In a surprising move, the Iraqi government announced on Thursday that it will ban all cash withdrawals in US dollars from banks and ATMs across the country. The decision, which will take effect from November 1, is aimed at curbing the black market and stabilizing the exchange rate of the Iraqi dinar, according to a statement from the Central Bank of Iraq (CBI).
The CBI said that the US dollar has been widely used in Iraq for illegal activities, such as money laundering, terrorism financing, smuggling and tax evasion. The CBI also claimed that the dollarization of the economy has undermined its monetary policy and weakened its ability to control inflation and interest rates.
The ban will not affect electronic transactions or transfers in US dollars, nor will it affect the availability of foreign currency for legitimate purposes, such as imports, travel and education. The CBI said that it will provide sufficient amounts of Iraqi dinars to meet the demand for cash withdrawals and ensure price stability.
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However, the announcement has sparked mixed reactions from economists, bankers and ordinary citizens. Some have welcomed the move as a necessary step to restore confidence in the national currency and reduce dependence on foreign reserves. Others have criticized it as a hasty and risky measure that could trigger a liquidity crisis, a currency devaluation and social unrest.
The US dollar has been widely used in Iraq since the 2003 invasion that toppled Saddam Hussein’s regime. The dollar became a safe haven for many Iraqis who lost trust in the dinar amid political instability, violence and corruption. The dollar also facilitated trade and remittances with neighboring countries and the rest of the world.
According to the CBI, the US dollar accounts for about 20% of the total cash in circulation in Iraq, or about $10 billion. The CBI has been trying to reduce this share by gradually increasing the supply of dinars and imposing restrictions on dollar transactions. However, these efforts have faced challenges from a weak banking sector, a large informal economy and a volatile security situation.
The ban on cash withdrawals in US dollars is expected to have significant implications for the Iraqi economy and society. On one hand, it could help fight illicit activities, enhance transparency and accountability, and strengthen the CBI’s role as a regulator and supervisor of the financial system.
On the other hand, it could create difficulties for businesses and individuals who rely on cash for their daily transactions, especially in remote areas where banking services are limited or nonexistent. It could also increase the demand for alternative currencies, such as the euro or the Turkish lira, or even cryptocurrencies, such as bitcoin or Ethereum.
The success or failure of this policy will depend largely on how well it is implemented and communicated to the public. The CBI will need to coordinate closely with other government agencies, banks and civil society organizations to ensure a smooth transition and avoid any disruptions or confusion.
The CBI will also need to monitor the impact of this policy on key economic indicators, such as inflation, exchange rates, growth and employment. The CBI may need to adjust its policy accordingly if it detects any negative or unintended consequences.
The ban on cash withdrawals in US dollars is a bold and unprecedented move by the Iraqi government. It reflects its determination to reform its economy and regain its sovereignty. However, it also entails significant risks and challenges that require careful planning and execution. The ultimate goal is to create a more stable, prosperous and inclusive Iraq for all its people.