Baghdad Struggles to Halt Devaluation of Iraqi Dina

Over the last few days, the government in Baghdad has been preoccupied
with attempting to control the exchange rate of the Iraqi dinar against
the US dollar. The rate has been dropping since April, reaching its
lowest at the beginning of this week.

The Central Bank of Iraq
has taken measures to slow the fall of the Iraqi dinar, which has
plummeted against the US dollar in recent weeks.


During the
preceding week on the local market, the dinar dropped against the dollar
from 1,200 to 1,300, widening the gap against the official exchange
rate by 121 dinars.

The Central Bank of Iraq (CBI) sells one
dollar for every 1,179 dinars to authorized banks, which then sell it
for 1,189 dinars to citizens traveling for medical treatment. Otherwise,
traders and others looking to buy dollars must enter a public auction
for hard currency sales managed by the CBI.

This is one of a
series of measures overseen by the Interior Ministry. The CBI, the
country's monetary policy authority, recently held a series of meetings
with members of the country's Parliamentary Presidential Board — which
consists of Speaker Osama al-Nujaifi, First Deputy Speaker Qusai
al-Suhail and Second Deputy Speaker Aref Tayfur — to explain how to deal
with the decline in the local exchange rate.

In a statement
issued on May 12 and obtained by Al-Monitor, the Iraqi legislature
announced that the parliamentary presidential board had met that day
with Abdul Basit Turki, governor of the CBI by proxy and head of the
Supreme Audit Board.

It also proclaimed, “The Parliamentary
Presidential Board expressed its full support for the CBI scrutinizing
the private banks’ activity, archiving information and taking reform
measures, which include controlling the exchange rate of the dollar,
reducing money laundering and strengthening the CBI’s capacity in
economic development.”

In a separate statement, issued May 13,
the parliament announced that Suhail had “chaired the Finance
Committee’s meeting in the presence of CBI governor Abdul Basit Turki.”

Suhail
stressed “the need to determine procedures taken by the CBI’s
administration to address the fluctuation in the dinar’s exchange rate
against the dollar.” The parliament also emphasized, “It is important to
know the true causes of this fluctuation, which will negatively affect
the [quality of] life of the Iraqi citizen.”

The CBI’s governor,
according to the statement, "gave a presentation of the CBI’s policy and
recent activity, particularly the CBI’s auctions and its
administration’s procedures to combat the fluctuation of the exchange
rate for the dollar."

In addition, members of the parliamentary
finance committee reviewed “their suggestions and recommendations on the
developments in the auction and dollar-exchange methods.”

They
also stressed “the need to take measures to prevent some of those who
trade with the money of the Iraqi people from exploiting the CBI’s
auction.”

CBI officials refused to make comments to the media,
but on May 13 local media circulated a statement by a banking source
described as "high-level." According to the statement, "The CBI’s
foreign currency reserves amount to $74 billion” and that “this amount
is the highest Iraqi foreign currency reserve ever.”

Economist
Jawad al-Shammari said in an interview with Al-Monitor, “The CBI follows
a vigilant policy when dealing with the media.

It is probably
the party that leaked information on the increasing Iraqi foreign
currency reserves in order to calm mounting fears as a result of the
sharp decline in the value of the dinar against the dollar.”

Shammari
added, “The CBI holds daily sessions to sell foreign currency with both
governmental and private participation. The sales can be either in cash
or in the form of overseas transfers in exchange for commission.”

Shammari
believes that “this measure — which aims to control the dinar exchange
rate against the dollar — is no longer effective due to the daily,
increasing gap between what the CBI offers in the auction and the actual
market need.”

Haider al-Abadi, head of the Parliamentary Finance
Committee, confirmed having “received reassuring messages from CBI
officials on controlling the exchange rate fluctuation.”

Abadi
said that the CBI took measures enabling citizens to obtain foreign
currency from public and private banks, including transfers for travel
or treatment. He reiterated, "The problem is limited to the gap between
supply and demand for US dollars in the Iraqi market.”

The CBI
holds daily sessions to buy and sell foreign currency with the
participation of Iraqi banks, except for public holidays, during which
the CBI suspends these auctions.

The sales can be either in cash or in the form of overseas transfers for a commissioning fee.


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