After The Electronic Platform Stopped…An Answer To Questions From Iraqi Circles About The New Dollar Mechanism
Many Iraqi questions about the new mechanism for trading the dollar in Iraq and the method of withdrawing or buying it after the official cessation of the electronic platform.
Governor of the Central Bank, Ammar Khalaf, said Deputy yesterday, “The working mechanism of the electronic platform related to foreign transfers has stopped working on it, but financing foreign trade continues through correspondent banks according to various mechanisms that are equivalent to what is done in countries of the world.”
Many citizens asked about the platform’s news, which Alsumaria News published on Facebook, about the
electronic platform and its work,
what will happen to the dollar, and
whether Iraq will witness a new rise in currency exchange rates.
One of the citizens said through the comment feature:
“What is the purpose of the electronic platform? Can someone explain,” while another responded by saying, “The siege will return to Iraq and the exchange rate will be at least 250 thousand Iraqi dinars for 100 dollars.”
Another wondered about “the continued arrival of foreign remittances to Iraq and the giving of currency to travelers,” while another pointed out that “unemployment will return, food prices will double 4 times above normal, and famine will return to Iraq.”
Others praised the decision to stop the electronic platform, considering it “an effective government achievement that will benefit one after another and a transformation process that enhances the economic role and prepares for investment opportunities with full confidence, and that the
government is playing a supervisory role over markets and money exchanges, and the dinar is dealt with only to raise the value of the Iraqi dinar.”
Another pointed out that “the platform was a front for stealing the dollar, and therefore imposing censorship through the financial transfer through the bank will contribute to balancing the market and controlling the rise of the dollar,” and another supported him by saying that “this step may have several reasons, such as:
1- Controlling the dollar exchange rate: An attempt to stabilize the price of the dollar against the Iraqi dinar by limiting the flow of the dollar. uncontrolled
2- Preventing dollar smuggling: If there are indications that the dollar is being used in smuggling operations or that there is an inflation in demand for it due to illegal purposes.
3- Strengthening the local economy: Reducing dependence on the dollar and supporting the local currency by reducing the circulation of the dollar in the markets.
Possible Outcomes:
Dollar prices rise on the black market if there are no alternatives to meet demand.
Impact on merchants and companies that depend on the dollar for imports, which may lead to higher prices for imported goods.
Tightening financial oversight to try to prevent fraud and circumvention of policies. Therefore, the effects will depend on the way this decision is implemented and the extent to which there are alternative plans to provide dollars to the commercial and service sector.” It should be noted that
“Travelers’ dollar”
“the Central Bank clarified that granting dollars to travelers continues at airports according to the approved mechanism, which is considered the best in restricting the traveler’s access to dollars,” noting that
“this decision is part of a series of reforms aimed at facilitating financial procedures and stimulating the economy.”
What Is The “Electronic Platform”
The electronic platform for money transfers is a mechanism that has been adopted to
ensure the regulation of foreign cash transfers and
limit manipulation of exchange rates.
It works to document
commercial operations and the
transfer of funds by banks and financial companies,
ensuring more effective control over hard currency flows inside and outside the country.
Will Canceling The Platform Affect The Price Of The Dollar?
The impact of canceling the platform on the price of the dollar will be reflected in the prices as follows:
1- Increased demand for the dollar on the black market.
With the absence of an electronic platform, the demand for the dollar on the black market may increase as a result of the absence of control mechanisms, which leads to an increase in exchange rates outside official channels.
2- Weak confidence in the dinar, as canceling the platform may weaken confidence in the Iraqi dinar, especially if effective alternatives are not put in place to ensure market stability.
Weak confidence means that citizens and investors may withdraw their money in dinars and convert them to the dollar as a safe haven.
3- The impact of smuggling and money laundering, as canceling the platform may eliminate strict control over dollar smuggling operations, and smuggling and money laundering practices may expand, which will increase the demand for the dollar and affect the reserves of the Central Bank. greatly
4- The market’s dependence on supply and demand.
With the cancellation of the platform, the currency market may become more affected by direct supply and demand.
This may lead to severe fluctuations in the exchange rate, especially under unstable economic and political conditions.
Will The Dollar Rise?
