- Time : 2023/01/19 19:48:47
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{Euphrates News Economy} A report published by the American newspaper {Wall Street Journal}, on Thursday, shed light on the “dollar” crisis in Iraq and the accompanying rise in the prices of imported foodstuffs and goods.
The newspaper said Iraqis attribute this to the marked change in policy of the US Treasury Department and the Federal Reserve Bank in New York in recent weeks.
The newspaper quoted US and Iraqi officials as saying that the Federal Reserve began last November to impose stricter controls on the transactions of Iraqi commercial banks in dollars, in a move aimed at reducing money laundering operations.
Since 2003, Iraqi banks have operated under less stringent rules, but nearly two decades later, U.S. and Iraqi officials say it is time to make the Iraqi banking system more compliant with global money transfer controls.
Since the new measures came into effect, about 80 percent of Iraq’s daily international financial transfers, which previously totaled more than $250 million a day, have been blocked.
This is due to a lack of sufficient information about the destination of the final funds or other errors, according to U.S. and Iraqi officials and government official statements.
With the dollar scarce, the Iraqi currency depreciated by as much as 10 percent, leading to a sharp rise in the prices of imported goods, including commodities such as eggs, flour and cooking oil.
“Shock Policy”
“For 20 years, we have followed the same system,” says South Islamic Bank Chairman Mahmoud Dagher, former Central Bank of Iraq official. But the Fed’s shock policy has created a crisis within the Iraqi economy.”
To supply Iraq with dollars, U.S. Air Force planes deliver dollars to Baghdad every few months, according to the newspaper.
But most of the inflows of the US currency flow electronically through transactions conducted by private Iraqi banks, which are processed through Iraq’s official account at the Federal Reserve Bank, where revenues from oil sales are deposited.
U.S. officials say strict rules for electronic transfers imposed on private Iraqi banks came as no surprise to officials in Baghdad.
They added that it was jointly implemented in November after two years of discussions and planning by the Central Bank of Iraq, the US Treasury Department and the Federal Reserve.
U.S. officials noted that the appreciation of the dollar exchange rate was not due to the new measures.
Increased scrutiny of dollar transactions has led Iraqis to rush towards the parallel domestic market to buy the US currency, amid a torrent of criticism from Iraqi officials, bankers and traders of the new system, who said it caused unnecessary financial shock and exacerbated their already existing economic problems.
Iraqi delegation to Washington
Prime Minister Mohamed Shiaa al-Sudani said the Fed’s action hurts the poor and threatens his government’s 2023 budget.
Al-Sudani added in an interview that “this is embarrassing and decisive” for him, and said he would send a delegation to Washington next month with a proposal to suspend the implementation of the new measures for six months.
Under the new measures, Iraqi banks are required to use a new electronic platform linked to the Central Bank of Iraq in order to apply for the dollar, after which the application is reviewed by the Federal Reserve Bank.
U.S. officials say the new system aims to limit the use of the Iraqi banking system to smuggle dollars and money laundering havens across the Middle East.
Under the old rules, Dagher says, Iraqis were not obligated to disclose details of who the money was sent to until after the transfer had taken place.
A spokeswoman for the Federal Reserve Bank of New York, commenting on accounts held for foreign governments, including Iraqi accounts, said: “We have a strong compliance system for these accounts that speaks over time in response to new information.”
A U.S. official said the new measures would limit “the ability of malicious actors to use the Iraqi banking system.”
The U.S. Treasury Department and the Central Bank of Iraq declined to comment.
The Central Bank of Iraq said in a Dec. 15 statement that the new online platform requires “full details of customers who want to transfer money,” including end beneficiaries.
“A number of errors are being discovered, forcing banks to re-implement the operation,” the statement added. These measures will take additional time before they are accepted and passed by the international system.”
Four Iraqi banks were prevented from participating in the currency auction supervised by the Central Bank of Iraq: Asia Islamic, “Asharq Al-Awsat”, “Al-Ansari Islamic” and “Islamic Holding”, according to Iraqi officials and judicial documents.
Executives at Asia and Ansari declined to comment, while the other two banks could not be reached, according to the newspaper.
U.S. officials have been pressing Iraq for years to tighten its banking controls. In 2015, the Federal Reserve and Treasury temporarily halted the flow of billions of dollars to the Central Bank of Iraq over perceived concerns that they would be transferred to ISIS terrorists, officials said at the time.
Some Iraqi officials supported tighter oversight of Iraqi private banks, including a member of parliament’s Integrity Committee Hadi al-Salami, who said: “We need to stop this immediately.”
The impact of the new strict controls on Iraqi banks’ dollar transactions, which have fallen sharply since they came into force last November, can be seen, according to data published on the website of the Central Bank of Iraq.
For example, on Oct. 17 last year, before the new rules came into effect, daily transfers from Iraq’s official accounts at the Federal Reserve and other offshore institutions amounted to $224.4 million, compared to $22.9 million on Jan. 17, down about 90 percent.
U.S. officials say these financial turmoil will ease as Iraqis comply with disclosure requirements required by the new measures.
Iraqi bankers and currency dealers say the new rules are aimed at stopping dollar smuggling. For example, as they say, importers used to visit invoices of goods that did not originally arrive in Iraq, but were paid for in dollars to unknown parties outside the country.
“Dollars certainly go to Iran, Turkey, Syria, Yemen, Lebanon and sometimes Dubai,” says Hamza al-Sarraf, an exchange shop owner in Baghdad’s Karr district.
Due to new compliance requests and being prevented from using banks, Iraqi importers have been forced to delay the submission of applications or find other ways to pay suppliers such as using informal money transfer networks known as hawala. Some traders load dollars and ship them out of Iraq in cars, the teller said.
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RV the currency! Quit jerking the citizens around and stop thinking about yourselves [government]
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