Home
How Iraq caused a currency crisis by paying Iran in dinars
Desperate to avoid power shortages, Kadhimi's government gave Iran billions of dinars.
US sanctions however mean it can no longer access the dinars it needs
The Iraqi Central Bank has found it increasingly difficult to obtain its own currency (AFP/file photo)
By Suadad al-Salhy in Baghdad
Published date: 4 March 2023 09:27 UTC | Last update: 2 days 7 hours ago
Iraq has worsened its financial crisis and contributed to its currency depreciating by paying its debts to Iran in Iraqi dinars, Iraqi officials told Middle East Eye.
Iraq’s currency has been struggling for months against the dollar since new restrictions were imposed by the US Federal Reserve on how the country's central bank trades the dollars it receives from oil sales.
The subsequent liquidity crisis has meant the government is failing to pay the salaries of millions of public servants, as well as pensions and payments to other beneficiaries of social welfare programmes.
Iraq has been one of the largest importers of Iranian goods over the last two decades, in particular gas, electricity, food, and construction materials.
…
Yet Iran was nonetheless able to turn these dinars into dollars - which are far more useful - using a currency auction the Central Bank of Iraq holds daily to convert the dollars it received from oil sales.
But since November, the US Federal Reserve, which holds the money Iraq makes from oil sales and delivers it to Baghdad by request, has imposed restrictions aimed at stopping Iran from accessing these dollars and combatting money laundering.
…
The impact of handing Iran large amounts of dinars - that it is now unable to trade for dollars - is still being felt.
"Paying Iranian debt in Iraqi dinars was not a calculated step. The financial crisis we are currently suffering from is caused by this stupid step,
…
Intractable problems and patchwork solutions
Despite having one of the largest oil reserves in the world, Iraq has suffered from severe energy shortages since the 1990s, due to conflicts, sanctions, mismanagement, and a failure to develop infrastructure.
…
Iraq spends around $900m a month on Iranian goods, according to Iranian officials. Fifty percent of that is electricity and gas.
…
The United States only agreed to waive sanctions if Iraq placed the funds in the Trade Bank of Iraq with the understanding that it would be used later by Iran to pay for food and medicine.
…
The next prime minister, ex-intelligence chief Mustafa al-Kadhimi, and his backer, Sadr, sought to find quick solutions to the intractable problems that Iraq suffers from, including the Iranian debt
…
The debt to Iran that had been accumulated since 2019 was one of the most pressing issues for Kadhimi’s government at the time.
“Sadr had to find a way out for his ally,"
…
Sadr wanted to present "a gesture of goodwill to the Iranians to prove that his project does not target them or threaten their interests,"
…
In February 2019, the Central Bank of Iraq concluded an agreement with the Central Bank of Iran, allowing customers of both banks to open accounts in the two countries and conduct their banking transactions in dinars and euros.
…
“The Iranians are very smart and they are investing in all the details that serve their goals. They were clear from the beginning. They said if you could not pay in dollars, pay in dinars and leave it to us,”
the complete article is at https://www.middleeasteye.net/news/iraq-dinar-iran-undermined-own-currency-crisis
