The White Paper clearly states there is work to be done in three sectors of the Iraqi Financials. They include:
So, do you think each of these areas of financial sectors have been reformed enough in Iraq to liberate the dinar thus to reinstate it back on the currency exchanges i.e. FOREX and thus complete the currency reform (reinstatement) we as investors are looking for?
In the opinion of the US Treasury and many Iraqi economists there is still work to be done in the Banking sector, especially when it comes to supplying US Dollars to the Iraqi economy.
In my analysis I can only come up with what we are now witnessing in Iraq with the banks. There are many banks that did not want to obey the currency reform measures in control of the De-US Dollarization process started in January 2023. Hence forth laws were put in place to rectify these violations of Central Bank of Iraq (CBI) policy in this regard. Thus, these banks are still not toting the line. A new measure approved by the CBI now allows the banks to directly import US Dollars or any foreign currency. Today is December 2022 and the currency auctions are still ongoing, however the CBI announced these auctions will end as of January 1, 2024 and be replaced with a new “electronic platform” provided by the US Treasury. This platform tracks and screens all users of the system in currency purchases, focusing in on the US US Dollar. This new platform is expected to end in June 2024 and then entirely all currency auctions by the end of 2024.
I believe this was a “warning shot over their bow” to let the banks know they will no longer be getting US Dollars from the CBI as of June 1st and must purchase the US Dollars directly from US banks, thus future partnerships with US Banks. This is how normal international banking practices work. These banks must transition away from the dependence on the Central Bank for US Dollars. But the U.S. banks now say they don’t trust the Iraqi banks as this region of the world is still too volatile, especially after the start of the Israel-Palestine conflict in the Gaza Strip last October 2023. However, three of the major banks in Iraq have already embraced this new policy with the Trade Bank of Iraq (TBI) taking the lead so far in ordering US Dollars from the private US banks. Eight (8) more Iraqi banks are scheduled to follow. France just recently announced it too is making arrangements with Iraqi banks to help facilitate foreign currencies to the country. This could change the dynamics of the banking system in Iraq altogether. Yes, this relationship with France could be huge and maybe a big part of resolving the parallel market ongoing saga. Agreements with neighboring Turkey too in the areas of infrastructure repair and improvements while disclosing new contracts for the Iraqi Fund for Development. Remember Turkey has historically been not so friendly to Iraq especially the Kurds. This too seems to be changing as they realize it is more profitable to have strength through peace and economic partnerships than to terrorize each other.
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CENTRAL BANK BRIEFS FRANCE ON PLANS TO STRUCTURE THE BANKING SECTOR
The Central Bank of Iraq confirmed that the plan to structure government banks will change the map of the banking sector and its reality in Iraq.
“The Governor of the Central Bank of Iraq, Ali Mohsen Al-Alaq, received the French Ambassador in Baghdad, Patrick Dorel, and the meeting dealt with ways to strengthen banking relations between the two countries, and the governor gave a full explanation of the relations and economic conditions, as well as the government’s directions in consolidating the pillars of the national economy and diversifying it in light of the state of security stability achieved in Iraq,” a statement by the bank said.
The meeting also clarified “the plan to structure government banks, which enjoys regular support and follow-up by His Excellency the Prime Minister, indicating that this plan will change the map of the banking sector and its reality in Iraq.”
The Governor of the Central Bank also referred to “the rapid developments in the organization, control and analysis of external transfer operations and the coverage of foreign trade in accordance with best practices and international standards, which receive great praise and attention from international and regional organizations.”
For his part, the French ambassador expressed satisfaction with the development and economic developments he observed in Iraq, especially during his tour in the provinces, expressing his country’s readiness to strengthen and develop banking relations with Iraq.
The ambassador explained that the economic relations between the two countries are growing at the level of entry of French companies and the use of their expertise in investment projects.
The French ambassador called on the governor of the Central Bank of Iraq, after making the necessary arrangements, to visit financial and banking institutions in France, especially the French Central Bank.
It is noteworthy that the Central Bank of Iraq has deposits and accounts with the French Central Bank and has distinguished cooperation relations over many years.
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The agreements with Türkiye are an economic gain, and these are contracts with the Iraq Fund for Development
An advisor to Prime Minister Muhammad Shiaa Al-Sudani stressed the importance of the economic and trade agreements that Iraq signed with Turkey, while disclosing new contracts for the Iraqi Fund for Development.
Muhammad al-Najjar, advisor to the Prime Minister for Development Affairs, There are more than 20 agreements recently signed by Iraq with the Turkish side, some of which relate to the path of development, the security agreement, and the oil agreement, and others to economic aspects, including expanding the entry of Turkish capital into the country.”
He added, “These agreements are an important economic gain for Iraq, and will change the course of the relationship with Turkey from Iraq being a source of Turkish goods and the second largest export market for Turkey, to the relationship becoming two-way, and Turkish capital will enter Iraq to begin implementing production and development projects to serve the Iraqi and Gulf markets,” noting. “Turkey today looks at Iraq in a radically different way and sees it as an active partner and not just a market, because Iraq has begun to regain its role as a pivotal player in the region, especially for the energy and regional security sectors.”
Regarding the contracts of the Iraq Fund for Development, Al-Najjar, who is the executive director of the Fund, explained that “the Fund Iraq Development is the platform through which companies enter to work in Iraq, and it also plays the role of an intermediary to find Iraqi partners and investors in addition to its own investments.
