Iraq will ban cash withdrawals and transactions in US dollars as of Jan. 1, 2024, as per a top official of the Iraqi central bank, in the newest effort to stop the misuse of its hard currency reserves in financial crimes and the evasion of US sanctions on Iran.
According to Mazen Ahmed, director-general of investments and remittances at the Iraqi Central Bank (CBI), the initiative intends to stop the usage of around 50% of the $10 billion in cash that Iraq imports from the New York Federal Reserve each year.
It is also part of a larger effort to de-dollarise an economy where, in the wake of the 2003 American invasion, a people sick of ongoing wars and crises favoured the dollar over local currency.
According to Ahmed, those who make dollar deposits into banks before the end of 2023 will still be able to withdraw money in dollars in 2024.
However, withdrawals of dollars made in 2024 may only be made at the official exchange rate of 1,320.
On Thursday, the Iraqi dinar was trading at 1,560, or nearly 15% less than the official rate.
"You want to transfer? Transfer. You want a card in dollars? Here you go, you can use the card inside Iraq at the official rate, or if you want to withdraw cash, you can at the official rate in dinars," Ahmed said.
"But don't talk to me about cash dollars anymore."
Later, the central bank announced that the restriction on cash withdrawals would only apply to accounts receiving international transfers.
Iraq has already established a platform to control wire transfers, which make up the majority of its dollar demand and were formerly a hotbed of fraudulent transactions and bogus receipts that diverted money to Iran and Syria, both of whom are subject to US sanctions.
Ahmed claimed that the system, which was put in place in cooperation with American authorities and provides dollars at the official rate to individuals engaged in legal trade like the importation of food and consumer products, was now almost impenetrable. Iraq has 120 billion dollars in reserves from oil sales that are held there.
However, he claimed that people have continued to abuse the ability to withdraw cash, including potential passengers who were given a $3000 state quota and found ways to manipulate the system.
Iraq depends significantly on Washington's goodwill to make sure oil earnings and finances are protected from American criticism.
The present administration, which is supported by significant parties and armed organisations with ties to Iran, has taken care to avoid upsetting either Tehran or the parties and armed groups with vested interests in Iraq's heavily informal economy.
Since several local banks began restricting dollar cash withdrawals in recent months due to a lack of dollars, the exchange rate on the black market has been steadily increasing.
According to Ahmed, some banks were running low on dollars because many people were simultaneously attempting to withdraw dollars amid a general feeling of anxiety about the financial system, and other banks were running low on dollars because they made dollar-denominated loans that were repaid with dinars.
As part of a deal with the Fed to reduce cash and move towards e-payment, the CBI likewise reduced the number of dollars it was providing, he claimed. He pointed out that the most recent normal supply had arrived on Wednesday and refuted claims that the Fed had stopped sending money to Iraq.
Ahmed stated that the CBI anticipated that once the new regulations took effect, the dinar's value might decline even further, but that this was a necessary byproduct of formalising the financial system and that the CBI was distributing dollars at the official rate for all lawful uses.
"The cost we are carrying today is nothing compared to this goal," he said, describing the parallel market rate as a rate used mostly for illegitimate transactions.
"We don't have a problem with the (parallel) exchange rate hitting 1,700. If they tell me the rate is 1,700, I tell them: 'you want to import from Iran. You want to smuggle. You have corrupt money that you want to get out.'"
He added, "As long as all transparent and legal financing operations happen via us (at the official rate), the rest does not matter."
Ahmed was cited in the central bank statement as adding that there was no sign that the market rate would reach 1,700 and that the central bank was taking actions to lower the exchange rate on the parallel market.
There are already some indications that people are getting frustrated with the lack of dollars.
On Thursday, a video that appeared on social media showed a depositor at a Baghdad bank threatening to set the building on fire if he wasn't given his money in cash dollars, evoking actions that depositors in Lebanon have taken during the country's banking crisis.
"I swear I will burn it down. I swear I will enter the safe and take my money" the man says.