BAGHDAD – The Central Bank of Iraq announced last Sunday that all internal commercial and other transactions will be in dinars instead of dollars, and that external transfers will be dispensed with, starting next year.
The Governor of the Central Bank, Ali Mohsen Al-Alaq, said in a statement reported by the official Iraqi News Agency, “The coming year will witness the limitation of internal commercial and other transactions in dinars instead of dollars, except for those amounts that are delivered to travelers.”
He confirmed during the meeting with the heads of the councils and authorized directors of the banks licensed in Iraq that the bank is proceeding to dispense with external transfers next year and that local banks will rely on correspondent banks in external transfer operations.
According to Central Bank data, transfers via correspondent banks amounted to 60 percent of the total transfers outside the Central Bank’s electronic platform, while the implementation rate of verified transfers reached more than 95 percent.
This came after an agreement between the Central Bank of Iraq and the US Federal Reserve (Central Bank), similar to countries around the world, where central banks do not perform executive duties, and their role is focused on supervision and control.
The Central Bank sought to open direct channels of communication for Iraqi banks with their foreign counterparts in correspondence, commercial exchange, etc., in intensive stages.
The problems associated with the restrictions imposed by the United States on Iraqi banks are pushing the authorities to open other outlets, such as accelerating the search for trade swaps in other currencies.
Al-Alaqi explained that transfer channels are currently being opened in various currencies, including the Emirati dirham, the Turkish lira, the Indian rupee, and the euro.
He pointed out that the entry of most merchants into official transfer channels and the provision of the dollar at a price of 1,320 dinars was a direct reason for controlling the general level of prices and reducing the inflation rate, which is a basic indicator of the effectiveness of monetary policy.
He stressed that the black market price is not suitable as an “indicator” as it relates to the cash dollar for non-fundamental transactions and is not intended for the purposes of legitimate trade.
Officials are convinced that the new system of external transfer and sale of the dollar provides protection from risks for all parties to the operations, enjoys international acceptance and praise, and is consistent with the law on combating money laundering and terrorist financing.
Following this path also achieves an important initiative for direct relations between Iraqi banks and their accredited international counterparts.
Last April, the monetary authorities revealed that they had a program to restructure government banks, which numbered six, divided between commercial and specialized banks.
Official figures show that more than fifty banks operate in Iraq, but most of them have not introduced any updates to their activities, especially in terms of financial technology, which has become one of the determinants that measure standards of transparency and speed in securing payments and commercial transactions.
According to official statistics, only three major banks, namely Al-Rafidain, Al-Rasheed, and the Iraqi Trade Bank, account for about 85 percent of the total assets of the banking sector.
There is only one major international bank currently operating in the country, Standard Chartered, which has a small number of branches and focuses on major government projects.
◙ Private banks will establish the new entity with support from both the Central Bank and the Iraqi Private Banks Association to provide services to small and medium-sized enterprises and people with limited income.
Since last summer, the government and monetary decision-makers have focused on setting a plan to achieve financial inclusion by adapting plans to upgrade the banking sector with structural reforms aimed at moving the wheels of the economy forward.
Although the financial inclusion rate rose to 33.5 percent in 2022 as a result of the measures taken by the Central Bank, it is still small compared to other countries in the Arab region, especially the Gulf, which have set goals to reach the level recorded in emerging economies.
The meeting discussed the mechanism for establishing “Riyadah Bank” and the societal importance that the bank will have, especially as it is consistent with the directives and vision of the Prime Minister.
During the recent period, discussions were raised on this topic, including the banks’ contributions to establishing “Riyada.”
The private banks will establish the new entity with the support of both the Central Bank and the Association of Iraqi Private Banks, to provide services to small and medium-sized enterprises, people with limited income, and young people with pioneering or traditional ideas and projects.
The working mechanisms of this new bank, which will be effective for those wishing to open small productive and commercial projects that contribute to developing the local economy and reducing the unemployment rate, with direct support from the Central Bank.