Iraqis protested in Baghdad on Wednesday against the depreciation of the dinar. The currency has lost 7% of its value since November.
The demonstrators marched through Baghdad and outside the Central Bank waving Iraqi flags. A sign read: “The politicians are immersed in financial corruption,” according to reports on Iraqi social media.
TUSEN reported thousands of protesters, while The The US Express News estimated the crowd at hundreds.
People in several provinces in Iraq gathered in Baghdad on Wednesday to protest the fall of the Iraqi dinar against the US dollar amid Washington’s crackdown on money smuggling to Iran. #البنك_المركزي#الدولار pic.twitter.com/PBLyaYLoM1
— Soran Khateri (@sorankhateri) January 25, 2023
Why it matters: The Iraqi dinar was officially and until the end of 2020 traded on the street at about 1,200 in the US dollar. Faced with a liquidity crisis, COVID-19 and low oil prices, the Iraqi Central Bank lowered the exchange rate to 1,460 dinars against the dollar at the time.
The dinar continued to depreciate against the dollar after the new Iraqi government took office last October. On Friday, the street rate reached about 1,660 against the dollar — its lowest since 2004. The street rate on Wednesday was 1,610, while the official rate remains at 1,470, according to the The US Express News.
There are many reasons for the depreciation of the dinar. The US Federal Reserve holds Iraq’s foreign exchange reserves. In November, the Fed began to monitor more closely the financial transactions of US funds by Iraqi banks. The increased oversight included requirements to conduct the transactions electronically with more verification processes. As a result, remittances from the United States to Iraq have plummeted, Al Jazeera reported Monday.
The actions of the Federal Reserve also prompted the Central Bank to limit the use of the dollar by private banks. In addition, the lack of a comprehensive electronic banking system in Iraq allows people to illegally transfer dollars abroad. The high level of corruption in Iraq also creates the need for dollars, Al-Monitor Iraq staffer Ali Mamouri wrote Tuesday.
The Iraqi government has taken action on this issue. On Monday, Prime Minister Mohammed Shia al-Sudani ousted Central Bank Governor Mustafa Ghaleb Mukheef. This followed several measures taken by the Central Bank in December to strengthen the Iraqi dinar against the dollar.
Kurdish Iraqi news outlet Rudaw reported on Sunday that Sudani is in talks with the US over the matter. Iraqi Foreign Minister Fuad Hussein told the outlet that an Iraqi delegation will soon visit Washington.
Many Iranian-backed politicians in Iraq blame the US for the dinar crisis. One of the reasons for the Fed’s restrictions on Iraqi financial transactions is to encourage compliance with US sanctions on Iran.
Knowing more: The fall of the dinar is not the only economic problem plaguing Iraq. The country is also facing rising food prices, according to a recent poll by Al-Monitor and Premise.