Iraq Economic News and Points To Ponder Monday Morning 8-31-26
The Rising Dollar Is Testing Banking Reforms; The Central Bank Is Changing Rules, But The Parallel Market Is Resisting.
August 30, 2026Last updated: August 30, 2026 Al-Mustaqilla/Baghdad/- The dollar is still being sold in the Iraqi parallel market at a significant difference from the price announced by the Central Bank, despite a series of banking and regulatory measures implemented by the authorities during the past months in an attempt to restructure the financial sector and expand official channels for obtaining foreign currency.
The selling price of $100 at Baghdad exchange bureaus reached approximately 154,500 dinars at the close of trading on Saturday, August 29, the same price as at the Al-Kifah and Al-Harithiya exchanges.
Meanwhile, the Central Bank offers the dollar at 1,310 dinars, equivalent to 131,000 dinars per $100. This leaves a difference of approximately 23,500 dinars, or about 18 percent, between the Central Bank's rate and the cash selling price in the market.
The figures do not reflect a steady upward trend for the dollar. The selling price in Baghdad reached about 156,000 dinars in some sessions in June before it declined, but at the end of August it remained higher than its level at the end of January when it was selling for about 151,000 dinars per 100 dollars.
This means that the new measures have not yet led to a permanent narrowing of the gap between the two prices to limited levels, despite a major change in the way Iraq manages trade finance and access to foreign currency.
Since the beginning of 2025, Iraq has moved from an electronic platform through which the Central Bank oversaw foreign transfers to a system in which commercial banks rely on their accounts and relationships with correspondent banks abroad, while the Central Bank finances those accounts and oversees compliance.
The International Monetary Fund said last year that the transition to the new system had succeeded in reducing the gap between the official and parallel exchange rates at that stage, but it also said that further narrowing the gap required facilitating access to foreign currency, tightening customs controls to curb smuggling and informal trade, and promoting the use of the dinar in local transactions.
But the widening gap again in 2026 indicates that reforming the transfer mechanism alone was not enough to eliminate demand outside the formal system.
The central bank said in June that it was committed to meeting legitimate demand for dollars and maintaining exchange rate stability, and that its reform program included reintegrating Iraqi banks into foreign transfers, expanding their relationships with correspondent banks, improving electronic payments, and complying with anti-money laundering and counter-terrorism financing standards.
In July, Central Bank Governor Nizar Nasser Hussein announced that, following discussions with the US Treasury Department, an understanding had been reached allowing restricted Iraqi banks to return to foreign correspondent banking channels in currencies other than the dollar after they met compliance and governance requirements.
The bank said that seven banks have become eligible for this stage, and that they can regain eligibility to deal in dollars later after passing additional requirements.
In the same month, the Central Bank withdrew the licenses of three companies that mediated the buying and selling of foreign currencies, namely Al-Rawajeb, Saba and Al-Nitaq, due to their violation of the sector's regulatory controls. Then, it held meetings with exchange companies to discuss reorganizing their operations and raising compliance and governance levels.
The policy towards cash dollars also witnessed another change. In July, Iraqi media published a directive from the Central Bank allowing banks to deliver some foreign remittances and incoming dollar deposits to their owners in the same currency, according to specific controls, in a move that would increase the banking system's ability to meet the legitimate demand for foreign currency.
However, the parallel market did not disappear.
This is partly due to the nature of demand, which does not all pass through the banking system. The IMF stated in its report on Iraq that the remaining difference between the two exchange rates reflects, among other factors, informal trade, demand for dollars for activities that cannot access regulated channels, and speculation.
The central bank itself had previously stated in clarifications that part of the parallel demand comes from traders who do not use official import methods, or from trade that does not pass through regular customs ports, or from prohibited activities, which makes providing dollars for legitimate transactions insufficient on its own to eliminate the informal market.
Iraq's financial relationship with the United States and its trade with Iran add another layer of complexity.
Reuters reported last week that Iraq's reliance on the dollar-based financial system gives Washington significant leverage over its financial sector, at a time when Iraq maintains extensive economic ties with Iran. According to figures cited by the agency, Iraqi-Iranian trade exceeded $10 billion in 2025.
In recent years, the United States has also imposed restrictions and sanctions on Iraqi banks that it said were involved in transactions linked to Iran, prompting the central bank to tighten compliance requirements and restructure the relationship of Iraqi banks with the international financial system.
This reveals a paradox facing Iraqi monetary policy: stricter compliance reduces the risks of sanctions and money laundering and brings banks closer to the international financial system, but at the same time it may leave a portion of demand that is unable or unwilling to go through official procedures heading to the parallel market.
Therefore, the market rate alone does not provide a complete measure of the success of banking reform. Restructuring banks, improving governance, expanding their international relationships, and subjecting remittances to scrutiny are objectives that extend beyond the daily exchange rate.
However, a persistent gap approaching 18 percent is at the same time an indicator that is difficult to ignore when measuring the ability of reforms to reach the real economy.
For a trader who cannot finance all of his needs through a correspondent bank, or a citizen who needs cash dollars for purposes other than those specified, the parallel market rate remains the actual rate he faces.
Herein lies the most difficult test for the Central Bank and the government of Ali al-Zaidi.
After changing the rules for foreign exchange, reopening banking channels, regulating exchange companies, and expanding dollar transactions through banks, the challenge is no longer limited to building a more compliant financial system, but has become making this system capable of competing with the parallel market in speed, access, and cost.
The experience of the first eight months of 2026 suggests that the parallel market has not yet given up.
The dollar, which was selling for about 151,000 dinars per 100 dollars at the end of January, reached 154,500 dinars at the end of August, although it fell back from the peaks it recorded in June.
Thus, what has been achieved so far seems closer to a reform of the banking structure and channels than to a complete transformation of the exchange market.
Narrowing the gap between the two prices, rather than just the number of instructions or banks that have been rehabilitated, will be one of the clearest tests of the new policy’s ability to transfer reform from the banks to the market.
https://mustaqila.com/ارتفاع-الدولار-يختبر-الإصلاح-المصرفي/
The American Media Line News Network: An Official In The Prime Minister's Office Expects A Decision To Remove Zeros From The Dinar
1 News - وان نيوز @onenewsiq Translated from Arabic
The American Media Line news network: An official in the Prime Minister's office expects a decision to remove zeros from the dinar to be finalized in the near upcoming period. #وان_نيوز#المنصة_الإخبارية_الأولى_في_العراق
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8:50 PM · Aug 30, 2026 158 Views