Iraq's central bank is to restrict all internal trade to the Iraqi dinar starting next year, a move that aims to help control the black-market exchange rate.
The policy will stop transactions from being conducted in US dollars and was announced on Sunday, following a meeting between central bank governor Ali Al Alaq and representatives of private banks.
The central bank will cease the transfer of money for foreign trade and entrust Iraqi private banks to do the job, Mr Al Alaq said in a statement.
“This has been agreed on with the US Federal Reserve Bank as the central bank’s main role is supervision and monitoring,” the statement read.
The central bank also plans to allow Iraq's foreign trade to be settled in currencies other than the dollar, including the euro, Emirati dirham, Turkish lira and Indian rupee, it said.
“The new system for foreign transfers and the sale of dollars provides protection against risks for all parties involved in the transactions, is accepted internationally and aligns with the anti-laundering and terrorism financing laws,” the statement said.
In 2004, the bank introduced the foreign currency auction to help achieve monetary stability.
The move succeeded in controlling the exchange rate on the black market.
But the value of the dinar has dropped since the US last year announced measures to tighten procedures for international transfers.
The US has raised concerns that dollars are being funnelled to Iran and Syria – both under American sanctions – as well as Lebanon, using Iraq's foreign currency auction.
The Federal Reserve Bank has applied strict measures on requests for international transactions from Iraq, leading to an increased demand for dollars in the country.
It has also blacklisted several Iraqi banks suspected of money laundering and of carrying out suspicious transactions.
In July, 14 private Iraqi banks were barred from conducting dollar transactions.
Amid a liquidity crisis in December 2020, Iraq’s central bank devalued the local currency to 1,460 dinars to the dollar for banks and 1,470 dinars for individual people.
This year, it changed the official rate to 1,300 dinars to the dollar. The US currency is trading at about 1,540 dinars on the black market.
The Iraqi government has this year struggled to control the exchange rate and contain mounting public anger over the soaring cost of goods.
The government sent security personnel to markets across cities including Baghdad to ask traders to sign a pledge to sell goods in dinars or face jail.