Ali al-Allaq, the governor of Iraq's central bank, says the country has launched a war against currency smuggling in its banking system.
In response to implementing US dollar supply restrictions on Iraq in order to prevent the smuggling of banknotes to Iran, Allaq told Reuters, "It is really a battle because both those who benefit from this situation and those who are harmed will continue their illegal activities in various ways."
Before the United States tightened regulations in November, Allaq said he did not have data on how many Iraqi dollars were smuggled to Iran or other neighboring countries, including Turkey and Syria.
Last week, Muhammad Nuri Aziz, a member of the Iraqi parliament, revealed on a television show that Prime Minister Mohammed Shia al-Sudani and the Central Bank are aware of Iran's methods for obtaining US dollars in spite of US sanctions. According to Aziz, the illegal smuggling began under Mustafa Al-Kadhimi's time as prime minister and is still happening now. The legislator did not provide any explanation or specifics but suggested that Iran produces Iraqi dinars in Argentina and then trades them for US dollars in Iraq before being smuggled into Iran via trucks.
Reuters' Timour Azhari reported that Iraq's government relies on Washington's benevolence to protect oil revenues and finances from US censure. Despite having been elected thanks to Tehran-backed groups, the Iraqi administration must avoid estranging Iran, given that those groups blamed America for meddling in their internal matters and causing a currency crisis. Apparently, companies suffering or refusing to comply with new regulations sourced dollars at exchange shops leading to a decrease in the worth of the Iraqi dinar.
Reuters interviews Iraqi central bank governor Ali Al-Allaq in Baghdad, Iraq, August 15, 2023.
A Reuters interview with Iraqi central bank governor Ali Al-Allaq was conducted on August 15, 2023 in Baghdad, Iraq.
The restrictions prevented Iraq from freely intervening in the market to bring down the rate, Allaq said.
In late July, 14 Iraqi banks sanctioned by Washington for helping to siphon US dollars to Iran said they were prepared to challenge the measures and face audits and called upon Iraqi authorities to assist. Due to the Islamic Republic's influence on the Iraqi banking system, the credibility of the system has been tarnished, and US financial restrictions have been tightened on Baghdad since, apparently all Iraqi banks have dealt with it.
The US barred Iraqi banks from conducting dollar transactions as part of a larger crackdown on dollar smuggling to Iran. According to two Iraqi central bank officials, the latest sanctions have blacklisted nearly a third of Iraq's 72 banks. Since the New York Federal Reserve tightened controls on international dollar transactions by commercial Iraqi banks in November, the dinar has been falling against the dollar.
The central bank is undertaking a review of the banking sector and introducing new regulations that may lead to the closure of some banks, Allaq said.
In the coming period, it would be very normal to see a reduction in private banks. In spite of the fact that there are always side effects, we also have a responsibility to protect the country's interests by finding the necessary means for monitoring and oversight so that the country doesn't have to deal with any issues in this regard" he added.
The term 'transformation'
US measures target Iraq's dollar auction, in which the central bank requests dollars from the Federal Reserve before selling them to commercial banks, which in turn sell the funds to businesses.
The US and Iraqi governments have said the auction allowed large sums of money to be smuggled into neighboring countries, mainly Iran, by groups that provided fake invoices.
According to Allaq, the system is also used by thousands of small businesses not registered with the state to avoid taxes and customs fees, a widespread phenomenon in Iraq.
Through an online platform, the central bank has asked banks to provide detailed information on senders and recipients of transfers since January.
Initially, less than 20% of the requests to use the platform were approved by US authorities, Allaq said. Since then, that number has risen to around 85 percent, indicating that the new regulations are becoming easier to comply with.
There will be a complete reorganization of trade and money movements, and a lot of avenues for suspicious activity will be controlled by it."
Article Documentation and Research
Member of parliamentary finance accuses Iran of printing Iraqi dinars and replacing them with dollars (zagrosnews.net)
Iran Irked By Iraqi MP’s Claim Of Dollar Smuggling (iranintl.com)
Please note that neither of these publications is from our regular news sources.