Its exchange rate is now rising, lifting the purchasing power of the country’s citizens, in a rebound following a difficult period.
The problems the currency have come from propaganda spread by the Iranian regime claiming the United States seized Iraqi oil revenues to impoverish and humiliate Iraqis.
This is a lie.
Iraqi protesters demonstrate against the dinar's slide in value against the U.S. dollar in Baghdad, Iraq, February 3, 2023.
The rise in oil prices boosted Iraqi revenues up to about $10 billion dollars a month over the past year, creating a healthy monthly current account surplus in the low billions of dollars.
The increased revenues grew the Central Bank of Iraq's dollar reserves to about $120 billion.
That leaves Iraq with comfortable financial liquidity, although not necessarily in terms of cash in circulation.
Rather, the country has rich current account balances that it is able to move through the global banking system, via the international Swift network that links financial institutions.
Iran has been getting the Iraqi government to liquidate its deposits and ship them in cash from New York to Iraq, where the Central Bank of Iraq would hold auctions to sell these cash dollars on the market for Iraqi dinars.
When the Iraqi dinar flows into the market, and US dollars become scarce, the latter's price rises. In contrast, the dinar's price falls, reducing Iraqis' purchasing power when buying imported materials.
Citizens buy and exchange foreign currency at exchange office after exchange rate falls after the Central Bank President changed in Baghdad, Iraq on January 25, 2023.
But where did all these billions of dinars come from to buy dollars at the Central Bank's auctions? And where did hundreds of millions of dollars worth of cash go?
The answer reveals how corruption in the country benefits the Islamic Revolutionary Guard Corps and its accomplices.
Ghost employees and fighters
Since the collapse of its previous regime in 2003, severe corruption has been rife across the administration of government.
There is the well-known phenomenon of ‘ghost employees’, where people agree to allow their names to be used for the payment of salaries for jobs that are not really being done, in exchange for keeping some of the proceeds.
Since the collapse of its previous regime in 2003, severe corruption has been rife across the administration of government. There is the well-known phenomenon of 'ghost employees', where people agree to allow their names to be used for the payment of salaries for jobs that are not really being done.
In a report issued in June 2020, the British think tank Chatham House said this was a "widespread" practice in Iraq.
This kind corruption explains the immediate collapse of the Iraqi army when faced with the ISIS terrorist organisation in Mosul in 2014.
According to a report carried by the War on the Rocks website, Iraqi officers tend to buy their positions in the army and use them to raise money for themselves via employing fake soldiers, or deducting part of the salaries of real soldiers.
There were also thought to have been a significant number of missing or broken-down military vehicles that army offices in Mosul had not reported to Baghdad to avoid a cut in fuel supplies.
Officers were selling the fuel and keeping the revenue. When ISIS emerged as a threat, the Iraqi army was lacking the troops and armoured vehicles it needed to fight and was left with a handful of corrupt officers, their guards, and the remnants of an army of poor soldiers whose salaries were looted by the officers.
This system of phony employees and soldiers wreaked havoc through the Iraqi state and the so-called 'loyalist militias,' named in reference to their allegiance to the Islamic Republic of Iran's Supreme Leader, Ali Khamenei.
The Iraqi budget shows that the Baghdad government allocates an annual equivalent of $2 billon in Iraqi dinars to these militias.
This system of phony employees and soldiers wreaked havoc through the Iraqi state and the so-called 'loyalist' militias. The Iraqi budget shows that the Baghdad government allocates an annual equivalent of $2 billon in Iraqi dinars to these militias.
It makes it likely that the buyers of dollars via dinars in the tenders offered by the Central Bank of Iraq are those who receive the salaries of ghost fighters in the Iraqi militias loyal to Iran.
This would be a key part of the processes which force the liquidation of dollar deposits to maintain a stable exchange rate for the Iraqi dinar in the market.
Men exchange U.S. dollars in the main Shurja market in central Baghdad, Iraq, Saturday, Jan. 14, 2023.
Official concern about ghost fighters has been revealed in two incidents.
The first was an audio leak linked to Nuri Al-Maliki, the former Iraqi prime minister, in which he expressed his dissatisfaction with the weakness of the "loyal militias" and the need to make them more robust.
The second was when Muqtada al-Sadr's forces took the upper hand in the two-day civil war that took place in Baghdad and the south between the Iran-aligned militias and al-Sadr's forces.
This prompted al-Maliki to appear in pictures carrying a machine gun, in an attempt to rally his Shiite supporters to confront al-Sadr.
Iraqi militias weak
So, the loyalist militias are corrupt and weak, and the $2 billion allocated to them goes to the IRGC, its allies in Iraq, and Hezbollah. Multiple sources state that Tehran uses this money to finance its militias in Yemen, Syria, and Lebanon.
Iraqi security forces erect a barbed-wire fence outside the Central Bank of Iraq headquarters in the capital Baghdad on January 25, 2023.
As for the Iraqi militias, they are weak and divided, with a small but cohesive Iran-aligned group — the Iraqi Hezbollah Battalions — but they are not enough to control Iraq's densely populated cities or to impose Iran's dictates on Iraq and its government.
This contrasts sharply with Hezbollah in Lebanon, which rules there with an iron fist.
Corrupt Iraqi officials receiving salaries of fake employees and using them to buy dollars also transfer them to accounts outside Iraq, which belong to Iran and the IRGC, or private funds in the Cayman Islands and other tax havens.
Bank transfers save the dinar
It all amounts to a massive dollar-laundering operation which pumps dollars out of Iraq and forces its government to liquidate its deposits at such an astounding speed that it attracted the attention of the US Federal Reserve.
