Exchange Rate Arrangement
Iraq’s de jure and de facto exchange rate arrangements are classified as a conventional peg arrangement. The Central Bank Law gives the Board of the Central Bank of Iraq (CBI) the authority to formulate exchange rate policy.
Effective February 8, 2023, the official exchange rate was set at ID 1,320 according to the closing prices of the daily bulletin of gold & main currencies published on the CBI website (www.cbi.iq).
There has been a change to Iraq’s exchange system since the last Article IV Consultation.
Iraq continues to avail itself of the transitional arrangements under Article XIV, Section 2
but no longer maintains any restrictions under this provision.
Iraq does not maintain any current account exchange restrictions or MCPs.
Starting January 2025, all international transactions have been routed through commercial banks via their correspondent banking relationships (CBRs).
The Central Bank of Iraq (CBI) replenishes these balances weekly based on foreign exchange demand and conducts audits to ensure that the allocated funds are used in compliance with AML/CFT regulations.
Private banks are also encouraged to broaden their CBR networks, particularly with non-U.S. financial institutions.
FUND RELATIONS (As of April 7, 2025) page 2
https://www.imf.org/-/media/Files/Publications/CR/2025/English/1irqea2025001-source-pdf.ashx
Advisor To The Prime Minister: Economic And Disciplinary Factors Behind The Stability Of The Exchange Rate And The Decline Of Dollarization
Time: 2025/07/17 13:55:21 Reads: 750 Times {Economic: Al Furat News} The financial advisor to the Prime Minister, Mazhar Muhammad Salih, confirmed that the
decline in the “dollarization” phenomenon and the
stability of the Iraqi dinar exchange rate
are due to a combination of decisive economic and disciplinary factors.
Saleh explained in a statement to Al Furat News Agency that “the disciplinary factors included
tightening controls on the use of the dollar in domestic transactions and completely prohibiting its use in local settlements and payments, in accordance with the law.
He pointed out that these measures included bank deposit mechanisms for real estate transactions,
which had previously been the focus of demand for cash dollars, and which the dinar had replaced with remarkable success.
He noted that this success is credited to the Central Bank of Iraq and its monetary policy, despite the criticism it has faced. Saleh added that the exchange rates in the parallel market would have been in line with the official markets had it not been for the recent geopolitical tensions in the Middle East, which caused a difference of 142 dinars per dollar.”
The financial advisor explained that
Financing Foreign Trade and Monetary Enhancing Mechanisms
“one of the most important success factors that led to the decline in the strength of the parallel market was the direct financing of foreign trade for small traders from official dollar outlets at a rate of 1,320 dinars per dollar, without the need for intermediaries.
He pointed out that imports by small traders constitute more than 50% of the total foreign market trade in Iraq.”
Saleh did not neglect to point out that the mechanisms for strengthening Iraqi banks’ foreign currency reserves with correspondent banks have become easier as an alternative to the Central Bank’s window and previous platforms,
which were abolished at the beginning of the year. He emphasized that these mechanisms have proven successful in dominating the official exchange market as a whole in foreign transfer transactions at the fixed exchange rate of 1,320 dinars per dollar.
Trade Policy and the Use of Electronic Payments
Saleh also emphasized the role of trade policy, which intervened for the first time by opening giant shopping centers and expanding in this direction (hypermarkets),
describing it as a “price defense policy in favor of the official exchange rate,” and weakening market demand for financing some of its trade from the parallel market, which has become “highly expensive.”
Finally, the financial advisor noted the growing trend among the public toward the widespread use of electronic payment cards funded at the official exchange rate (1,320 dinars), which has become “one of the modern travel customs and traditions in Iraq.”
He added that travelers now receive a share of cash dollars when traveling, according to very transparent and strict controls.
https://alforatnews.iq/news/مستشار-رئيس-الوزراء-عوامل-اقتصادية-وانضباطية-وراء-استقرار-سعر-الصرف-وتراجع-الدولرة
Has The Central Bank Destroyed The Private Banking Sector In Iraq Forever?
A dysfunctional banking sector in an oil country July 17, 2025 Last updated: July 17, 2025
Al-Mustaqilla / Investigative Report / – Although Iraq possesses vast oil wealth, its banking sector remains primitive, lacking depth and reliability. This is clearly demonstrated by the weakness of financial inclusion, with only 19% of citizens owning a bank account, one of the lowest rates in the region.
This weakness reflects a profound structural flaw in the relationship between citizens and banks and
raises fundamental questions about the effectiveness of monetary policies and banking supervision
in Iraq.
Controversial Monetary Policies
In recent years, the Central Bank of Iraq has pursued erratic monetary policies, most notably uncontrolled monetary expansion.
The money supply increased from 46 trillion dinars to more than 100 trillion dinars in just two years, without corresponding real economic growth.
This led to inflation exceeding 7.5%,prompting the Central Bank to raise interest rates to 7.5% before later reducing them to 5.5%, a move that had no tangible impact on the market.
