Foreign currency deals bolster Iraqi banks amid no-confidence bid against central bank governor

Iraq's Central Bank (ICB) struck deals with foreign nations to support Iraqi private banks in foreign currencies, coinciding with lawmakers' no-confidence efforts against ICB's governor amid currency pressure from the US dollar.

ICB and US officials have reached a deal to strengthen the reserves of 10 Iraqi banks with the US dollar after detailed discussions in Abu Dhabi, the state-run Iraqi News Agency reported on Sunday, 12 November, citing governmental sources within the meetings. 

"After recent discussions between the Iraqi Central Bank and American representatives, ten banks can now strengthen their reserves in US dollars—five through Citi Bank and five via JP Morgan," INA reported.

Iraq imports almost 95 of its needs through foreign trade using foreign currencies.

"Furthermore, the number of banks allowed to enhance their reserves in the Chinese Yuan through the Singapore Development Bank will increase to 13 banks. Two banks have already fortified their accounts in Indian Rupees with the Singapore Development Bank," the agency added. 

It also clarified that several developments have unfolded in banking collaboration between Iraq and other countries; notably, issues with rejected transfers have been resolved. It also revealed a promising mechanism to boost balances in Emirati Dirhams for Iraqi banks is "imminent".

ICB also makes serious negotiations to enhance Iraqi bank balances in Euros, and more banks are reinforcing their balances in the Chinese Yuan and Indian Rupees for Iraqi banks, signalling a strategic move to finance imports, especially in pharmaceuticals and food items.

ICB recently decided that Iraqi private banks can import foreign currencies via commercial flights, a controversial step that backfired on its governor, as Iraqi lawmakers and legal experts considered it unconstitutional. 

Al-Alaq is facing a parliamentary motion to remove him from his position due to the decreasing value of the Iraqi dinar in exchange for the US dollar in the parallel markets.

 Since assuming office, economic experts believe that the ICB governor has failed to resolve the devaluation of the ID in exchange for the dollar crisis despite measures taken since his appointment.

Iraq's cabinet approved a currency revaluation on 7 February and set the exchange rate at 1,300 dinars per US dollar. The Central Bank of Iraq (CBI) also imposed several measures to boost the dinar and prevent the outflow of US dollars outside the country, especially to Iran and Syria, which are under US sanctions. 

Despite the official rate of the dinar, a US dollar still sold at around 1,620 in the currency exchange markets. The sharp drop in the dinar's value plunged local markets into further recession, with prices of every essential goods soaring daily.