Iraq Economic News and Points To Ponder Late Saturday Evening 8-22-26
A Crisis Of Confidence And A Cash Economy: Around 97 Trillion Iraqi Dinars Are Outside The Banking System
Shafaq News - Baghdad Cash held outside the banking system constitutes one of the most prominent challenges facing the Iraqi economy, given the continued reliance of a large segment of citizens and merchants on cash transactions and keeping part of their money outside banks.
While money outside the banking system does not necessarily mean that it is entirely hoarded, its sheer size raises questions about the weakness of banking transactions and the ability of banks to attract savings and convert them into loans and financing for projects and investments.
This reality reopens the file on the relationship between citizens and banks, the reasons for the continued preference for cash, and the repercussions of a cash economy on the movement of money and economic activity, especially with the presence of dozens of banks operating in the country.
Money Outside Banks
The Prime Minister's financial advisor, Mazhar Muhammad Saleh, told Shafaq News Agency that "the fact that some cash remains outside the banking system represents one of the challenges facing the Iraqi economy, given the limited benefit the banking sector derives from these funds in deposit and credit operations, and in financing projects and investments."
Saleh explains that “money hoarded in cash, whether by households or companies, remains outside the scope of financial intermediation, which limits the ability of banks to employ savings in financing economic activity, and increases reliance on cash and the informal economy, in addition to the high cost of cash transactions and weak financial transparency.”
He emphasizes that "the problem does not lie in the use of cash itself, but rather in its transformation into a means of hoarding savings instead of directing them through financial channels towards investment and production."
He points out that “returning these funds to the economic cycle requires building trust in banks and providing real incentives for saving, through developing savings products, offering competitive returns on deposits, enhancing depositor protection, improving banking services, reducing the cost and procedures for opening accounts and transfers, and expanding electronic payments, digital wallets, and points of sale.”
Saleh concludes that "the process should not stop at the transfer of money from homes to banks, but should move from deposits to credit, from credit to investment, and ultimately to production and job creation."
The Amount Of Money Outside Banks
In contrast, financial expert and former Director General of the Central Bank, Mahmoud Dagher, offers a different interpretation of the nature of funds outside banks, stressing that they do not all represent hoarded funds.
Dagher told Shafaq News Agency that "the amount of cash issued is about 105 trillion dinars, of which about 8 trillion dinars are inside the banking system, while about 97 trillion dinars are outside it."
He explains that “about two-thirds of the money outside the banking system is used to settle cash payments between merchants, real estate sales and purchases, and pay salaries and wages, while hoarding may represent about a quarter of the money outside banks.”
Dagher links the continued reliance on cash to “insufficient trust in banks, along with prevailing customs in Iraqi society and the slow transition to electronic payment,” noting that “the transition to a broad electronic payment system requires a long period of time, with the continued development of banks and payment tools.”
The figures for monetary issuance highlight the importance of the discussion regarding the amount of money circulating outside banks. However, monetary issuance does not necessarily mean that the entire amount represents money hoarded by citizens, nor does its increase automatically mean the printing of new money.
According to Dagher's reading, the majority of money outside banks enters the market and settles cash payments, which makes distinguishing between circulating cash and hoarded money essential when assessing the size of the problem.
Cash Presence
Despite the presence of a large number of banks, cash transactions still occupy a large part of economic activity in Iraq.
The number of operating banks reached 72, including 7 government banks and 65 private banks. However, the large number of banks does not necessarily mean a high level of banking transactions, as the main challenge remains the extent to which citizens and companies use banks for saving, payment and financing.
The Central Bank is working to promote financial inclusion and expand the customer base of the banking system, in addition to expanding electronic payment methods and spreading financial literacy.
First Choice For Iraqis
Economic expert and professor of political science at Dhi Qar University, Najm Abdul Tarish, told Shafaq News Agency that "the continuation of the cash economy is linked to a set of overlapping factors, including weak confidence in banks, deeply rooted habits of dealing in cash, the expansion of the informal economy, as well as the limited use of electronic payment in some activities."
He adds that "the problem does not lie in the existence of cash within the economy, as it is a natural part of any financial system, but rather in cash becoming the primary means of settling transactions and holding savings, which reduces the money that passes through banks and limits their ability to create credit and finance economic activity."
Available data indicates that the number of payment cards in Iraq has exceeded 20 million, but their actual use is still less than their widespread use, while a number of cardholders primarily use the accounts to withdraw salaries rather than use them for daily purchases and payments.
Possible Solutions
Addressing the problem does not stop at returning the funds to the banks, as the ultimate goal is to bring them back into the economic cycle more efficiently.
When money is converted into deposits, it can give banks greater ability to provide credit, and when credit is converted into investment and productive projects, this can be reflected in growth, job creation, and increased economic activity.
Therefore, the challenge facing Iraq is not only the amount of money outside the banks, but also building a banking system that makes the citizen and the merchant find in the bank a safer, more useful and easier way than keeping money and dealing with it in cash.
Ultimately, the large amount of cash outside the banking system reveals the continued dependence of the Iraqi economy on cash transactions, at a time when the banking sector is seeking to increase its role in savings, credit, and financing the economy.
