Iraqis banned from dealing in US dollars

Government warns of punishments as it tries to control currency crisis that has led to price rises

Money changers and customers at a foreign currency exchange market in Baghdad. Reuters
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The Iraqi Interior Ministry has banned people from dealing in US dollars in the latest move by authorities to control a fluctuating black market exchange rate.

The surprise announcement on Sunday reflects an attempt to close the gap between the official exchange rate and that on the black market, which has fuelled high prices and caused anger.

“The dinar is the national currency in Iraq,” the ministry said. “Your commitment to transact in it instead of foreign currencies boosts the country’s sovereignty and economy.”

It said dealing in other currencies “is a violation that is punishable by law” and threatened to “hold accountable anyone who attempts to undermine the Iraqi dinar and the economy”.

The Interior Ministry's Anti-organised Crime Directorate has sent its forces to markets across Baghdad and other cities, asking traders to sign a pledge to sell goods

only in dinar, Brig Gen Hussein Al Tamimi told The National.

“The widespread campaign aims at protecting the dinar,” said Mr Al Tamimi who heads the directorate's operations department. He said representatives from the Central Bank of Iraq and the Interior Ministry's intelligence department joined the patrols.

Those who breach the pledge will face a fine of one million Iraqi dinar (around $680), he added.

“If the violator repeats it he will face an imprisonment penalty of up to one year plus the one-million Iraqi dinar financial fine,” he added. “In case of a third violation, that penalty will be doubled and we will have the business licence turned.”

Market dealings in the dollar went underground on Monday and exchange offices, fearing arrest by undercover agents, were selling dollars only to trusted clients, at the black market rate.

The Gulf War in 1991, followed by harsh UN-imposed economic sanctions and the US-led invasion in 2003, caused a substantial devaluation of the Iraqi dinar. As a result, Iraqis have turned to the US dollar. A wide range of dealings, from wholesale trading to retail purchases, are settled with it.

During the past six months, the Iraqi government has been attempting to stop a currency crisis that has led to an increase in the prices of goods, and brought protesters out on to the streets.

Since later November, the Iraqi dinar has experienced added volatility after the US's tightening of procedures for international transfers, with some blaming Washington for the dinar's problems.

The US has complained that the dollar is being funnelled to Iran, Syria and Lebanon through the foreign currency auction run by the Central Bank of Iraq. Iran and Syrian are under US sanctions.

Since then, the Federal Reserve Bank of New York has applied strict measures on requests for international transactions from Iraq, rejecting many and delaying others, leading to an increased demand for the US dollar in Iraq.

It has also blacklisted several Iraqi banks suspected of money laundering and of carrying out suspicious transactions.

Baghdad-resident Mohammed Hassan Jaafar wants to buy a house and says he is uncertain what to do, as the estate agent wants to be paid in dollars.

“For decades, everything here is pegged to the dollar and there are things, such as properties or cars, the owners ask to be paid in dollars in order to be on the safe side in terms of inflation or to have less banknotes in hand in comparison to the amount of money they get in dinars,” said Mr Jaafar, 55.

“There are people, like me, who don't meet the criteria set by the Central Bank to buy dollars at the official rate so we go to exchange offices to buy at the black market rate,” he added, referring to the CBI measures to sell dollars to merchants for importing goods or to people who were travelling abroad.

The Iraqi government blames the US for the dollar chaos. It has taken a series of unsuccessful measures to contain the public's anger.

Security forces raided Baghdad's biggest markets for the US dollar and arrested several traders, accusing them of manipulating the prices.

While the official exchange rate is fixed at 1,300 dinars against the dollar, the currency was trading at about 1,470 on the black market on Sunday.

Updated: May 16, 2023, 6:52 AM