didn’t respond to a request for comment about the requested dollar shipment.
Dawood Abed Zayer, the head of the Iraqi National Business Council, a trade association, said the central bank’s request for additional dollars is a precautionary step. “So it will have enough cash to step in and control the ups and downs of the market,” he said.
The decision to flood Baghdad with dollars during the decadelong U.S. occupation was intended to stabilize an Iraqi economy that had all but collapsed after decades of sanctions and a short but ruinous invasion. Iraqi banks had few if any correspondent relationships with international banks that would have allowed them to obtain dollars through commercial channels.
To get the cash circulating, Iraqi officials and U.S. advisers in late 2004 devised the so-called “dollar auction,” a daily sale of U.S. currency by the Central Bank of Iraq at a fixed rate to Iraqi banks and money-exchange shops for the local currency, the dinar. The dollars were in turn resold at the higher market rate, generating quick profits.
The system has remained largely unchanged ever since, but it has fueled corruption and rampant money-laundering, U.S. and Iraqi officials say. In addition to the cash delivered via cargo flights, the Fed has for years disbursed a far larger amount—as much as $40 billion a year—in wire transfers on behalf of Iraqi banks to foreign banks, mostly in Dubai, ostensibly to pay for imports.
Efforts going back years by multiple U.S. administrations to disrupt the flow of illicit dollars have fallen short—in part because cutting off dollars risked plunging Iraq’s economy into turmoil.
In 2020, the last time Iraqi cash reserves were running low after a devaluation of the dinar, the U.S. granted a request to send in additional bank notes. In return, Baghdad agreed to look at long-term reductions in cash shipments and other steps to curtail illicit dollar flows, an Iraqi official said.
The latest request came amid a flurry of meetings between Iraqi and U.S. Treasury officials, including Iraqi Prime Minister Mohammed Al Sudani, who met in New York on Sept. 18 with Undersecretary Brian Nelson and a week earlier in Baghdad with Assistant Secretary Elizabeth Rosenberg, who oversees efforts against terrorist financing.
After Rosenberg’s meetings with Sudani and Iraq’s central bankers, the Treasury said that Iraq and the U.S. “agreed to continue working together and take positive steps toward meaningful and lasting reforms that will raise Iraq to international standards and prevent fraud, sanctions evasion, terrorist financing and other illicit activities.”
Iraqi officials say they are running short of bank notes because the central bank had to pump more dollars into the Iraqi economy earlier this year after the market rate for exchanging dollars to dinars moved sharply higher in response to the U.S. crackdown on the flow of dollars out of Iraq.
Tighter rules on wire transfers adopted by the Fed and the Central Bank of Iraq last November led to 80% or more of Iraq’s daily dollar wire transfers, which previously totaled more than $250 million a day, being blocked in January and February because of insufficient information about the funds’ destinations or other errors, according to U.S. and Iraqi officials and official Iraqi government data.
In response, the Central Bank of Iraq loosened rules on banks’ use of prepaid cash cards, allowing them to buy dollars at the lower official rate to load them onto the cards. The move led to banks putting billions of dollars on the cards, which have been smuggled out of the country in vast numbers and redeemed for dollars outside Iraq, according to Iraqi authorities.
To conserve dollars, the central bank has reduced the amount of cash sold at the official exchange rate in the daily auction to banks and exchange houses by 30% or more and issued new rules aimed at requiring use of the dinar for many domestic transactions.
In another move sought by the U.S., central-bank officials have said in recent weeks that they plan to phase out dollar cash withdrawals from Iraqi banks by early next year.
Iraqi officials declined to say how low their cash reserves have dropped. Iraq’s overall dollar reserves at the New York Fed total over $100 billion largely from oil sales, but the Iraqi central bank in the past kept more than $1 billion in cash in its vaults in Iraq.
Two regular cash shipments of U.S. dollars are still scheduled for later this year, Iraqi officials said.
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