While Mazhar Muhammad Saleh believes that returning funds to the banking system requires restoring confidence and stimulating savings, Mahmoud Dagher points out that the largest portion of funds outside banks actually moves in the market and does not represent complete hoarding, while Najm Abdul Tarish links the continuation of the cash economy to weak confidence, prevailing habits, and the limited use of electronic payment.
The transition from a cash-based economy to one more reliant on banks and electronic payments remains linked to the banking sector’s ability to restore confidence, provide more efficient services, and transform funds from mere cash transactions into deposits, credit, investment, and production.
Exclusive: Parliament Hosts Finance Minister To Discuss The Financial Crisis And Solutions
Shafaq News - Baghdad The First Deputy Speaker of the Iraqi Parliament, Adnan Faihan, revealed on Saturday that the Minister of Finance, Faleh Al-Sari, is expected to be hosted in Parliament to discuss the details of the financial crisis facing Iraq.
Faihan told Shafaq News Agency that "the Minister of Finance has requested to attend the House of Representatives, and the request to host him will be included on the agenda of one of the upcoming sessions, with the date of the hosting to be determined in the coming days," indicating that "the Minister wants to explain the details of the financial crisis and the expected solutions to address it."
He added that "the borrowing law will be included on the agenda of one of the upcoming sessions for its first reading."
Finance Minister Faleh al-Sari confirmed the existence of a real financial deficit that is hindering the completion of salary payments for employees, retirees and social welfare beneficiaries, noting that the total monthly obligations for salaries amount to about 7 trillion and 800 billion dinars.
For his part, Iraqi government spokesman Haider al-Aboudi confirmed that Iraq is facing "severe" financial challenges, noting that the government needs about 10.8 trillion dinars monthly to cover employee salaries and public expenditures, while the country's oil revenues do not exceed 2.5 trillion dinars.
It is worth noting that Prime Minister Ali Faleh al-Zaidi reassured employees and retirees on Friday that monthly salaries and government payments would be fully secured, while emphasizing that Iraq is going through "difficult and challenging" circumstances due to regional developments and the disruption of oil exports through the Strait of Hormuz.
https://www.shafaq.com/ar/سیاسة/خاص-البرلمان-يستضيف-وزير-المالية-لبحث-ال-زمة-المالية-والحلول
"The New Dinar Alone Is Not Enough," Says Ziad Al-Hashemi: Changing The Currency Without Institutions Capable Of Tracking Suspicious Funds Could Lead To Costly Reforms.
Baghdad - One News The debate over changing the Iraqi currency and removing zeros has reopened a broader issue than just the shape of the dinar or its nominal value, after economist Ziad al-Hashemi considered that the project, if presented within an integrated vision, could turn from a monetary and accounting procedure into a tool to restore part of the government’s control over the money supply and contain the funds accumulated outside the official financial system.
Al-Hashemi said in a post on the “X” platform that the conflicting statements regarding the issue, between talk of a trend to change the currency and political confirmations in this direction, versus the denial of the existence of a plan to implement it, have put the public in a state of ambiguity, coinciding with rising prices and the sensitivity of any talk related to the future of the dinar.
He believed that this contradiction opens the possibility that raising the issue was a "trial balloon" to gauge public opinion before any decision was made, or an early attempt to create a popular stance against the idea and block it before it moves to the implementation stage.
Al-Hashemi explained that changing the currency is not a simple technical decision that can be implemented in isolation from the political and economic environment, but rather a process that requires extensive financial, banking and institutional requirements, and may encounter political obstacles capable of disrupting the project even if its economic justifications are available.
He pointed out that concerns about prices, inflation, and implementation costs remain real and cannot be ignored, stressing that removing zeros alone does not create economic reform unless it is linked to production, development, and the development of the banking system.
But Al-Hashemi stressed the need to separate the change of currency with the aim of simplifying accounting figures and transactions, from its use within a broader project aimed at readjusting the movement of money, tightening the noose on corruption funds, and regaining control over as much as possible of the monetary mass issued and circulating outside the official system.
According to his view, currency replacement may force large amounts of cash stored outside banks to return to exchange channels, giving institutions a greater opportunity to scrutinize the movement of funds, provided they have the necessary legal and regulatory tools to deal with suspicious funds.
Al-Hashemi believes that the unique nature of the Iraqi economy makes assessing reforms solely from the perspective of their direct costs insufficient, as some measures may impose short-term negative effects in exchange for longer-term strategic gains related to reorganizing the economy and reducing the influence of corruption networks.
He stressed that the real test of the project will not be in the design of the new dinar or the number of zeros removed, but rather in the government’s ability to turn the replacement process into an opportunity to reorganize the monetary mass, uncover funds outside the official cycle, and curb illicit funds.
Al-Hashemi concluded that the project's success remains contingent on the existence of a government and institutions possessing the will and ability to confront corruption, while changing the currency without these requirements could impose a heavy cost on the economy without achieving genuine reform. https://1news-iq.net/الدينار-الجديد-وحده-لا-يكفي-زياد-اله/