MONETARY POLICY RAISES THE VALUE OF THE DINAR AND REDUCES RELIANCE ON THE PARALLEL MARKET

 MONETARY POLICY RAISES THE VALUE OF THE DINAR AND REDUCES RELIANCE ON THE PARALLEL MARKET

The Iraqi dinar has recently recorded strong performance against the dollar, driven by a series of monetary measures adopted by the Central Bank, which have contributed to reducing demand for hard currency in the parallel market and enhancing the confidence of traders in official channels. This improvement comes amid ongoing government efforts to consolidate financial stability and stimulate business activity through effective monetary instruments and transparent and direct financing mechanisms.

Deputy Governor of the Central Bank of Kuwait, Dr. Ammar Hamad, confirmed to Al-Sabah that this increase reflects the success of the monetary policy pursued by the bank in reducing reliance on the parallel market and providing safe and transparent sources of financing for foreign trade. He explained that this policy has enabled the commercial family to obtain dollars through official channels that adhere to international standards, without having to resort to the unregulated market.

Hamad noted that the Central Bank continues to work toward consolidating the local banking system and raising its operational efficiency to levels consistent with international banking standards, making it a fundamental pillar in driving economic development in Iraq. He added that the bank is adopting advanced mechanisms that enable banks to offer diverse banking products that support various economic sectors and facilitate financing and cash flow operations.

For his part, the Prime Minister’s Advisor for Financial Affairs, Dr. Mazhar Mohammed Salih, explained that a number of factors contributed to strengthening the value of the dinar, most notably the weak demand for the dollar in the parallel market, as a result of the Central Bank’s policies regarding financing foreign trade for the private sector. He explained that the bank strengthens Iraqi banks’ dollar balances through their correspondents abroad, especially banks with a high credit rating (AAA), which speeds up the execution of international transfers and reduces the need for dollars in the local market. He also indicated that the move towards using alternative currencies such as the euro, yuan, dirham, and lira in banking transactions has helped reduce excessive reliance on the dollar.

(Getting ready to change the peg from the sole peg to the US dollar to a basket of currencies. Get ready! 😊)

Saleh also noted that enabling small businesses to access financing sources directly through Iraqi banks, without costly intermediaries, has helped reduce operating costs and improved commercial efficiency, as this segment represents approximately 60% of private sector trade. He added that travelers can now easily obtain their foreign currency dues via payment cards at a subsidized exchange rate of 1,320 dinars to the dollar, in addition to the ability to receive dollars in cash at Iraqi airports, which has eased pressure on the parallel market.

In the same context, economic expert Nazir Al-Saadi emphasized that the money transfer services provided by the Central Bank have become safer and more effective, which has prompted business families to move away from the parallel market, which is characterized by significant risks and high costs. He explained that relying on official transfers not only ensures the safety of transactions, but also reduces the final cost of imports, which is positively reflected in the prices offered to consumers. He added that random transfers from the parallel market often caused losses to importers due to failure to implement them or due to price fluctuations, while the Central Bank mechanism provides a stable financial system that preserves the value of the currency and reduces Opportunities for manipulation.