US Dollar Exchange Rate Decline in Iraq During Ramadan
The exchange rate of the US dollar in Iraq’s parallel market experienced a notable decline during the first and second weeks of Ramadan, dropping to 1,480 dinars per dollar from 1,520 dinars prior to the month’s commencement. This decline can be attributed to a confluence of factors, prominently the rigorous measures implemented by the Central Bank of Iraq aimed at regulating imports and electronic financial transactions as well as the reduction in overall economic activity during Ramadan.
Central Bank’s Strict Measures
According to government advisor Alaa Al-Fahd, the decrease in the dollar’s price in the parallel market is a direct result of the Central Bank’s stringent policies focusing on the oversight of imports and electronic financial transfers. He emphasized that these measures signify the success of the Central Bank’s monetary policy, which has enabled Iraqi banks to establish correspondence with international banks engaged in commercial ties.
Al-Fahd noted that diversifying the currency basket has significantly alleviated pressure on the dollar, with most consumer and food imports now funded through the Central Bank’s official platform at the officially sanctioned price. He also clarified that any transactions occurring outside this framework are considered informal.
Furthermore, Al-Fahd commended the Central Bank’s initiatives to promote digital transactions and tourism, asserting that these steps have substantially contributed to diminishing pressure on the parallel exchange rate market. He anticipates continued market stability, especially with Ramadan and Eid al-Fitr preparations being adequately covered through the official platform at the official price, suggesting that the dollar’s value could continue to decline in the near future.
Recent Exchange Rate Trends
Previously, in the last week leading up to Ramadan, the dollar’s exchange rate surged significantly, reaching 1,520 dinars per dollar for sale and 1,510 dinars for purchase in major stock exchanges. However, the onset of Ramadan saw this rate diminish drastically, with the exchange rate falling to 1,465 dinars per dollar for sale and 1,475 dinars for purchase across main exchanges in Baghdad, Erbil, and Basra.
During the second week of Ramadan, there was a slight rebound in the exchange rate, which registered at 1,485 dinars per dollar for sale and 1,480 dinars per dollar for purchase, fluctuating within a narrow margin of two and a half dollars.
Factors Influencing the Exchange Rate
The exchange rates of the Iraqi dinar against the dollar are influenced by several critical factors, including:
- Daily sales volume at currency auctions
- Central Bank policies concerning external transfers
- The demand for imports from countries under U.S. sanctions, which increases dollar demand in the parallel market
- Smuggling of the Iraqi dinar to other nations to exploit price discrepancies
Economic Activity and Demand for the Dollar
Economic expert Ahmed Al-Ansari attributes the reduced demand for the dollar during Ramadan primarily to a decline in economic activities among Iraqi citizens, evident from reduced activity in real estate, automotive, and essential services. He explains that weakened purchasing power has further diminished import volumes, leading to a lower demand for dollars in the parallel market.
Al-Ansari also indicated that the Central Bank’s measures aimed at reducing black market imports and encouraging merchants to utilize approved banks for official dollar transactions contributed to this temporary downturn.
Looking ahead, he projects a robust recovery in the markets post-Ramadan and leading into Eid al-Fitr, which could potentially trigger a modest increase in the dollar’s price or a reversion to previous levels. He highlights that the dollar price remains highly susceptible to shifts in market supply and demand dynamics, particularly as demand surges in the parallel market.
Al-Ansari underscored the importance of ongoing facilities provided by the Central Bank, such as traveler dollar allocations, which encourage citizens to transact at official prices and deter reliance on exchange offices and banks offering higher rates.
On February 7, 2023, the Council of Ministers approved a decision by the Central Bank of Iraq’s board to adjust the dollar exchange rate to 1,300 dinars per dollar. The directive mandates banks to sell at a rate of 1,310 dinars per dollar, and 1,320 dinars per dollar for currency transfer operations utilizing electronic cards for travel or online transactions, setting a ceiling of $3,000 at the official price for each traveler who presents a visa and a valid travel ticket.