There is a massive dollar-laundering operation which pumps dollars out of Iraq and forces its government to liquidate its deposits at such an astounding speed that it attracted the attention of the US Federal Reserve.
America's central bank asked Iraq to stop liquidating deposits in cash. In the absence of cash and with the continuous demand for US dollars, the Iraqi dinar kept falling on the black market until it hit an exchange rate of 1,700 to the dollar.
But this is a shadow price, and it does not reflect the fundamental conditions of the Iraqi economy.
Neither does it mean that the ability of Iraqis to buy imports has shrunk, as the central price, determined by the Central Bank of Iraq, has not changed. And so, the government of Mohammed Shiaa Al-Sudani purposely raised the dinar's value to 1,300 against the dollar.
The officially set central price means that any Iraqi importer can deposit Iraqi dinars in the Central Bank, which the bank can convert into dollars and transfer through New York and the global financial system to the supplier outside Iraq without using cash.
The bottom line is that any Iraqi who has a card issued by an Iraqi bank can use it at the official exchange rate without needing cash dollars.
The high exchange rate of the dollar into the dinar, and the low conversion rate of the dinar to the dollar effectively means that cash-based financial transactions made outside the international Swift system are drying up.
Iraqis using Swift are not affected, in terms of their balances, currency values or purchasing power.
Moreover, Iraqis do not need cash dollars inside Iraq, as they can use the Iraqi dinar for any transaction.
Stacks of Iraqi dinars are seen at currency exchange shop in Baghdad on February 14, 2023.
Iraqis travelling abroad may need cash dollars for personal expenses. To address this issue, Iraqi authorities announced that passengers departing from Iraqi airports could convert Iraqi dinars to US dollars at 1,320 dinars per dollar, provided they carry a ticket and boarding pass and have passed through passport control.
Immature banking sector
Iraq does not suffer from a lack of liquidity nor a depreciation of its currency.
It is Iran's network in Iraq that suffers from a lack of liquidity, and the high price of the dinar in the alternative economy circles it operates comes as a way of compensating for the US sanctions imposed on it.
The problem that Iraq still faces is that its banking sector is still immature and unable to meet the needs of the majority of Iraqis.
This means that Iraqi banking services — such as the issuance of credit cards and the provision of services that allow Iraqi citizens to replace the use of cash — are still not widely available, which makes cash the only way to turn the wheel of the economy.
But cash dollars are not necessary inside Iraq, they are only required for transactions between Iraq and the outside world.
This prompted the Central Bank to carry out extensive import operations, pending the expansion of the Iraqi banking sector, as well as improving its ability to engage in the global financial system and transfer funds to and from Iraq.
As for Iran, it is isolated from the global system due to the US sanctions imposed on it, so it resorts to cash liquidity as the only way to evade these sanctions.
This means that drying up the cash-based economy in Iraq will harm the Iranian regime without affecting the Iraqis or their economy.
Security forces stand guard during a demonstration in front of the Iraqi central bank as currency plummets against the U.S. dollar, in Baghdad, Iraq, Wednesday, Jan. 25, 2023.
The Iraqi prime minister had identified the problem, repeated for the second time after the same thing happened during the six years between 2010, when the United Nations imposed sanctions on Iran, and 2016 when those sanctions were lifted.
Back then, the US Federal Reserve threatened to stop shipping cash dollars to its Iraqi counterpart.
Iraq's foreign exchange reserves collapsed to less than 20 billion dollars, forcing the World Bank and the IMF to intervene until the situation was rectified. This coincided with the lifting of sanctions on Iran, reducing the pressure on the Iraqi national currency.
In the previous crisis, Ali Al-Allaq was the governor of the Central Bank of Iraq, which prompted Al-Sudani to summon him to deal with a similar predicament.
Al-Allaq visited Washington, where he met with officials in the Federal Reserve and the Treasury Department and listened to the concerns of US officials regarding money laundering through Iraq and the transfer of Iraqi dollars to Tehran and the IRGC, which Washington classifies as a terrorist organisation.
Bombshell audio leaks coming out of Baghdad exposing corruption at Iraq's Central Bank: $8 BILLION diverted to Iran-backed militias, among other crimes. Acting CBI head Ali Al Allaq is coming to DC next week—US officials should demand answers for why Iraqi $ went to Iran. 1/4 https://t.co/HLMn2DbXCQ
The Iraqis and Americans agreed on the need to accelerate the development of the Iraqi banking sector and its ability to meet the market demand for remittances without the need for cash.
In return for the Iraqis' agreeing to US demands, the Americans decided to ease the liquidation of some Iraqi assets, turning them into cash, and shipping this cash to the vaults of the Central Bank of Iraq.
The bottom line of the Iraqi monetary crisis is that the Iranian regime — much like a plague — destroys the security of any country it hits, crashes its economy, and turns its future into a dark abyss.
The bottom line of the Iraqi monetary crisis is that the Iranian regime — much like a plague — destroys the security of any country it hits, crashes its economy, and turns its future into a dark abyss.
Iraqis are discovering Iran's exploitation
Iraqis seem to realise that switching from a monetary system and engaging in the Swift global interbank financial system is an inevitable option.
Masked demonstrators gesture during a protest against the depreciation of the Iraqi dinar against the US dollar outside the Central Bank of Iraq headquarters in the capital Baghdad on January 25, 2023.
That reaction sent the Iranian regime and its Iraqi allies running to its propaganda machine, although it backfired.
One time, they would say that America deprives Iraq of its money. Then, they would spread rumours that Washington dictates to Iraq what they can buy and from where.
Like all the other inflammatory propaganda the country has seen, it serves no purpose except causing more misery and suffering.
