“Because people’s confidence in dealing with the banking institutions is very weak, only about 20 percent of their money is kept in banks and the rest is retained by the residents. This is called currency leakage, and it is a widespread phenomenon in the Iraqi economy,” Mazhar Mohammed Salih, the financial advisor to the Iraqi prime minister, told Rudaw’s Nahro Mohammed.
“People keep about 80 percent of their cash at home instead of depositing it in the banks,” he added.
As the Iraqi dinar continues to lose value against the US dollar despite ongoing efforts from the federal government to control the instability, many banks across Iraq have started preventing customers from withdrawing their money in dollars and only allowing them to withdraw in Iraqi dinars at the value set in the budget.
The move has drawn a lot of controversy and public outcry, as the value of the Iraqi dinar against the US dollar in the country’s currency markets continues be much lower than the one set out in the budget.
Salih, however, praised Iraq’s high foreign exchange reserves and said they contribute positively towards the Iraqi dinar.
“Iraq’s foreign exchange reserves are the highest in its history, exceeding $100 billion, which supports the Iraqi dinar,” he said.
The Central Bank of Iraq (CBI) has set the dinar-dollar exchange rate at 1,310 dinars per $1, while the market value with currency exchange vendors is approaching 1,600 dinars per dollar.
Earlier in October, the CBI warned banks across the country against rejecting customers’ requests to withdraw their cash in dollars, saying it will take necessary measures against banks refusing such demands.
Last month, the CBI announced that all the transactions inside Iraq would be made using Iraqi dinars starting in 2024.
The 2023, 2024, and 2025 Iraqi federal budget, passed in June, set the exchange rate of $1 to 1,300 Iraqi dinars. The ongoing smuggling has prevented the suggested value from being reached, with the value of the dollar currently sitting at around 1,600 IQD in the currency markets of Iraq and the Kurdistan Region.
The depreciation of the Iraqi dinar has been attributed to the smuggling of dollars out of the country, mainly to neighboring Iran.
The US in July banned transactions with 14 Iraqi banks for allegedly violating its rules. The move further dropped the value of the Iraqi currency.