He added, “The Iraqi Fund for Development signed a contract with Teriyaki Company, one of the largest agricultural companies in the world in Turkey, to work on introducing four basic units, including” recycling and using wastewater in agriculture, raising and raising modern livestock to bridge what is known as the protein gap between Iraq and neighboring countries, because the percentage of protein consumed by citizens in Iraq is 18%, which is less than neighboring countries, where the percentage is about 34-40%. Likewise, agriculture using solar panels, which is a new type that has not been introduced to Iraq previously, as we are trying to expand their use because it contributes to solving the energy crisis and protects crops from heat. Al-Shams, as well as the project to introduce modern irrigation systems of various types into the country.
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These Iraqi banks are now “stakeholders” in the US Dollars and so each US Dollar is registered and serial numbers traceable. There are stiff penalties for smuggling or illegal sales of the US Dollar to the black market (parallel market) causing a rise in the exchange rate of the US Dollar.
So below I am showing you many more past articles about these banks and how the CBI is restricting them from selling US Dollars in the currency auction market. Remember that this is all changing very rapidly as the currency reform is now cranked up in full gear. Just this week Iraq announced deals with Turkey to use the IQD for payment of imports. But there was a snag and it had to also be pegged to the Euro and lira. Why did the CBI do this? As I write this post Iraq is now signing numerous memorandums of understanding with Turkey from aspects of trade, rebuilding contracts to investing in businesses in Iraq.
This de-US Dollarization process was done as a temporary sort of informal peg, if there is such a thing, to allow for the full introduction of the IQD. In the background the IMF is working diligently to arrange for the new basket six (6) currencies for a new peg for the IQD once it goes live on FOREX. This is taking longer than expected and was completed by January 1, 2023.
WITH TENS OF MILLIONS OF EUROS…THE CENTRAL BANK BEGINS COVERING RETAILERS’ IMPORTS FROM TURKEY
The Central Bank of Iraq began covering retailers’ imports from Turkey with tens of millions of euros as an initial payment, in implementation of the banking arrangements agreement concluded with Turkey last week.
A government source told Al-Sumaria News, “In implementation of the banking arrangements agreement that were concluded with…Turkey, last week, it started covering imports from retailers Türkiye in tens of millions of euros, through Iraqi merchants paying in Iraqi dinars and the Central Bank strengthening them in euros to settle with Turkish merchants in Turkish lira.
Earlier, he revealed the discussions held by the joint Iraqi delegation in Türkiye…. a statement from the bank; “The discussions conducted by a joint Iraqi delegation (the government, the central bank, the Association of Iraqi Private Banks, and the banking sector represented by a number of private banks) were completed in Istanbul returned to Baghdad on Friday.”
He added, “It was agreed to make banking arrangements between Iraqi banks and their Turkish counterparts through intermediary banks to ensure trade exchange for major merchants and importers and to make and pay transfers in the euro and Turkish lira currencies.”
(Iraq is paying for imports in dinars. We have been waiting for this news for so long now, almost 17 years. Until they reinstate the dinar into the new basket, the CBI must back the dinar with something since we know it’s off the dollar peg and this is yet more proof of that. So the CBI is using Euros and Lira currencies but staying away from the dollar as a temporary measure. This may vary depending on what country they are doing business with. But his is all good news as this is how trade should work. The takeaway is this – we can see the urgency to re-peg to the new basket of 6 currencies. The IMF is working on this now and it is taking longer than expected to get it completed.)
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MILLIONS OF DOLLARS ARRIVED IN IRAQ THROUGH THE TBI BANK AND OTHER SHIPMENTS ARE COMING… A GOVERNMENT SOURCE
A government source revealed, today, Thursday, the arrival of shipments of dollars to the Trade Bank of Iraq (TBI), indicating the arrival of other shipments in the coming days.
The source told the official agency, followed by the 964 network , that “shipments of millions of dollars arrived through the Trade Bank of Iraq (TBI), as part of the bank’s plan to supply dollars.” He added, “This came to meet customers’ requests,” noting that “other shipments are scheduled to arrive during the next few days.”
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WHAT’S GOING ON WITH DOLLAR VS IRAQI DINAR (IQD/USD)?
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.
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.
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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.
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NEW MEASURES COULD WEAKEN IQD
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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FAKE TRANSFERS… REVEALING NEW DETAILS ABOUT THE DOLLAR CRISIS IN IRAQ
The Parliamentary Finance Committee revealed new details about the dollar crisis in Iraq.
Committee member Muhammad Nouri said, that “there are a number of banks that control the window for buying and selling foreign currency, and they are non-Iraqi banks, and the conditions set by the Central Bank are applied to a pre-specified group before it sets the conditions on the banks or “Companies are the only ones in control of the foreign currency buying and selling window.”
Nouri added, “Most financial transfers are (fake) under the pretext of purchasing goods, and here is an indication of the delay in real transfers, given that the fake transfers are supported and backed by a political group and armed factions affiliated with the economic parties.”
Nouri stated, “We find that personal transfers for the purpose of study and treatment outside the country and simple trade are real, but large transfers are not real because they are affiliated with the economics of the parties, and their purpose is to smuggle currency outside the country.”
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COULD THE EURO BE THE KEY TO RESOLVING THE DOLLAR CRISIS IN IRAQ?
The euro is ranked second in the world after the US dollar, as it is considered one of the strong currencies in international trade. The euro is also the second most traded currency in the world after the US dollar, and the British pound is ranked fourth.
Although I am against the idea of giving each citizen 3,000 US dollars to travel and smuggling hard currency out of the country, but at the same time, if the Central Bank of Iraq continues this policy, I suggest giving citizens the euro as well to travel outside the country in order to reduce the demand for the dollar.
