By Anas al-Bar | 2023-09-28

Starting in 2024, lraq's Central Bank will restrict all internal trade to the Iraqi dinar (IQD) as part of efforts to control the black-market exchange rate against the US dollar (USD), which has dropped amid restrictions on dollar transactions.

The move comes amid concerns that US dollars are being funneled to Iran using Iraq's foreign currency auction, regional media outlets reported Monday (September 25).

Dollar smuggling and uncontrolled trade with Iran have led to a shortage in the supply of hard currency, driving up the price of US dollars against the Iraqi dinar.

Over the past three months, the value of the dinar declined by more than 10%, even though oil revenues hit $30 billion in the first quarter of 2023.

The dinar recently posted a record decline in the black market, down to 1,580 IQD/USD. The official exchange rate is 1,320 IQD/USD.

Iraqi authorities have been implementing financial measures and reforms to stabilize the dinar and combat the depletion of hard currency.

Smuggling dollars to Iran

In July, the Central Bank of Iraq banned 14 Iraqi private banks from dealing in dollars as part of a US Treasury Department crackdown on the smuggling of dollars to Iran by way of the Iraqi financial system.

Iraqi security forces also intercepted shipments of money that were being smuggled to Iran as part of an extensive campaign it is conducting to combat smuggling across secret border crossings.

Interior Ministry official Brig. Gen. Hussein al-Tamimi said "more than $2 billion prepared to be smuggled outside the borders were seized, in addition to 3.875 billion Iraqi dinars," Al-Arabi Al-Jadeed reported September 19.

This money is being held by the Central Bank of Iraq, while the alleged smugglers were referred to the judiciary.

In a July 31 report, Iran International revealed the existence of a network affiliated with the Islamic Revolutionary Guard Corps Quds Force (IRGC-QF) that smuggles dollars from Iraq to Iran.

The network is managed in Iraq by veteran IRGC commander Mahmoud Hosnizadeh and Mustafa Pakbaten, a former employee at Tehran's embassy in Iraq.

Two Iraqis, Maytham Hamza Qasem Darraji and Maytham Sadeghi, assist the network with smuggling operations, the media outlet reported.

The network collects dollars from exchange houses in Iraq and the money is deposited into the account of IRGC-QF Unit 400 in Tehran by the unit's financial director, Mohammed Tajan Jari, the report said.

Strain on Iraqi economy

The IRGC and its proxy militias are pushing the Iraqi economy to the brink of collapse, political analyst Tariq al-Shammari told Al-Fassel.

These groups "are still abusing the national banking sector and acquiring Iraqis' hard currency (USD) in fraudulent ways to eventually smuggle it to Iran," he said.

It was recently revealed that there are 5,000 fake companies and remittance and exchange outfits actively engaged in laundering money and buying and smuggling dollars.

Fraudulent activities often are carried out through financing of import operations that exist only on paper, or the purchase of goods at many times their actual prices, and through religious and medical tourism services that do not exist.

Reports also indicate the existence of about 300 small hard currency buyers in the Iraqi market that serve as fronts for the militias.

The amount of Iraqi money smuggled into Iran is estimated at between $100 million and $250 million weekly.

Al-Shammari said Iraq is making efforts "to protect its money by controlling the sale of dollars to banks and trade and import companies through the electronic platform [as part of] the Central Bank's currency auction."

At the same time, however, he acknowledged difficulties in monitoring the misuse of dollars and financial activities related to money transfers.

During a September 12-13 visit to Baghdad, US Assistant Secretary of the Treasury Elizabeth Rosenberg met with Prime Minister Shia al-Sudani and Central Bank of Iraq governor Ali al-Alaq.

Also present at the meetings were the Trade Bank of Iraq, the Iraqi Financial Intelligence Unit and representatives of private sector banks.

A government statement said discussions sought to improve the Iraqi financial sector through "meaningful and sustainable reforms" that would prevent fraud, the circumvention of sanctions, terrorist financing and other illegal activities.

Breaking the black market

Trade between Iraq and Iran, which principally serves Iran's economic interests, is contributing to the scarcity of the US dollar and weakening of the Iraqi dinar.

The annual trade volume between Iraq and Iran has reached $10 billion, and Iran's exports to Iraq account for 90% of the trade volume, Iranian Chamber of Commerce director Jahanbakhsh Sanjabi-Shirazi said September 19.

Many Iraqi traders and suppliers withdraw US dollars from the black market to finance their imports from Iran.

During a September 11 press conference, al-Sudani said Iraq has a plan to regulate trade with Iran that will "break the back" of the black market.

During his meeting with Rosenberg, he stressed that his government is continuing to implement its priorities in "reforming the banking sector by adopting international standards and keeping pace with advances."

Meanwhile, Iraqis blame Iran's proxies for the rise in the prices of basic commodities they are facing today as a result of the depletion of hard currency.

"The prices of everything have gone up," Baghdad taxi driver Hashim al-Obeidi, 47, told Al-Fassel. "Whenever the dollar exchange rate rises, prices rise."

"It is difficult to imagine this increase when there is talk of billions of dollars in revenues that Iraq receives monthly from the sale of oil."

"The militias are destroying the economy and burdening us so that Iran can enjoy our money and continue harming us," he said.