Despite all warnings and fears, it appears that Iraqi banks are on the verge of repeating the scenario of Lebanese bank bankruptcy, as a result of the government’s confusion in managing the crisis of deteriorating dollar exchange rates, and as a result of the continuation of corruption mafias in Aleppo and the smuggling of the dollar from the Iraqi market to serve well-known regional agendas.
Prime Minister Muhammad Shiaa Al-Sudani had a fresh meeting with bank chiefs a few days ago to discuss the situation of the rising dollar exchange rate and to streamline banking procedures.
According to the Prime Minister’s Media Office, “Last Sunday, Al-Sudani chaired a meeting that included the Governor of the Central Bank and directors of government banks, in which the procedures and work mechanisms taken to achieve banking reform were discussed.” The Prime Minister emphasized that “financial reform is not just a slogan, but rather a series of terms and procedures that the government intends to implement.” He issued an ultimatum “to simplify all banking procedures, in addition to examining the obstacles hindering the banking reform process.”
Al-Sudani’s comments came after financial experts warned of the consequences of the Central Bank of Iraq’s inability to follow procedures and directives provided as part of its efforts to regulate the continued rise in the dollar exchange rate.
“I don’t want to frustrate the street or create a crisis, but the current indicators do not point to a decline in the price of the dollar,” Al-Dahlaki added. On the contrary, we will see a steady rise in the price, unhappily,” justifying this by a lack of a clear vision to restore the dollar to its old price, “since official processes are insufficient and are not “implemented properly.”
Many banks in the capital witnessed angry citizens protesting the fact that these banks refused to allow them to recover their deposits in dollars, citing Central Bank instructions prohibiting the withdrawal of deposits in dollars and compensating them for them in dinars.
These developments coincided with the start of a demonstration on Al-Rashid Commercial Street in front of the Central Bank building for exchange company owners demanding the dismissal of corrupt people within the Central Bank as well as an end to the rise in dollar exchange rates and the market control of private bank mafias. Many bank owners in Baghdad and the regions likewise closed their doors and ceased trading activities. Purchasing the dollar as a result of the lack of stability in the currency exchange market, which resulted in a rise in dollar exchange rates.
During a visit of “Al-Quds Al-Arabi” in certain banks in Iraq’s capital, I noted that some of these banks refused to disburse dollars except in exceptional circumstances.
Businessman Saad Al-Obaidi confirmed to Al-Quds Al-Arabi that, in response to a Central Bank official’s statements, he withdrew all of his deposits in dollars from his accounts at Al-Rafidain and Al-Rashid banks, emphasizing his concern about a repeat of the Lebanese bank bankruptcy scenario, which he believes is imminent. Al-Obaidi, the owner of a commercial company, expressed merchants’ and business owners’ conviction that they do not trust the procedures of the Central Bank and banks in Iraq, which were characterized by chaos, lack of planning, and corruption, leading to a rise in the market price of the dollar. “As a result, there is great concern and fear that the banks will seize,” he continued. Customers and businesses make deposits in dollars.
When the Central Bank’s Director of Foreign Remittances, Mazen Sabah Ahmed, told Reuters that “people who deposit dollars in banks before the end of 2023 will be able to withdraw money in dollars,” angry reactions erupted in the streets. Dollars placed in 2024, however, may only be withdrawn in local currency at the official rate of 1,320 dinars to the dollar. He went on to say, “The Central Bank is not obligated and is absolutely not obliged to give incoming transfers from balances, convert them into cash, and deliver them in cash dollars.” These procedures are justified by claiming that they prevent the dollar from reaching parties that are not permitted to get it.
Economists universally agreed that the Central Bank’s initiatives to combat the increase in the parallel market dollar exchange rate were unhelpful.
Dr. Nabil Al-Marsoumi, an economist, stated to Al-Quds Al-Arabi that the rise in the dollar exchange rate is a complicated economic and political issue that the Central Bank of Iraq would not be able to address alone, and that its purpose is to harm commerce between Iraq and Iran. Noting the presence of a US Treasury representative at his country’s embassy in Baghdad, who oversees dollar exchange transactions to ensure that money does not end up in Iran. It is worth noting that the volume of commerce between Iraq and Iran is around $10 billion per year.
Al-Marsoumi warned of the growing gap between the official and parallel prices of the dollar and its negative consequences for the Iraqi economy, revealing the presence of an external variable on the exchange rate represented by American restrictions on the movement of the dollar in Iraq to prevent its arrival in Iran, indicating that “the growing gap between the official and parallel prices of the dinar.” If not neutralized or lowered against the dollar, it poses a threat to the political system and the Iraqi government. Al-Marsoumi predicted that the problem caused by the enormous discrepancy in exchange rates would persist when the government began disbursing the budget, which would result in a major rise in expenditure and commerce and lead to inflation.
Economic analysts think that the most crucial economic issue that Muhammad Shiaa al-Sudani’s government failed to control was the dollar exchange rate. Despite a torrent of declarations and pledges, as well as a change in the head of the Central Bank, all of these steps had a detrimental influence on the dollar’s increase and the Iraqi dinar’s fall. They pointed out that the Baghdad administration claims to Washington that it has control over the smuggling of dollars to Iran, and that it expects Washington would be duped by this assertion, which is absurd given the American capabilities to monitor dollar movement across the world. As a result, Baghdad’s ruling parties are putting themselves at danger.