Targeting Iran, US tightens Iraq’s dollar flow
For months, the United States has restricted Iraq’s access to its own dollars, trying to stamp out what Iraqi officials describe as rampant money laundering that benefits Iran and Syria. Iraq is now feeling the crunch, with a drop in the value of its currency and public anger blowing back against the prime minister.
Mustafa Al Karawi, a member of the parliamentary budget committee, told the state news agency that the Central Bank “must meet the requirements of the Federal Reserve to...reduce the scarcity of hard currency in the country.”
The devaluation has already sparked protests. If it persists, analysts said, it could challenge the mandate of the government formed in October after a yearlong political stalemate.
The dinar’s deterioration comes even though Iraq’s foreign currency reserves are at an all-time high of around $100 billion, pumped up by spiking global oil prices that have brought increasing revenues to the petroleum-rich nation.
But accessing that money is a different story. Since the US invasion of Iraq in 2003, Iraq’s foreign currency reserves have been housed at the United States’ Federal Reserve, giving the Americans significant control over Iraq’s supply of dollars. The Central Bank of Iraq requests dollars from the Fed and then sells them to commercial banks and exchange houses at the official exchange rate through a mechanism known as the “dollar auction”.
In the past, daily sales through the auction often exceeded $200 million per day.
Ostensibly, the vast majority of the dollars sold in the auction are meant to go to purchases of goods imported by Iraqi companies, but the system has long been porous and easily abused, multiple Iraqi banking and political officials said.
US officials confirmed that they suspected the system was used for money laundering.
For years, large quantities of dollars were transferred out of the country through “gray market trading, using fake invoices for overpriced items,” a financial adviser to the Iraqi prime minister said. — ap