The noise is still the same in the “Al-Kifah” currency market in central Baghdad, where passers-by can easily see huge bundles of money from various international currencies that are exchanged every day in the market, but the volume of money being exchanged has decreased a lot, says Salem Al-Shawk, He is the owner of a banking company.
Al-Shawk says that he used to sell (transfer) more than 250,000 dollars a day into the Iraqi currency and vice versa to his clients, who varied “between business owners, importers, and ordinary people who want to travel outside Iraq or convert their money into dollars to save it.”
But the matter changed a month ago, says Al-Shawk to Al-Hurra website, as he transfers an average of 10-20 thousand dollars per day only, “and sometimes less than this,” since the price of the dollar began to rise against the Iraqi currency.
And the Iraqi currency lost about 10 percent of its value, says a newspaper Wall Street Journal In a report I published a few days ago, after “mysterious” procedures for many, related to the imposition of Compliance Rules on the Central Bank of Iraq’s dealings with currency dealers in relation to the US dollar.
New procedures
Under the new procedures, Iraqi banks are required to submit dollar transfers on a new online platform with the Central Bank of Iraq, which are then reviewed by the Federal Reserve Bank.
US officials said the system aims to limit the use of the Iraqi banking system to smuggle dollars to Tehran, Damascus and money laundering havens across the Middle East.
Under the old rules, Iraqi account holders were not required to disclose who they were sending money to until after dollars had already been transferred, said Mr. Dagher, the former central bank official.
“We have a robust compliance regime for these accounts that evolves over time in response to new information,” a New York Fed spokeswoman said of the accounts it holds for foreign governments, in a statement to the Wall Street Journal.
A US official told the Wall Street Journal that the measures would limit “the ability of malign actors to use the Iraqi banking system.”
However, the procedures also limit the access of Iraqi merchants and legitimate companies to the dollar, due to “errors that occur during the application process to the platform,” according to the Central Bank of Iraq statement.
The Central Bank of Iraq described the new electronic platform in a statement issued on December 15 as asking for “full details of customers who want money transfers,” including the final beneficiaries.
“A number of errors are being discovered and the banks have to redo the process,” the statement said, adding, “These measures will take additional time before they are accepted and approved by the international system.”
“shock”
Since the new measures went into effect, 80% or more of daily dollar transfers in Iraq, which previously totaled more than $250 million on some days, have been blocked, the Wall Street Journal says, “because of insufficient information about the destinations of funds or other errors.” , according to US and Iraqi officials who spoke to the newspaper.
“This means that the money is there, but its disbursement is restricted, which means that the current crisis can be resolved at any moment, and it can continue until the Iraqis accept to deal according to the new regulations,” economic analyst Hassan al-Radi told Al-Hurra.
The Federal Reserve Bank of New York imposed stricter restrictions on international dollar transactions by Iraqi commercial banks in November in a move to curb money laundering and illegal withdrawals of dollars to Iran and other heavily sanctioned Middle Eastern countries, the Wall Street Journal says.
Mahmoud Dagher, head of Al Janoob Islamic Bank, told the Wall Street Journal that “the shock policy pursued by the Federal Reserve caused a crisis within the Iraqi economy,” which is accustomed to a more flexible way of dealing with dollar transfers.
Al-Radi, the analyst, says, “The shock is real, but Iraq allowed it to bypass many international banking instructions for two decades, and it should have been more prepared for such a day.” Even sukuk, it made the monetary mass moving inside the market very large, and allowed a huge part to be smuggled abroad.
US opinion
And the Wall Street Journal quotes US officials as saying that “the stricter rules for electronic transfers in dollars by Iraqi private banks were not a surprise to officials in Baghdad, as they were jointly implemented in November after two years of discussions and planning by the Central Bank of Iraq, the US Treasury and the Reserve Bank.” Federal”.
US officials added to the newspaper that the rise in the dollar’s exchange rate was not due to the new measures, but rather due to “scrutiny of dollar transactions.”
However, Iraqi Prime Minister Muhammad al-Sudani said that the Reserve Board’s behavior harms the poor and threatens his government’s budget for 2023, and added in an interview with the newspaper that he “will send a delegation to Washington next month with a proposal to stop the new policy for a period of six months.”
The newspaper said that senior Iraqi officials with ties to Iran are more critical, such as Hadi al-Amiri, who said during a meeting with the French ambassador in Baghdad, “Everyone knows how the Americans use currency as a weapon to starve people.”
Iraqi economy
The currency crisis does not indicate an economic problem, according to Iraqi experts, as “the Iraqi economy is showing indicators that are the strongest in a while,” says banking expert and Iraqi government advisor Mazhar Muhammad Salih.
Saleh adds that the country’s oil revenues today are the highest in Iraq’s modern economic history, as they exceeded $116 billion, accompanied by foreign reserves of nearly $100 billion, which is also the highest in Iraq’s financial history.
Recently, the Iraqi Prime Minister said that Iraq’s reserves amounted to 96 billion dollars.
Saleh added to the “Al-Hurra” website that the current account surplus of the balance of payments relative to the gross domestic product reaches nearly 15%, which is one of the indicators indicating the strength of the country’s external economic sector.
Nevertheless, Saleh says that the current crisis is caused by “the continuous automated rejection of exchange requests with incomplete data, especially the last beneficiary of the transfer, which restricted the effective supply of foreign currency itself and made the dollar supply falter in front of a continuous and effective demand, which generated a temporary surplus of demand for foreign exchange that took its way.” to the exchange rate in the parallel market.
Currency traders in Baghdad have had less access to dollars since the Federal Reserve Bank of New York began imposing controls on banks.
The price of the dollar in the informal market reached 1,680 dinars per dollar, compared to 1,450 dinars before the crisis.
