It falls, rises, falls: for two months the Iraqi dinar has not stopped fluctuating against the dollar under the effect of the new rules on the transparency of transfers, an instability behind which some see Washington’s hand.
The official exchange rate of the dollar – Iraq’s reference currency – remains at 1,470 dinars. But among the money changers, the rate jumped from 1,470 dinars in mid-November to 1,600 dinars at the start of the week, before stabilising, according to the official INA news agency.
At first glance, this drop in the value of the dinar is not huge. But the nervousness is palpable. A decline in the dinar means higher prices for imports, gas or wheat, a commodity whose cultivation has declined in Iraq due to repeated droughts.
“The decline in the dinar is due to external constraints,” Muzhar Saleh, adviser to Prime Minister Mohamed Chia al-Soudani, explained to AFP.
But for some Iraqi officials, the culprit has been found: the United States.
“Americans are using the dollar as a weapon to starve people to death,” Hadi al-Ameri, head of the pro-Iranian Fateh party which supports the Iraqi government, said Tuesday, according to comments reported by Iraqi media.
False, denies the Iraqi economist Ahmed Tabaqchali. “There is no evidence that the United States is putting pressure on Iraq,” a close economic and financial partner of its Iranian neighbor, he said.
In reality, the movements of the dinar are linked to certain rules of the Swift international transfer system that Iraqi banks have complied with since mid-November to access Iraqi dollars in the United States.
To tap into its stock of greenbacks, Iraq, which has foreign exchange reserves of more than $100 billion, must “comply with anti-money laundering, terrorist financing and sanctions measures, such as those against Iran and Russia,” explains Ahmed Tabaqchali.
It is a question of making Iraq join “a global system of financial transfers which requires a high degree of transparency”. Many Iraqi banks “are not used to this system”. “It caused a shock,” he says.
Because Iraqi banks now have to register “their transfers (in dollars, ed.) on an electronic platform, check the requests. Then, the Federal Reserve examines them and if it has any doubts, it blocks the transfer”, continues Muzhar Saleh.
Since the establishment of this mechanism, the US Fed has rejected “80% of requests” for wire transfers from Iraqi banks, because the US authorities were suspicious about the final recipients of the sums to be transferred, he specifies.
Purchasing power at half-auction
The Fed’s “no” has helped make the dollar rare on the Iraqi market. The law of supply and demand did the rest: the dollar went up in price, while the dinar went down.
The Central Bank of Iraq speaks of a “temporary situation” and the Iraqi authorities have taken steps to try to stabilize the exchange rate.
They pledged to facilitate the supply of dollars at the official rate for private sector imports, and government banks opened “windows” to sell foreign currency to people traveling abroad.
The government also decided “to encourage all government agencies to sell goods and services in dinars and at the Central Bank’s price of 1,470 dinars per dollar”.
“These measures are important because they show that the state is there to protect the market and the citizen,” said Muzhar Saleh, adviser to the prime minister.
Inflation is certainly contained – it was 5.3% over one year in October 2022 – but when the dinar weakens… it is purchasing power that wins.
“When the dollar was worth 1,470 dinars, my pension was equivalent to 336 dollars a month. Today, with the dollar at 1,570 dinars, it equals 314 dollars,” explains Saad al-Taïe, a retiree who helps his son in his grocery store in Baghdad.