Despite all the warnings and fears, it seems that Iraqi banks are continuing a rapid decline towards repeating the scenario of bankruptcy of Lebanese banks, as a result of the government’s confusion in managing the crisis of the deteriorating dollar exchange rates, and as a result of the continuation of corruption mafias in Aleppo and the smuggling of the dollar from the Iraqi market to serve well-known regional agendas.
A few days ago, Prime Minister Muhammad Shiaa Al-Sudani held a new meeting with bank heads to discuss the crisis of the rise in the dollar exchange rate and simplify banking procedures.
The Prime Minister’s Media Office said in a statement, “Last Sunday, Al-Sudani chaired a meeting that included the Governor of the Central Bank and directors of government banks, in which the procedures and work mechanisms taken to achieve banking reform were discussed.” The Prime Minister stressed that “financial reform is not just a slogan, but rather a series of terms and procedures that the government intends to implement.” He directed “to simplify all banking procedures, in addition to examining the obstacles hindering the banking reform process.”
Al-Sudani’s statements came after financial experts warned of the repercussions of the failure of procedures and instructions issued by the Central Bank of Iraq as part of its attempts to control the continuous rise in the dollar exchange rate in the parallel market. In the same context, a member of the Parliamentary Integrity Committee, Representative Raad Al-Dahlaki, confirmed that the government, the central bank, and the parties share responsibility for the dollar crisis, expecting exchange rates to witness a continuous rise.
Al-Dahlaki said: “I do not want to frustrate the street or create a crisis, but the current indicators do not herald a decline in the price of the dollar. On the contrary, we will witness a gradual rise in the price, unfortunately,” justifying this by the lack of a clear vision to restore the dollar to its old price, “because the official procedures are insufficient and do not “Implemented properly.”
Many banks in the capital witnessed gatherings of angry citizens objecting to the fact that these banks did not allow them to recover their deposits in dollars, under the pretext of the existence of instructions from the Central Bank preventing the withdrawal of deposits in dollars and compensating them for them in dinars and at the official exchange rate of the dollar, which is 1,320, while its price in the parallel market reaches about 1,600. Dinar per dollar.
These developments coincided with the launch of a demonstration on Al-Rashid Commercial Street for the owners of exchange companies in front of the Central Bank building to demand the dismissal of the corrupt people within the Central Bank and an end to the rise in dollar exchange rates and the control of private bank mafias in the market. Many owners of banking companies in Baghdad and the provinces also closed their shops and stopped selling operations. Buying the dollar due to the lack of stability in the currency exchange market, which led to a jump in the dollar exchange rates.
During a tour of “Al-Quds Al-Arabi” in some banks in the Iraqi capital, I noticed that some of these banks refrained from disbursing dollars except to travelers, while other banks set the maximum ceiling for withdrawals from remittances at only 1,000 US dollars, and TBI Bank also resorted to delivering external transfers. In dollars, for a limited number of customers and low ceilings.
High dollar prices in the market
Businessman Saad Al-Obaidi confirmed to Al-Quds Al-Arabi that following the statements of a Central Bank official, he withdrew all his deposits in dollars from his account in Al-Rafidain and Al-Rashid banks, stressing his concern about a repeat of the Lebanese bank bankruptcy scenario, which is expected, according to him. Al-Obaidi, the owner of a commercial company, expressed the conviction of merchants and company owners that they do not trust the procedures of the Central Bank and banks in Iraq, which were characterized by chaos, lack of planning, and corruption, which led to a rise in the price of the dollar in the market. He added: “Therefore, there is strong concern and fears that the banks will seize… Customers and companies deposit deposits in dollars and compensate them in dinars and at the official rate, which is much lower than the real parallel market, which causes a huge loss to depositors, especially merchants and companies.” Al-Obaidi said: “What the government banks are doing is killing the citizen’s confidence in them. Preventing the citizen from recovering his money deposited in the banks is completely unacceptable, and it will lead to the citizens withdrawing all of their deposits in dollars in Iraqi banks.”
