9 REASONS FOR THE SUDDEN DROP IN THE DOLLAR IN IRAQ: AN ECONOMIST EXPLAINS

9 REASONS FOR THE SUDDEN DROP IN THE DOLLAR IN IRAQ: AN ECONOMIST EXPLAINS

An economic expert revealed the reasons behind the sudden drop in the US dollar’s exchange rate against the Iraqi dinar over the past few days, noting the possibility of the US currency continuing its decline.

Over the past few days, Iraqi markets have witnessed a significant decline in the dollar exchange rate against the dinar on the parallel market, approaching 1,420 dinars per dollar, a level very close to the official rate after accounting for associated costs. According to the economic expert, “This decline reflects multiple changes in supply and demand within the local market and raises questions about the factors behind it.”

Iraqi economic expert Munar Al-Abidi pointed to nine reasons that led to the decline in the value of the US currency in Iraqi markets:

First: Declining demand versus abundant supply

The main reason for this decline is a decline in demand for dollars on the parallel market, coupled with a significant increase in the supply of hard currency within the market. “This new balance has contributed to narrowing the gap between the parallel and official rates,” according to Al-Obaidi.

Second: Investors shift towards gold

The economist pointed to a decline in confidence among some local investors in the dollar as a savings instrument, especially with growing expectations of a decline in its value against gold. This trend prompted many to cash in their dollar holdings and convert them into gold as a safe haven, increasing the supply of dollars in the market.

Third: Dollar inflow from non-oil sources

According to Al-Obaidi, the amount of dollars coming from outside Iraq has increased, “particularly from foreign investments and financial transfers from international companies operating within the country, which has boosted the dollar supply, regardless of oil sales.”

Fourth: The decline in the money supply of the dinar

The Central Bank of Iraq has reduced the dinar money supply by more than 6 trillion dinars over the past six months, from 104 trillion to approximately 98 trillion dinars. This contraction has led to a relative increase in the value of the dinar, which has put downward pressure on the dollar, according to Al-Obaidi.

Fifth: Declining imports and trade contraction

Despite a 6% increase in imports from China, exports from key countries such as India, Turkey, and the United States declined. Import data from the UAE—Iraq’s largest trading partner, which accounts for 30% of its total imports—is expected to arrive, according to Al-Obaidi. “The figures are likely to reveal a decline, reflecting an economic contraction and a decline in general demand, thus declining the need for dollars.”

Sixth: Diversify channels for obtaining dollars at the official price.

The recent period has witnessed an expansion in access to dollars at the official exchange rate, through bank transfers, cards, and direct transfers. Many merchants have adapted to these channels, reducing their reliance on the parallel market.

Seventh: The impact of regional conditions

Al-Obaidi explained that the deteriorating economic situation in Iran led to a decline in demand for goods imported from Iraq, especially since a portion of these goods were re-exported to Iran. Furthermore, the halt in trade with Syria—which also received a portion of Iraqi goods through re-export—contributed to a decline in demand for imports and, consequently, for the dollar.

Eighth: Pressure on the smuggled oil trade

Markets also witnessed a tightening of Iranian oil smuggling channels, which had been used by the Iraqi market to obtain dollars. This restriction reduced the amount of dollars required for these activities, thereby contributing to easing pressure on foreign currency.

Ninth: Decline in the trade of prohibited substances 

Illicit trade has declined as a result of the cessation of its sources, including drug and similar trade, a large portion of which used to be conducted with Syria and which placed significant pressure on the dollar price on the parallel market, as this trade was covered through the parallel market.

The economic expert emphasized that all of these factors combined have created an environment that has driven the dollar’s exchange rate down. Given these indicators, it is expected that the US currency will continue its decline, approaching 1,395 dinars per dollar in the coming period, unless there are fundamental changes in monetary policy or the regional and international situation.