Al-Harith Hassan, an oil sector employee in Basra, has not been able to freely withdraw his salary in US dollars from the bank for several months. In Iraq, where authorities are fighting the black currency market, there are restrictions on the use of the greenback.
A paradox for the hydrocarbon-rich country with huge foreign exchange reserves of over $100 billion. But the emergence of a parallel foreign exchange market and authorities' struggle to strengthen banking supervision – in line with Washington's international rules – have destabilized daily life.
Officially, the exchange rate is about 1320 dinars per US dollar. In exchange offices, the local currency is exchanged for the dollar at more than 1500, even 1600 dinars.
“It has been very difficult to withdraw dollars from the bank for three months or more,” summarizes Mr. Hassan, 37 years old.
He works in logistics at an oil field in the south of the country and earns around $2,500 a month. “When we withdraw our salary, we only receive a fraction of it in installments.”
Recently, he said, the trend is increasingly towards paying salaries in dinars according to the official exchange rate.
“It's a problem. “It means that the salary loses 20% of its value due to the difference between the official and unofficial exchange rate,” he complains.
Starting in January, the central bank will tax the dinar – instead of the dollar – for all commercial and other transactions within the country.
“Monetary sovereignty”
If existing dollar deposits can be withdrawn normally, the central bank promises that from 2024 all transfers from abroad will be made in dinars at the official exchange rate.
The issue is controversial, but “it will be the basic rule within the framework of monetary sovereignty, although there will be exceptions”, particularly embassies, the prime minister's financial policy adviser Mudher Salih told AFP.
“We are consolidating monetary sovereignty. We cannot accept dual currency transactions within the national economy,” argues Mr. Salih.
Likewise, the hawala, a system of over-the-counter money transfer without a bank trace, no longer transfers amounts in dollars but is – officially – limited to transfers in dinars according to the official rate.
Baghdad and its banking sector have adopted the SWIFT electronic platform. Goal: Monitor the use of dollars and balance a thriving informal economy where importers and traders are sometimes tempted to evade taxes.
Iraqi Prime Minister Mohamed Chia al-Soudani admitted that the new measures had reduced the amount of foreign currency entering the market from “$200 or $300 million” per day to “$30, $40, $50 million.”
One of the “main factors” driving demand for currencies in the parallel market remains “dollar smuggling into countries and entities subject to sanctions, particularly Iran and Syria,” recalls Hayder Al-Shakeri, a researcher at the Chatham House think tank.
In September, Mr. Soudani noted that traders doing business with Iran were forced to turn to the parallel market for their currencies because bank transfers were prevented by sanctions.
However, he assured that the Iraqi and Iranian central banks were discussing a “mechanism” to “regulate trade,” a measure intended to “break the back of the parallel market.”
“Illegal trade”
Mr Shakeri also cites the “illegal trade” of certain “highly taxed products” such as cigarettes.
In late November, the government announced relief to encourage importers of cigarettes, cars, gold and mobile phones to raise foreign exchange through official channels.
As part of bilateral trade, authorities also encourage banks and importers to use alternative currencies such as the euro, the Emirati dirham or the Chinese yuan.
“Iraq's financial situation is very solid,” says government advisor Salih, pointing to foreign exchange reserves that have reached an all-time high.
To protect 43 million Iraqis from inflation, importers can obtain dollars at the official rate, which is more advantageous, he adds. This applies to food, medicine and building materials.
Iraqi travelers are also allowed to withdraw dollars before their departure. Here's another problem: Police arrested several people at the airport who were in possession of dozens of debit cards that they could use to withdraw thousands of dollars abroad – at the official exchange rate – and then resell them on the black market in Iraq.