Professor Frank Gunter of Lehigh University spoke on a recent webinar hosted by the Iraq Britain Business Council (IBBC) about the main changes in the dinar exchange rate over time and the effects of having two rates. For additional on the motivations behind why Iraq has two trade rates, click here).
Current Exchange Rates Iraq has two different exchange rates: the market rate and the official exchange rate.
The authority conversion standard is roughly 1,310 Iraqi dinars for every US dollar.
At around 1,460 Iraqi dinars for every US dollar, the market rate is higher—a difference of 12% between the two rates.
Effect of Double Trade Rates
The presence of double trade rates affects Iraq’s economy:
It eases back financial development by upsetting existing agreements and deterring exchange and speculation both locally and universally.
Because individuals and organizations can profit from the difference between the official rate and the market rate by being paid in dollars and making payments in dinars, this encourages corruption.
It entangles financial strategy, making it harder for the public authority to really deal with the economy.
Exchange Rate Changes in the Past December 2020: The fiscal crisis of 2020 and the decline in oil prices were the primary causes of the 23 percent devaluation of the dinar. This downgrading was expected to permit the Service of Money to acquire more dinars for every dollar of oil income.
February 2023: The dinar’s value was raised from 1,450 to 1,310 dollars per dinar as a result of the revaluation. While this revaluation helped importers by making imports more affordable, it hurt exporters of non-oil goods by making their products more expensive abroad.
Impact of Dollar Appreciation
Since the revaluation in February 2023, the US dollar has valued by around 3.3%. This further lowers the price of Iraqi imports while raising the price of exports, affecting the trade balance.
Challenges Posed by Dual Exchange Rates It has been challenging to conduct business with predictable costs and revenues due to the dual exchange rates, which has contributed to the disruption of the economy. The disparity in rates encourages dishonest behavior and makes fiscal management by governments more difficult, which ultimately slows economic expansion.
In conclusion, fiscal policy decisions and economic crises have resulted in significant shifts in Iraq’s official and market exchange rates over the past few years. The dual rates pose ongoing difficulties for economic growth, governance, and stability.
In Iraq, having two exchange rates has the following effects:
Easing back Financial Development
The double conversion standard framework upsets existing agreements and puts both homegrown and worldwide exchange and speculation down. Growth and economic stability are harmed by this disruption.
Promoting Corruption The disparity between the official exchange rate and the market rate opens the door to unethical behavior. By paying in dollars and receiving payments in dinars, individuals and organizations can capitalize on the disparity for financial gain.
Confusing Monetary Approach
Dealing with the economy turns out to be more difficult with double trade rates. Fiscal policy is made more difficult by the presence of two rates, making it challenging for the government to implement effective economic measures and maintain financial stability.
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