
The Iraqi Central Bank has undergone significant reforms to promote financial growth in the country.
In 2004, the Central Bank of Iraq was re-established as an independent entity to oversee the country's monetary policy and financial stability.
The bank's new mandate aimed to reduce inflation, stabilize the exchange rate, and increase foreign exchange reserves.
One key achievement was the introduction of a new currency, the Iraqi dinar, which replaced the old dinar and helped to control inflation.
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Iraqi Central Bank Reform
The Iraqi Central Bank Reform is an ongoing effort to strengthen the country's financial system. The Central Bank of Iraq (CBI) was established in 2004 with 100 billion dinars in capital provided by the state.
The CBI's main objectives are to ensure domestic price stability and develop a stable and competitive market-based financial system. This includes supporting sustainable growth and employment in the country.
The CBI undertakes several key functions to meet these objectives, including implementing Iraq's monetary policy and exchange rate policy. It also manages and holds Iraq's gold and foreign exchange reserves.
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The CBI issues and manages the national currency of Iraq, the Iraqi dinar (IQD), and oversees the payment system along with regulating and supervising the banking sector. This is crucial for maintaining a stable economy.
The CBI manages exchange rate policy for the Iraqi dinar, which is pegged to the U.S. dollar. This peg has resulted in sustained low and stable inflation in Iraq, around 2% average for several years.
Iraqi Prime Minister Mohammed S. Al-Sudani has pushed for comprehensive reforms for the financial and banking sector, including stricter oversight of financial transfers. This effort aims to strengthen the country's financial system.
The CBI's governor, Mustafa Ghaleb, was appointed by Prime Minister Mustafa al-Kadhimi in September 2020.
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Financial Growth and Reserves
The Central Bank of Iraq has reported strong financial growth, with a notable increase in total deposits in banks. This growth is evident in the 4.2% increase from Q3 2023 to Q3 2024.
Iraq's gold reserves have also seen a significant surge, rising by 57%. This positive trend is a testament to the bank's effective monetary policy.
In Q3 2024, the total deposits in banks reached 127.6 trillion dinars, a notable increase from the 122.4 trillion dinars recorded in Q3 2023.
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Bank Operations and Services
The Central Bank of Iraq (CBI) has a range of important functions that help support the country's economy. The CBI was created in 2004 with 100 billion dinars in capital provided by the state.
The CBI's main objectives are to ensure domestic price stability and develop a stable financial system. This includes supporting sustainable growth and employment in Iraq.
The CBI undertakes several key functions to meet these objectives, including implementing monetary and exchange rate policies. The bank also manages Iraq's gold and foreign exchange reserves, and issues and manages the national currency, the Iraqi dinar (IQD).
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Bank Operations
The Central Bank of Iraq, also known as the CBI, is the country's independent central bank. It was created on March 6, 2004, with a capital of 100 billion dinars provided by the state in exchange for 100% of the bank's capital stock.
The CBI's main functions include implementing Iraq's monetary policy and exchange rate policy, managing and holding Iraq's gold and foreign exchange reserves, issuing and managing the national currency of Iraq, the Iraqi dinar (IQD), and overseeing the payment system along with regulating and supervising the banking sector.
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The CBI manages exchange rate policy for the Iraqi dinar, which is pegged to the U.S. dollar. This peg is considered a key anchor for the economy, resulting in sustained low and stable inflation in Iraq, around 2% average for several years.
The CBI's main objectives are to ensure domestic price stability and to develop a stable and competitive market-based financial system. In fulfilling these objectives, the CBI aims to support sustainable growth and employment in the country.
Here are the CBI's main functions in a concise list:
- Implementing Iraq's monetary policy and exchange rate policy
- Managing and holding Iraq's gold and foreign exchange reserves
- Issuing and managing the national currency of Iraq, the Iraqi dinar (IQD)
- Overseeing the payment system along with regulating and supervising the banking sector
Iraq Expands Foreign Transfer Options
Iraq is making it easier for local banks to send and receive foreign currency. The Central Bank of Iraq (CBI) has recently expanded foreign currency transfer options for local banks.
The CBI has added the Jordanian Dinar and Saudi Riyal to the list of permitted currencies. Iraqi banks can now also fund trade with Turkey in Euros, previously restricted to transactions with EU countries.
This expansion will likely make international transactions smoother and more efficient for Iraqi businesses.
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Digital Economy and Private Banking
The Iraqi government's focus on digital transformation has led to a significant rise in banking sector deposits over the past two years.
The Iraqi Private Banks League (IPBL) has reported a substantial increase in banking sector deposits.
This growth can be attributed to the government's efforts to develop electronic payment systems.
As a result, 75% of Iraq's money supply remains outside the banking system.
The IPBL Executive Director, Ali Tariq, has highlighted the importance of digital transformation in the banking sector.
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Loan Guarantees and Financial Support
The Central Bank of Iraq (CBI) is prioritizing the strengthening of the Loan Guarantee Company, also known as the Iraqi Bank Guarantees Company (IBGC). This is a strategic focus aimed at supporting the banking sector and bolstering financial depth.
Dr. Ammar Hamad Khalaf, Deputy Governor of the CBI, has highlighted the importance of enhancing the capabilities of the Loan Guarantee Company. This suggests that the CBI is committed to improving the company's performance.
The 8th International Guarantee Conference was a key platform for discussing the CBI's strategic focus on the Loan Guarantee Company. This conference likely brought together experts and stakeholders to share knowledge and best practices.
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Dollar Transactions and Regulation
Iraq's Central Bank has taken significant steps to regulate dollar transactions, a crucial aspect of the country's economy. The bank has seen a substantial increase in overseas dollar transactions through the official global SWIFT system.
Transactions through the Central Bank's electronic platform have increased from $50 million per day at the beginning of 2023 to around $200 million. This growth is consistent with the size of Iraq's economy.
The government has imposed restrictions on the use of dollars domestically, as they dominate the country's economy. The official exchange rate is fixed at 1,320 dinars to the dollar.
Iraqi banks wanting to access dollar reserves held in the United States must make transfers through the electronic system. The U.S. Federal Reserve examines these requests and blocks them if they find them suspicious.
The number of rejections has decreased recently, as banks have understood international requirements. Traders are also better aware of what's needed to transfer their money.
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The government has taken steps to encourage importers to use official channels to obtain dollars. This includes allowing importers of goods like cigarettes, cars, gold, and mobile phones to use official channels.
The black market for dollars has been a significant issue in Iraq. The banned banks are restricted from dealing in dollars but can operate local transactions.
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Frequently Asked Questions
Do any US banks exchange Iraqi dinar?
No major US banks exchange Iraqi dinar directly, but you can exchange it through money exchanges with fees. The Iraqi government sets the dinar's value, not US banks.
What is the new currency of the Central Bank of Iraq?
The Iraqi dinar is the official currency issued by the Central Bank of Iraq. Learn more about its history, value, and usage in Iraq.
Sources
- https://www.centralbanking.com/organisations/central-bank-of-iraq
- https://gfmag.com/economics-policy-regulation/iraq-central-bank-governor-ali-muhsen-al-allaq/
- https://www.investopedia.com/terms/i/iraqi-central-bank.asp
- https://www.iraq-businessnews.com/tag/central-bank-of-iraq-cbi/
- https://www.voanews.com/a/iraq-central-bank-says-regulated-dollar-transactions-rising-/7542206.html
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