The Central Bank official’s statements about dollar deposits caused angry reactions in the street, when the Director of Foreign Remittances at the Central Bank, Mazen Sabah Ahmed, said in a statement to Reuters that “people who deposit dollars in banks before the end of 2023 will be able to withdraw money in dollars.” In 2024, but dollars deposited in 2024 can only be withdrawn in the local currency at the official rate of 1,320 dinars to the dollar. He added, “The Central Bank is not obligated and is absolutely not obliged to give incoming transfers from balances, convert them into cash, and deliver them in cash dollars.” These measures are justified by saying that they prevent the dollar from reaching parties prohibited from obtaining it or speculating with it.
The Central Bank also took a series of measures to try to control the movement and price of the dollar in the parallel market, as it decided to stop the use of some financial institutions such as Western Union, MoneyGram, Zain Cash, and others, while it decided 3 months ago to prevent banks from granting the dollar to their customers via ATM machines.
Before that, the Iraqi Council of Ministers issued a decision last April, obligating all companies and banks to use only the dinar in their transactions, including the salaries of employees of foreign companies, which were in dollars, and to be paid in dinars. The official rate is 1,320 dinars, with the exception of diplomatic missions, which are paid in dollars.
Failure of central bank measures
Economists unanimously agreed that the Central Bank’s measures to confront the rise in the dollar exchange rate in the parallel market were counterproductive.
Economist Dr. Nabil Al-Marsoumi confirmed to Al-Quds Al-Arabi that the rise in the dollar exchange rate is a complex economic and political issue that the Central Bank of Iraq will not be able to confront alone, no matter what it does, and that its goal is to undermine trade between Iraq and Iran. Pointing out the presence of a US Treasury representative at his country’s embassy in Baghdad, who monitors dollar exchange operations to ensure that the money does not go to Iran. Note that the volume of trade between Iraq and Iran amounts to about 10 billion dollars annually, and Iran wants to obtain its dues in dollars through banks in the Emirates and others, in addition to the need of travelers, patients, and tourists for dollars, as Iraqi tourists constitute about 55 percent of tourism in Iran and spend about 3 billion. Dollars annually,” he said.
Al-Marsoumi warned of the continued growing gap between the official and parallel prices of the dollar, and its negative consequences on the Iraqi economy, revealing the presence of an external variable on the exchange rate represented by the American restrictions on the movement of the dollar in Iraq to prevent its arrival in Iran, indicating that “the continuing growing gap between the official and parallel prices of the dinar Against the dollar, it poses a danger to the political system and the Iraqi government if it is not neutralized or reduced. Al-Marsoumi expected the crisis of the large difference in exchange rates to continue when the government launches the budget disbursement, which will lead to a significant increase in spending and trade and will lead to an increase in demand for the dollar in the market. Regarding the prospects for resolving the crisis, he stressed that the solution lies in two directions: cutting off Iraq’s trade with Iran, or Washington abolishing the sanctions on Iran, both of which are currently unthinkable, so the crisis will continue now and in the future, acknowledging that the smuggling of dollars from Iraq has been continuing since 2003. One of them
was Advisors to the Sudanese government revealed that “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.” Therefore, Washington imposed sanctions on 18 Iraqi banks and prevented them from dealing in dollars, because Iraqi banks have become a vital financial artery for Iran, which is subject to US sanctions.
Economic experts agree that the most important economic aspect that the government of Muhammad Shiaa al-Sudani did not succeed in was controlling the dollar exchange rate. Despite the flood of statements and promises and the change of the governor of the Central Bank, all of these measures had a negative impact on the rise in the value of the dollar and the collapse of the value of the Iraqi dinar. They pointed out that the Baghdad government claims to Washington its control over the smuggling of dollars to Iran, and believes that Washington will be fooled by this claim, which is unreasonable given the American ability to detect the movement of the dollar in the world. Thus, the parties in power in Baghdad are risking the interests of the Iraqi economy for the benefit of their allies in Tehran, as it is expected that Iraq will be exposed to American sanctions that will make the fate of the Iraqi economy the same as the fate of the Lebanese economy, which collapsed due to the same scenario, way out, and tools.
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