BAGHDAD: Iraq has seen its currency fall against the dollar despite taking in billions per month in oil revenues, at least in part due to the demand for dollars of its sanctions-hit neighbours Iran and Syria.
After being stable at around 1,160 per US dollar for years, the Iraqi dinar was exchanging hands at a rate of 1,230 last week and 1,320 on Tuesday, before settling at 1,270 against the greenback on Wednesday.
Syria has been sanctioned over its deadly 13-month crackdown on dissent, while Iran has been hit with punitive measures over its suspect nuclear programme, leaving both countries in need of foreign currency, especially dollars. From the beginning of 2012, “there was a currency attack,” with an increase of between 40 and 50 percent in demand for dollars, Iraqi central bank governor Sinan Al Shabibi said.
“The somewhat unstable political situation in Iraq and in the surrounding region led to a large demand for dollars, which is causing a higher exchange rate lately,” Shabibi said. Within Iraq, there have been disputes between political blocs and also between the central government and the country’s autonomous Kurdistan region.
Asked whether sanctions against Syria and Iran were one of the main causes of the increase in demand for dollars, Shabibi said: “This is one of the reasons, but the region surrounding us in general is not stable.”
Shabibi said that “financing neighbouring countries with dollars is not something we do on purpose, because Iraq depends on large amounts of imports,” for which the central bank’s sales of dollars are needed.
However, he noted the demand for dollars seems to exceed what is necessary for imports. “Iraq is the only country among its closest neighbours (Syria and Iran) which has huge revenues in dollars from oil,” Iraqi economist Hilal Tahan said.
Baghdad takes in upwards of $7bn in oil revenues per month. “The increase of financial transfers of dollars to outside Iraq and the unstable political situation (in Iraq) are increasing the demand for foreign currency and the exchange rate for dollars,” Tahan said.
“Dollars have lately been smuggled outside Iraq, and that is why the auctions (by the Iraqi central bank) should stop for a certain period,” he said.
Deputy central bank governor Mudher Mohammed Saleh said on February 4 that the bank had enacted measures to identify those who buy dollars at its auctions amid concern that some traders were buying on behalf of others. Asked if Iranian and Syrian traders were trying to buy dollars, Saleh said at the time that “this increase in demand for dollars, while the region has serious problems, led us to put the new procedures in place.”
Mohammed Al Omari, 40, who owns a money exchange shop in Karrada in central Baghdad, said that “the price of the dollar... was stable from 2008 until the start of this year,” when it became increasingly volatile “because of the central bank’s procedures.”
“The street needs dollars, and when the auction is not pumping out dollars, it is forcing us to go to the black market, which leads to an instability in the prices, and losses” for Iraqi businesses, he said.
Hadi Alwan said his Karrada exchange bureau had stopped dealing in dollars this week. “I used to exchange between $50,000 and $150,000 per day, but I stopped doing that since the prices became volatile and I began to lose money,” the 37-year-old said. Despite the volatility, the central bank chief sought to play down concerns about the foreign exchange market.
“Iraq is not currently considering stopping the (dollar) auctions, which are part of a financial policy,” Shabibi said, adding that “everything is under control”.