The Iraqi Dinar is taking a battering after the Central Bank of Iraq (CBI) was forced by the US Federal Reserve and Treasury Department to implement compliance rules on outward dollar transfers starting last November. The measures are aimed at introducing standard checks on dollar outflows from Iraq which had been subject to little serious scrutiny in the past. The American decision appears to be an attempt to quell the smuggling of hard currency to US sanctioned neighboring Iran.

With banks ill-prepared, businessmen and traders have begun buying up US dollars wherever available, such as at exchanges in Baghdad and elsewhere across Iraq. This has pushed down the value of the Dinar on the local informal market to around $1=ID1,650 this month, some 14% below the official peg of $1=ID1,450. The discrepancy is the largest on CBI records dating back to 2004 (see chart 1) and comes as a challenge to the new government of PM Mohammed al-Sudani which is preparing what is expected to be Baghdad’s largest budget ever for 2023 after Opec’s second largest producer accrued over $115bn of oil export revenues last year (MEES, 6 January). (CONTINUED - 1406 WORDS)