AN ECONOMIST ANSWERS THE FEASIBILITY QUESTION: HAS ELECTRONIC PAYMENT IN IRAQ ACHIEVED THE DESIRED RESULTS?

 AN ECONOMIST ANSWERS THE FEASIBILITY QUESTION: HAS ELECTRONIC PAYMENT IN IRAQ ACHIEVED THE DESIRED RESULTS?

“Still not up to par?”

Economist Munar Al-Abidi raised a question about the feasibility of electronic payment in Iraq and whether it has achieved the desired results after its use in many government institutions.

Al-Obaidi said in a clarification received by Al-Jabal, “Has electronic payment achieved the desired results after two years of moving towards its widespread use in most state facilities and institutions?” He explained that “the importance of electronic payment in any country is not measured by its ability to reduce the volume of cash circulating outside the banking system, as real cash exists to fulfill its role in circulation, not to be physically stored within financial institutions.” 

He added, “The true measure of success for electronic payment strategies is the extent of development of the trust structure in the banking system, which is accurately measured by the ratio of the broad money supply (M2) to the narrow money supply (M0).” 

Al-Abidi pointed out that, “To clarify what these percentages are in a simplified manner: 

Suppose a person has 100,000 dinars in cash:

• If the entire amount is kept in cash, M0 = 100,000.
• But if he deposits 30,000 on his electronic card and withdraws 70,000 in cash, then:
• M0 = 70,000
• M1 = 30,000

He pointed out that “if he transferred 15,000 dinars from his bank account linked to his electronic card to a fixed deposit at the bank, the indicators would be:

• M0 = 70,000
• M1 = 15,000
• M2 = 15,000″. 

He pointed out that “the more people trust the banking system and electronic financial transactions, the more their electronic balances (M1) increase, and the more their confidence in the feasibility of banking investment increases, the higher the value of their long-term deposits and consequently the increase in (M2). It is not important the amount of money supply, whether inside or outside financial institutions, as much as their ability to move it effectively more than once and the ability to raise the value of M2 at the expense of M0.”

Therefore – and this is what Al-Ubaidi says – the effect of these meanings is as follows:

•  A higher M1/M0 ratio indicates greater confidence in daily dealings with the banking system.
• A rising M2/M0 ratio indicates increased individual confidence in investing within the banking sector.

Al-Obaidi continued, saying, “Iraq’s data over the past two years, between March 2023 and March 2025, showed that the M2/M0 ratio rose from 1.11 to 1.25, an increase of 12.4%, reflecting an improvement in reliance on banking services and electronic payments. However, despite this improvement, the ratio remains low compared to other countries such as Saudi Arabia, where the ratio reached 6.4 during the same period.”

According to Al-Abidi, “An important question may arise: How can M2 be so much larger than M0?” He answered, “This can be done through the cumulative role of the banking system: If the person mentioned in the example deposits 15,000 dinars into his card account, and the bank re-lends 10,000 of them to another person who in turn re-deposits them, the total money circulating within the system becomes larger than the original monetary base, and thus the ratio of M2 to M0 rises. Therefore, when this ratio in Saudi Arabia is 6.4, this means that banking operations conducted on the same monetary mass are circulating quickly, which indicates the efficiency of the banking sector and its ability to gain the confidence of customers in the banking sector.”

He considered that “despite the positive growth in electronic payment indicators in Iraq, there is still a long way to go to reach global levels. However, the general trend indicates an encouraging gradual improvement in individual confidence in the banking system, albeit at a slow pace.” He explained: “Also, the M2/M0 ratio in March 2025 decreased slightly compared to February 2025 due to the decline in the value of deposits in the sector, which is an indicator that requires close monitoring and work to correct the ratio to be in a positive direction.” 

He continued: “Measuring the success of electronic transactions must be subject to clearly adopted objectives, one of which is to bring the M2/M0 ratio to the 3-point mark by gradually reducing the money supply and withdrawing it from circulation, and increasing the number of deposits and banking transactions by pressuring private and public institutions to adopt banking transaction mechanisms, most importantly electronic payments, and providing appropriate incentives to customers to encourage them to continue using them.”