BAGHDAD, Oct 5 (Reuters) – Iraq will implement a ban on cash withdrawals and transactions in U.S dollars starting from Jan. 1, 2024, according to a senior official from the Iraqi central bank. This move is aimed at preventing the misuse of hard currency reserves for financial crimes and evading U.S. sanctions on Iran. Mazen Ahmed, the director-general of investment and remittances at the Iraqi central bank (CBI), stated that the objective is to eliminate the illicit use of approximately 50% of the $10 billion in cash that Iraq imports annually from the New York Federal Reserve. The decision is also part of a broader effort to reduce the reliance on the U.S. dollar in an economy where the local currency has been overshadowed by the greenback due to the population’s wariness of recurring wars and crises following the 2003 U.S. invasion.
Ahmed mentioned that individuals who deposit dollars into banks before the end of 2023 will still be able to withdraw funds in dollars in 2024. However, dollars deposited in 2024 can only be withdrawn in the local currency at the official exchange rate of 1,320 Iraqi dinars. The parallel market rate for the Iraqi dinar was 1,560 on Thursday, approximately 15% lower than the official rate.
“You want to transfer? Transfer. You want a card in dollars? Here you go, you can use the card inside Iraq at the official rate, or if you want to withdraw cash, you can at the official rate in dinars,” Ahmed explained. “But don’t talk to me about cash dollars anymore.”
A statement from the central bank clarified that the ban on cash dollar withdrawals would only apply to accounts receiving transfers from abroad. Iraq has already established a platform to regulate wire transfers, which constitute the majority of its dollar demand. This platform used to be a hub for fake receipts and fraudulent transactions that funneled dollars to Iran and Syria, both countries under U.S. sanctions. Developed in collaboration with U.S. authorities, the system is now nearly foolproof, according to Ahmed. It provides dollars at the official rate to those engaged in legitimate trade, such as imports of food and consumer goods.
However, cash withdrawals have continued to be misused, including by individuals who receive a state quota of $3000 for travel purposes and have found ways to exploit the system. Iraq heavily relies on the goodwill of the United States to ensure the stability of its oil revenues and finances. Simultaneously, the current government, which is supported by powerful parties and armed factions close to Iran, is cautious not to alienate Tehran or upset the parties and armed groups with significant interests in Iraq’s informal economy.
Many local banks have already been restricting dollar cash withdrawals in recent months, exacerbating a shortage that has led to a continuous increase in the parallel market exchange rate. Ahmed explained that some banks are running low on dollars due to a surge in withdrawal requests amid concerns about the financial system. Additionally, some banks face shortages because they have provided dollar-denominated loans that are then repaid in…
Article from www.reuters.com