The government and the central bank can rely on other supervisory tools, such as strengthening the role of local banks, placing strict restrictions on foreign transfers, activating alternative supervisory tools, or pumping more dollars into the market to meet demand and maintain price stability.
Investment can also be encouraged and dependence on foreign currencies reduced, to relieve pressure on the dollar and enhance the strength of the dinar, and all of these measures can maintain dollar prices.
Government Advisor: The Monetary Enhancement Mechanism Will Maintain Financial Stability In The Country
The financial advisor to the Prime Minister, Mazhar Muhammad Saleh, confirmed today, Friday, that the Central Bank has adopted the monetary enhancement mechanism to feed national banks’ requests for foreign currency, indicating that the
monetary enhancement mechanism will maintain financial stability in the country.
Saleh stated to the Iraqi News Agency (INA) that “the function of the central bank will continue to move in two directions: the first is to meet the needs of national banks for foreign currency with their correspondents, which confirms that the new monetary enhancement mechanism will work to provide monetary stability on the part of the monetary authority in the two issues of continuing the policy of monetary sterilization.”
Which is concerned with controlling local liquidity levels by exchanging foreign currency for dinars,” pointing out that “the new monetary enhancement mechanism will maintain a fixed exchange rate of 1320.”
One dinar for every 100 dollars, which will enable the Central Bank to achieve stability in the external value of the Iraqi dinar by controlling the growth in the money supply within the operational objectives of monetary policy through the so-called monetary transfer mechanism to achieve the intermediate or real long-term objectives in achieving stability in The general level of prices or reducing the growth in inflation rates, and
this comes in conjunction with the stability of the exchange rate and the growth of the money supply to achieve stability in the general level of prices.” Saleh added,
“The second trend is to provide foreign currency to correspondents of national banks in order to facilitate the stability of the real supply of basic goods and services flowing to the internal market with high smoothness, and to make compliance control over the disposal of foreign currency at two levels:
national through the Office of Combating Money Laundering and Terrorist Funds, and
external, represented by “The role of correspondent banks that undertake the task of auditing compliance issues.”
Closing The Dollar Selling Platform…An American Directive That Raises Concerns About Market Stability And Rising Prices
The Central Bank announced the closure of the dollar selling platform at the end of the fiscal year, a measure that comes within the ongoing directives by the US Treasury to tamper with the Iraqi economy.
However, this decision raises growing concerns about its potential impact on demand and dollar prices in the local market, especially in light of the current economic conditions.
Closing the platform is expected to lead to an increase in demand for the dollar in the parallel market, as many importers and traders rely on purchasing hard currency to meet their needs.
In the absence of the usual supply through the official platform, they may resort to alternative markets to obtain dollars, which leads to increased pressure on prices.
Economic observers point out that the rise in demand accompanied by a decline in supply will inevitably lead to an increase in the price of the dollar against the dinar, and
this rise may be directly reflected in the prices of goods and services, which adds an additional burden on citizens, especially with the decline in purchasing power as a result of high inflation rates.
Regarding the issue, economic expert Safwan Qusay said in an interview with the Maalouma Agency,
“The Central Bank of Iraq announced the end of work on the electronic platform for banking transactions as of the beginning of the new year, after notifying all Iraqi banks of the cancellation decision early on.” He added,
“13 Iraqi banks were able to adapt to this change, as
they expanded their dealings with real merchants, bringing the percentage of transfers and credits made through direct relationships between Iraqi banks and supplier banks to more than 95%.” He stated that
“these operations are carried out in accordance with strict compliance standards that ensure knowledge of suppliers and payment mechanisms.” He continued by saying,
“For 5% of the transfers that were made through the electronic platform, merchants wishing to continue import operations at the official price can open bank accounts within these banks.” He pointed out that
“the Central Bank issued a circular dated September 30 last year allowing merchants to import directly after opening bank accounts, without the need for a waiting period that previously extended to six months.” He explained,
“The market may witness some fluctuations, but he ruled out the possibility of achieving large profits from importing irregular goods, in light of the Iraqi economy, which relies heavily on the dollar and its high value globally.” He pointed out that
“the Iraqi economy will not face major fears as a result of this change, stressing the importance of adhering to banking procedures to ensure market stability and facilitate import operations.”
