Iraqi banks strengthened by foreign currency deals during no-confidence motion against central bank governor
In an interesting turn of events, the Iraq Central Bank (ICB) has secured agreements with foreign countries to assist Iraqi private banks by providing foreign currencies. This move comes at a time when lawmakers are trying to push for a vote of no-confidence against the ICB’s governor, all while the Iraqi currency is facing pressure due to the strength of the US dollar.
In a significant development, officials from ICB and the US have struck a deal to enhance the reserves of 10 Iraqi banks with the US dollar. As reported by the state-run Iraqi News Agency on Sunday, 12 November, government sources involved in the meetings in Abu Dhabi revealed this positive outcome.
According to a report by INA, following recent discussions between the Iraqi Central Bank and American representatives, ten banks are now able to boost their reserves in US dollars. Five of these banks will be working with Citi Bank, while the remaining five will be partnering with JP Morgan.
Iraq imports almost 95 of its needs through foreign trade using foreign currencies.
“Furthermore, the number of banks allowed to enhance their reserves in the Chinese Yuan through the Singapore Development Bank will increase to 13 banks. Two banks have already fortified their accounts in Indian Rupees with the Singapore Development Bank,” the agency added.
It also clarified that several developments have unfolded in banking collaboration between Iraq and other countries; notably, issues with rejected transfers have been resolved. It also revealed a promising mechanism to boost balances in Emirati Dirhams for Iraqi banks is “imminent”.
ICB also makes serious negotiations to enhance Iraqi bank balances in Euros, and more banks are reinforcing their balances in the Chinese Yuan and Indian Rupees for Iraqi banks, signalling a strategic move to finance imports, especially in pharmaceuticals and food items.
ICB recently decided that Iraqi private banks can import foreign currencies via commercial flights, a controversial step that backfired on its governor, as Iraqi lawmakers and legal experts considered it unconstitutional.
Al-Alaq is facing a parliamentary motion to remove him from his position due to the decreasing value of the Iraqi dinar in exchange for the US dollar in the parallel markets.
Since assuming office, economic experts believe that the ICB governor has failed to resolve the devaluation of the ID in exchange for the dollar crisis despite measures taken since his appointment.
Iraq’s cabinet approved a currency revaluation on 7 February and set the exchange rate at 1,300 dinars per US dollar. The Central Bank of Iraq (CBI) also imposed several measures to boost the dinar and prevent the outflow of US dollars outside the country, especially to Iran and Syria, which are under US sanctions.
Despite the official rate of the dinar, a US dollar still sold at around 1,620 in the currency exchange markets. The sharp drop in the dinar’s value plunged local markets into further recession, with prices of every essential goods soaring daily.
