The Central Bank of Iraq’s Digital Currency Initiative: Opportunities and Challenges

Baghdad – On Wednesday, February 26, 2025, a specialist in international economic affairs underscored the significance of the Central Bank of Iraq’s initiative to launch its own digital currency. This move is poised to bring about notable economic advantages while also presenting challenges that require careful consideration.

The expert, Al-Saadi, emphasized that the implementation of a digital currency would lead to a more efficient and transparent electronic payment system. This transition is expected to reduce reliance on cash transactions and limit the scope of the informal economy. “The digital currency from the central bank could significantly lower the costs associated with printing and managing paper currency while enhancing the monitoring of cash flows,” he noted, which can aid in combating corruption and money laundering.

However, Al-Saadi also pointed out several risks associated with this transition, particularly in light of the existing challenges within the Iraqi financial system. One of the primary concerns is the potential for the digital currency to be exploited for smuggling activities if stringent controls on digital transactions are not established. Iraq already faces hurdles in monitoring money transfers through informal channels; thus, any shortcomings in the administration of digital currency could be detrimental.

Moreover, there are apprehensions regarding the stability of cash as a quick shift to digital currency could exert pressure on the traditional banking system, especially if banks are unprepared for such a transformation. Al-Saadi noted, “Any security or technical flaws in the digital infrastructure could render the financial system vulnerable to cyberattacks.”

To navigate these challenges, Al-Saadi advocated for the central bank to adopt a measured and gradual implementation policy for the digital currency, accompanied by a clear legal framework to govern its use. He stressed the necessity of bolstering the digital banking infrastructure and ensuring that the financial system is equipped for this transition without compromising economic stability. Should these conditions be met with transparency and caution, the central bank’s digital currency could serve as a powerful tool to modernize the Iraqi economy and promote greater financial integration.

Earlier on the same day, Ali Al-Alaq, the Governor of the Central Bank, announced plans to develop a digital currency intended to phase out paper money. Speaking at the Ninth Finance and Banking Conference and Exhibition, he stated, “The financial and banking system will experience significant transformations, as the prevalence of paper currencies diminishes in favor of digital payments.” He further indicated that the central bank is committed to creating its own digital currency, mirroring trends observed in other central banks worldwide, and is considering the establishment of a data center in Iraq to facilitate this digital transformation.

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