Closing the dollar selling platform may be a technical measure linked to the end of the fiscal year, but it raises economic and social challenges that must be treated with caution.
Maintaining market stability and the exchange rate requires effective coordination between the central bank and the government, while developing proactive plans to avoid worsening the economic crisis.
Is Iraq facing a cash crisis?
The amount of money sold, domestically and internationally, by the Central Bank in dollars this year has exceeded $62 billion, resulting in the receipt of dinars in equivalent proportion, averaging approximately 80.6 trillion dinars for the year. Non-oil revenues generated from taxes, fees, and customs by the end of October 2024 amounted to 14.3 trillion dinars.
Combined, these revenues total around 95 trillion dinars. However, by the end of October, Iraq’s total expenditures had reached 122 trillion dinars. With two months of expenditures still unaccounted for, it is evident that the dinar reserves derived from oil-based dollar revenues have been exhausted.
This comes despite reports from the Central Bank’s Foreign Currency Selling Window, which indicate that total transfers abroad (remittances and credits) this year have reached the highest level in seven years—34% higher than last year. Similarly, dinars returned to the Central Bank and subsequently to the Ministry of Finance in proportion to this increase. So why is there talk of a cash shortage affecting the distribution of December salaries for some ministries in Baghdad and the November salary allocations for the Kurdistan Region?
According to reports from the Iraqi Ministry of Finance on revenues and expenditures, total expenditures for the first nine months of this year amounted to 94.5 trillion dinars, including 85 trillion dinars in operating expenses and 9.5 trillion dinars in investment expenses. However, according to the Ministry of Finance’s October report, total expenditures had climbed to 122.7 trillion dinars, with operating expenses accounting for 100.6 trillion dinars and investment expenses rising to 22 trillion dinars.
Looking back at previous months, it becomes evident that average monthly expenditures ranged between 10 and 11 trillion dinars. For instance, total expenditures from the beginning of the year to July were 73 trillion dinars, increasing to 83 trillion dinars in August and 94 trillion dinars in September—demonstrating consistent monthly spending within this range.
However, expenditures surged dramatically in October, reaching 28.2 trillion dinars and bringing the total for the year to 122 trillion dinars by the end of that month. This significant jump was driven by increases in both operating and investment expenditures. Operating expenditures, which typically ranged from 9 to 10 trillion dinars per month, rose to 15.6 trillion dinars in October, while investment expenditures, previously averaging 1 trillion dinars per month, soared to 12.6 trillion dinars in the same period.
As a result of the excessive expenditures in October, the Ministry of Finance now lacks the cash needed to cover expenses at the end of the year. October’s spending was nearly triple the average monthly expenditure of previous months.While total revenues for the first 10 months exceeded expenditures, converting the full oil revenue—received in dollars—into Iraqi dinars or conducting domestic transactions in dinars has not been feasible which is due to government policies mandating that all domestic transactions must be conducted in dinars, while foreign transactions must be conducted in dollars and processed through remittance.
According to the Iraqi Ministry of Finance, October’s expenditures rose so significantly that the total amount of dinars generated from selling dollars domestically and internationally, combined with non-oil domestic revenues, was insufficient to cover the spending. Total expenditures for the month reached 28 trillion dinars, approximately 18 trillion dinars more than in previous months. It remains unclear how the Ministry of Finance plans to manage expenses for the remainder of the year, as 95% of Iraq’s currency is held outside the banking system, which amounts to 95.5 trillion dinars out of a total of 101.3 trillion dinars by the end of November 2024.
The underlying issue here highlights the weaknesses in Iraq’s monetary system and the absence of a coherent expenditure and revenue policy. Despite having not spent 60% of its allocated budget, the Ministry of Finance is already encountering significant challenges. Had the budget been fully implemented as planned, cash shortages would likely have arisen mid-year rather than at year-end.
In conclusion, is it true that Iraq has cash problems? Yes, Iraq is indeed facing cash problems. However, these issues are not caused by low oil revenues, declining oil prices, or a shortage of money or dollar issuance. Instead, the root cause lies in the government’s economic expenditure policy, which allowed spending to surge by approximately 300% in a single month.
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