Experts Criticize Central Bank’s Dollar Sale Reforms: A Deeper Look into the Impact on Iraq’s Economy and Citizens

Experts Criticize Central Bank’s Dollar Sale Reforms: A Deeper Look into the Impact on Iraq’s Economy and Citizens

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BY: Shatha Kalel

In recent years, Iraq has undergone significant changes in its currency management system, primarily through the introduction of a new platform by the Central Bank aimed at regulating the sale of the U.S. dollar. However, despite these reforms, experts have raised concerns about the effectiveness of these changes, particularly regarding the widening gap between official and parallel exchange rates, and their subsequent impact on the country’s economy and citizens’ everyday lives.

The Shift in Dollar Sale Mechanism
Historically, the Central Bank of Iraq would sell between 40 to 50 billion dollars annually through its currency window, an exchange mechanism that managed the flow of U.S. dollars in the country. In 2024, however, following the introduction of the new platform, this number rose sharply to 81 billion dollars, with the involvement of correspondent banks bringing the figure up to nearly 300 million dollars per day. While these changes were expected to provide more transparency and efficiency in the foreign exchange market, the outcomes have not been as positive as anticipated, according to some economic experts.

The Rising Gap Between Official and Parallel Exchange Rates
Before the platform was introduced, the difference between the official exchange rate (the rate set by the Central Bank) and the parallel or black market rate was minimal. The exchange rates were largely aligned, and citizens could rely on a fairly stable and predictable currency value. However, the introduction of the platform, combined with the use of correspondent banks, has significantly altered this dynamic.

As of recent reports, the gap between the official and parallel dollar prices has widened to nearly 15%. This discrepancy is raising concerns among experts who argue that the Central Bank’s reforms, instead of stabilizing the exchange rate, have exacerbated the problem. Theoretically, these reforms were designed to streamline the process, increase access to foreign currency, and reduce illegal or speculative trading. However, critics suggest that the system is not functioning as intended and that it may be causing further instability in the currency market.

The Impact on the Iraqi Economy
The widening exchange rate gap has several significant implications for Iraq’s economy. First and foremost, it leads to increased uncertainty among both businesses and consumers. Companies that rely on imported goods are directly impacted by the discrepancy between the official and parallel exchange rates. As the gap grows, businesses are forced to purchase dollars on the parallel market at a higher rate, which in turn leads to higher costs for imported goods. This increase in costs is passed on to consumers, driving inflation and contributing to a rise in living expenses.

Moreover, the Central Bank’s reforms were meant to encourage a more efficient and transparent financial system. Instead, the growing disparity between the official and parallel exchange rates is fueling further mistrust in the currency system. As the cost of goods and services continues to rise, citizens find themselves struggling with the erosion of their purchasing power, which negatively impacts their quality of life.

The Role of the Central Bank
Many critics argue that the Central Bank’s reforms, rather than achieving their intended goals, are exacerbating the very problems they were designed to address. The initial objective was to regulate Iraq’s foreign exchange market, promote stability, and reduce the reliance on the parallel market, which had been plagued by inefficiencies and speculation. However, the significant widening of the gap between the official and parallel exchange rates calls into question whether the reforms are working as expected.

One key criticism is that the Central Bank has not done enough to address the underlying structural issues affecting the currency market. The increased availability of dollars through the platform and correspondent banks has not been matched by corresponding reforms in Iraq’s broader financial and economic structures. Until these underlying challenges are addressed, experts believe that the gap between the official and parallel rates will persist, undermining the stability of the Iraqi dinar and creating further challenges for both businesses and citizens.

Conclusion
The Central Bank’s recent reforms regarding the sale of the dollar have been met with significant criticism, particularly due to the widening gap between the official and parallel exchange rates. Instead of stabilizing the Iraqi economy, these changes have exacerbated existing problems, leading to inflation and a decline in citizens’ purchasing power. As Iraq continues to navigate these challenges, experts argue that more comprehensive reforms are needed to address the root causes of the currency crisis, promote stability, and ultimately improve the economic conditions for everyday Iraqis. Until these issues are resolved, the gap between the official and parallel rates will continue to have a profound impact on Iraq’s economy and the lives of its citizens.

Economic Unit/North America Office
Al Rawabet Center for Research and Strategic Studies