Source: Iraq's dollar surge driven by political instability impacting exchange rate

Shafaq News/ On Thursday, Iraq Future for Economic Studies and Consultations attributed the rise in the dollar's value against the dinar to a drop in foreign currency transfers and an inability to meet the demand for foreign currency to cover imports, warning that the dollar could continue to climb, potentially reaching 1,600 dinars in the coming period.

Key Reasons

The recent rise in the dollar exchange rate against the Iraqi dinar, which has reached around 1,550 dinars per US dollar, is driven by several factors, according to Manar Alobaidy, head of the economic institution.

Alobaidy told Shafaq News Agency that the increase is primarily due to a "decline in transfers of other currencies, specifically the Emirati dirham and Chinese yuan," resulting from significant restrictions imposed by correspondent banks that manage these currencies. He added that banks involved in the Citi-Pilot project are "cautious about opening accounts for new companies," restricting their transactions to those firms they have previously worked with.

The expert further explained that the "inability of transfer mechanisms to meet the demand for foreign currency" for importing high-value goods, particularly mobile phones and gold, is driving importers to the parallel market to satisfy their needs.

Remedies

Alobaidy pointed out that "the dinar's decline against the dollar is expected to continue, possibly reaching 1,600 dinars per dollar in the coming months unless the problems are addressed with practical solutions:

1. Expanding the network of correspondent banks worldwide, especially in the UAE and China.

2. Controlling fiscal policy by limiting the entry of certain types of goods to reduce demand relative to supply.

3. Pressuring banks participating in the Citi-Pilot project to be more open to accepting a wider range of customers.

4. Temporarily banning the import of certain goods to ease demand for foreign currencies until more organized and streamlined solutions for foreign transfers are found."

No Economic Justification

Economic and financial expert Abdul Rahman Al-Mashhadani attributed the recent rise in Iraq’s dollar exchange rate to political factors rather than economic ones.

Al-Mashhadani told Shafaq News, “The dollar had stabilized for a long period at around 149,000 to 150,000 dinars per $100, especially after streamlining the process of converting traveler dollars at the airport and resolving bottlenecks with currency exchange and payment companies operating there.”

“There are no economic reasons or justifications behind the rise because the Central Bank is still supplying large amounts for foreign trade, which is the key element covering traders’ needs,” he emphasized.

Al-Mashhadani noted that the increase is likely driven by regional unrest and fears that Iraq could become a target. “This has led traders to settle accounts between creditors and debtors, especially those with foreign obligations. The fear of instability may cause an increase in the exchange rate, impacting traders' ability to fulfill their obligations,” he said.

He added, “The second issue is the panic among the public during such crises, prompting people to convert their assets into dollars for fear that the situation could worsen, potentially forcing them to travel or even migrate, either within Iraq or abroad,” highlighting that “the dollar remains the safest option, as it is in high demand in the markets.”

The local market exchange rate has climbed to around 155,000 dinars per $100, following military actions in Lebanon, Iran, and Israel.