Key Developments in Iraq’s Digital Currency Initiative
On 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 development, which aims to modernize Iraq’s financial system, carries both promising benefits and critical risks that require careful navigation.
The expert emphasized that this initiative holds several key advantages. Primarily, it facilitates a more efficient and transparent electronic payment system, thereby reducing reliance on cash transactions and curbing the informal economy’s influence. This digital currency could also lead to significant savings on costs associated with printing and managing conventional currency, enhancing oversight of cash flows—which is vital in combating corruption and money laundering.
However, the implementation of a digital currency is not without its challenges. The expert pointed out that the Iraqi financial system is currently grappling with various issues, which could exacerbate risks associated with the new digital currency. One major concern is the potential for its misuse in smuggling operations, particularly if robust controls over digital transactions are not established. This is especially pertinent given Iraq’s ongoing struggles to manage informal financial channels effectively.
The expert also raised alarms about the implications for cash stability. A swift transition to digital currency could place undue pressure on the traditional banking framework, especially if banks are unprepared for this shift. Moreover, any security vulnerabilities or technical issues in the digital infrastructure could leave the financial system exposed to cyber threats.
To ensure the successful rollout of a digital currency, it is crucial for the Central Bank to adopt a strategic, phased approach. This includes establishing a comprehensive legal framework governing its use and enhancing the digital banking infrastructure to support this transition while safeguarding economic stability. If implemented with care and transparency, the Central Bank’s digital currency could become a vital tool for revitalizing the Iraqi economy and fostering greater financial modernization and openness.
Earlier in the day, Ali Al-Alaq, the Governor of the Central Bank, discussed plans for creating a digital currency as a means of gradually replacing paper currency. In his address at the Ninth Finance and Banking Conference and Exhibition, he remarked on a noteworthy transformation within the financial and banking landscape, predicting a decline in traditional cash in favor of digital payments.
Al-Alaq stated, “The central bank is progressing toward establishing its own digital currency to align with global trends observed in other central banks.” He also revealed intentions to establish a data center in Iraq, marking a significant step towards the digital transformation of the financial sector.