Citizens in Iraq are pointing an accusing finger at the United States following the surge in the prices of food and imported goods and in the shadow of the weakening of the currency, as reported this evening (Thursday) in the “Wall Street Journal”.
According to the report, the American Fed recently began to closely monitor the international dollar transactions of the banks in Iraq. Sources in the US as well as in Baghdad claim that the Fed intends to reduce money laundering and illegal money transfers to Iran and other countries in the Middle East. Recently, the main currency fell by 10% against the US dollar, which led to a jump in the prices of food and imported goods and the weakening of the Iraqi dinar.
A former senior official at the Central Bank of Iraq claimed that for about 20 years the financial system of Baghdad used the same method, but the Fed’s policy change led to a crisis within the Iraqi economy. The Prime Minister of Iraq claimed that the Fed hurts the poor and threatens the budget for 2023. Senior Iraqi officials with connections in Iran attacked the American policy and claimed that “everyone knows how the Americans use the currency as a weapon to starve people.”
Under the new procedures, Iraqi banks have to submit dollar remittances on a new online platform through the central bank in Baghdad, which are then reviewed by the Fed. Sources point out that the system is designed to reduce the use of Iraq’s banking system to smuggle dollars to Tehran, Damascus and money laundering havens throughout the Middle East.
US officials have pressed Iraq for years to strengthen supervision of its banks. In 2015, the Federal Reserve and the Treasury Department temporarily shut down the flow of billions of dollars to Iraq’s central bank due to fears that the currency would end up in Iranian banks and possibly flow to Daesh. Some Iraqi officials supported stricter scrutiny of private banks. Hadi al-Salami, a member of the Iraqi parliament who serves on the anti-corruption committee, said that the parties and militias in Iraq control most of the banks and use them to smuggle dollars to neighboring countries.
The impact on the tighter supervision can be seen mainly in the steep decline in dollar transactions of the Iraqi banks. While in October of last year, before the new rules came into effect, the volume of daily transfers by Iraq through the Fed and other institutions abroad stood at around $224 million. However, in the last month the volume of transfers was only $22 million, a drop of almost 90%. Officials Americans say the financial turmoil will subside as Iraqi account holders comply with disclosure requirements.
Iraqi bankers and currency dealers said the stricter rules were intended to shut down schemes used to “understand dollars”. According to them, importers falsify invoices for goods that never arrived in Iraq, but are paid in dollars that flow to unknown recipients outside the country. “The dollars in Iraq go to Iran, Turkey, Syria, Yemen, Lebanon and sometimes Dubai,” said the owner of a currency exchange shop in Baghdad.
The U.S. helped establish Iraq’s central bank in 2004 and the U.S. dollar has largely become the country’s main currency. To take care of Iraq in dollars, planes fly pallets of U.S. currency to Baghdad every few months. But far more dollars flow electronically in private bank transactions in Iraq