US Federal Reserve Sanctions On 14 Iraqi Banks: The Possible Reasons and Compromises
Along with the recent decision by the US Treasury Department to prevent (fourteen) Iraqi banks from dealing in US dollars and foreign remittances. This decision is not the first of its kind, as it was preceded by decisions related to sizing the dollar inside Iraq, and with reference to the US federal decision, earlier at the end of 2022, the federal announced that strict procedures were put in place on external financial transfers through the “SWIFT” system, and that it did not approve external transfer requests submitted by Iraqi banks, calling for the use of the electronic platform for external transfers and imposing more strictness on the money transfer system, which caused a rise in dollar exchange rates in the parallel market as a result of the increased demand for it and thus reflected negatively on the Iraqi economy and led to The rise in the prices of goods and services, despite the Central Bank of Iraq continuing to sell the dollar at the official rate (1470) IRD for every one dollar, after which a grace period of (six months) was granted to the Iraqi Central Bank to correct the financial situation and put more control over the foreign transfer system practiced by some Iraqi banks under the pretext of combating money laundering and dollar smuggling to a number of countries that are subject to US sanctions, most notably Syria, Iran, Russia and Lebanon.
“patchwork solutions”
And with the course of the past seven months of 2023, the Iraqi government and the Central Bank of Iraq carried out some “patchwork” solutions, including; The Iraqi Central Bank sells dollars to travelers at the official rate, up to (($ 5000), and the decision taken by the Iraqi government to exempt the governor of the Central Bank of Iraq and appoint the relationship as a substitute for him, and its most important decision in February of this year to reduce the exchange rate of the dollar to (1310) IRD, and economic security, under the direction of the Iraqi government, to hold accountable and close a limited number of exchange shops that sell dollars at a price higher than the official exchange rate, and allow the transfer of dollars through platforms, applications, electronic payment cards at the official rate, and other procedures Other simple steps, however, did not address the problem radically, as exchange rates continued to rise in the black market as a result of currency smuggling abroad and its negative impact on the prices of goods and services locally, which did not respond to the official dollar exchange rate announced by the Central Iraq in February of this year.
Those solutions and decisions taken by the government and the Iraqi Central Bank did not contribute to a radical solution to the problem except in a simple way, as the exchange rates on the black market decreased slightly and ranged between the amount (1450-1500 IRD) against one dollar after it reached approximately (1700 IRD). The exchange rates remained subject to speculation and did not comply with the official exchange rate.
“Potential risks”
And in light of the continuation of the current approach of the Iraqi government and the Central Bank of Iraq in responding and dealing poorly with the crisis; We believe the country will face many risks, including; The continued fluctuation of exchange rates and their rise in the future, which will negatively affect the local market due to its total dependence on imports, and its failure to respond to the official price announced by the government and the Iraqi Central Bank, and warning of the risks of a continuous rise in the exchange rate of the dollar against the dinar, which may reach a point of no return and cause a collapse of the local currency, as happened in Venezuela and Lebanon in conjunction with the packages of decisions that will be taken by the US policy to track its currency and ensure that it does not reach the countries that impose sanctions on it, the most important of which are Iran, Russia and Syria, and prices may return The dollar exchange rate has risen in the black markets from the official rate to approximately (1700) Pounds per dollar, as a result of the constant demand for it.
“Proposed Solutions”
Suppose we want to address the problem radically. In that case, immediate and future effective solutions must be taken, emanating from the strong will of the senior administration and those responsible for the country’s fiscal and monetary policy. One of them is to start an accurate accounting of banks and money changers that sell the dollar at a higher price than the official price and to enact quick and fundamental laws that criminalize such actions and expose their perpetrators to legal accountability, up to “imprisonment with an unfair financial fine” for the violator, because these actions aim to stabilize the economy of the country and drain hard currency and cast negative shadows on the life and livelihood of citizens, as well as work to create an industrial base for essential commodities such as medicines, food and construction industries, in order to reduce the demand for imports and thus reduce the demand for hard currency And the most important “and most effective” solution is to cancel the currency sale auction and withdraw the license from some banks and money changers that represent “currency sales shops” and did not achieve the main goal that the banking systems seek to achieve and did not contribute to the development of the country’s economic situation, “reliance on the documentary credits system to pay money externally”, in addition to other matters that will be dealt with successively related to the reform of the banking system in Iraq and the development of electronic governance systems and the empowerment of people with specialization and experience in managing these critical sectors.