Furthermore, a large gap remained between the interest rate on loans, which exceeds 10%, and
the interest rate on deposits, which barely reaches 7%, deepening citizens’ reluctance to deposit and weakening banks’ ability to provide financing.
Out-Of-System Criticism And Loss Of Trust
The problem lies not only in policies, but also in the grim reality that the vast majority of cash in circulation is outside the banking system.
This massive leakage weakens banks’ ability to perform their role as financial intermediaries and reflects a genuine crisis of confidence between citizens and banks.
Following banking bankruptcy scandals, the dominance of partisan figures in some private banks,
declining services, and the absence of any effective deposit insurance system, citizens have come to view banks as a threat rather than a refuge.
Consumer Loans Without Real Development
One of the most notable failures is that most of the loans granted by banks in recent years have been
directed toward consumption, not production.
Car financing, personal loans, and installments for recreational purposes have gone unmet,
with no real focus on supporting productive projects or small businesses.
This has led to increased speculation in the real estate market and rising land prices,
without any real production or job creation. Instead, it has led to population growth and urbanization without a corresponding economic structure.
Government Monopoly And Administrative Laxity
The Iraqi banking sector revolves around Rafidain and Rashid Banks, which control most of the sector’s assets.
However,
their performance is weak,
their administrative structures are clearly lax, and
their branches are not electronically connected and lack a modern technical infrastructure.
Meanwhile, the Central Bank has failed to
develop a strict regulatory framework or
impose governance on bank boards of directors,
allowing small financial institutions to operate outside regulatory control for many years.
Currency Window As An Entry Point For Money Laundering
One of the most dangerous tools that contributed to undermining the banking system is the foreign exchange window.
The central bank sells dollars at the official rate to private banks,
then resells them on the parallel market at a significant profit margin.
This mechanism provided an ideal environment for money laundering and smuggling abroad,
exploiting
weak banking oversight and
duplicate names and documents in transfer requests.
Many banks exploited these differences to make illicit profits, and
some had their licenses later revoked following international intervention.
International Sanctions Indicate A Defect
Beginning in 2022, the United States began imposing a ban on a number of Iraqi banks from dealing in dollars due to suspicions of suspicious transfers and money laundering.
The list was later expanded to include new banks,
disrupting a significant portion of foreign trade and remittance operations and
negatively impacting the Central Bank of Iraq‘s credibility with international institutions and correspondent banks.
Banking Licenses Without Clear Controls
In recent years, the Central Bank of Iraq has granted unprecedented numbers of new banking licenses,
bringing the number of private banks to over 70,
without any economic justification or genuine assessment of market needs.
This quantitative expansion has come
at the expense of quality and oversight,
contributing to the fragmentation of the banking market and the
creation of fragile entities, both financially and administratively weak,
often exploited as fronts for partisan agendas or foreign interests.
Negligence Of Banking Sovereignty
Although the Private Banking Law clearly sets a maximum foreign ownership limit in Iraqi banks,
not exceeding 25%, the Central Bank has unjustifiably overlooked this restriction.
Foreign financial institutions have been allowed to own significant stakes in a number of banks,
either directly or through local front companies.
This has
led to an imbalance in the ownership structure and
created external financial dependency that
threatens Iraq’s economic decision-making and
undermines the independence of the national banking system.
Bleeding Profits Abroad Without Investment
In a dangerous precedent, the Central Bank allowed bank managements—most of which are owned by foreign institutions—to transfer more than 75% of their annual profits abroad in the form of dividends, without requiring them to reinvest a portion of these profits within the Iraqi market.
This behavior
violates the most basic rules of development banking and
should have been countered by clear measures
compelling these banks to
develop their services,
strengthen their capital, or
contribute to national investment projects,
rather than becoming mere channels for transferring hard currency abroad.
Urgent International Advice For Reform
Several international institutions, including the US Treasury, the International Monetary Fund, and the World Bank, have made clear recommendations.
Prominent among them are:
stricter compliance with anti-money laundering and counter-terrorism financing laws,
enhanced transparency in dollar transactions,
strengthened internal and external oversight of banks,
reviewed asset quality, and modernized the sector’s digital infrastructure.
These institutions also called for raising minimum bank capital and merging or liquidating distressed banks to create a more robust system.
Direct Responsibility Of The Central Bank
The Central Bank is not only a neutral supervisory body; it is also a genuine partner in the crisis.
It has
allowed the currency window to continue despite its risks,
failed to require banks to adhere to international governance standards,
been lax in enforcing controls on foreign ownership, and
failed to establish an effective legislative framework to protect depositors or regulate the banking structure.
Its responsibility is not merely technical, but also ethical and institutional in the face of an economy being drained.
The Opportunity For Reform Still Exists.
Despite the bleak outlook, there is still a chance to save the Iraqi banking system.
This requires
political and professional will, beginning with legislative reform,
imposing strict oversight,
enhancing transparency, and
cooperating with international institutions to restore confidence.
There can be no real development without a strong banking sector,
and no successful banking sector without an independent and effective central bank that understands that it is not just a guardian of liquidity, but also a stabilizing force.
https://mustaqila.com/القطاع-المصرفي/
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