Unrest in neighbouring Syria and US-led economic sanctions on Iran has dented the Iraqi currency despite earning billions of dollars per month in oil revenues, an AFP report suggested.
The Iraqi dinar stayed stable at around 1,160 per US dollar for years but started to shed its value against the greenback, selling at a rate of 1,320 on Tuesday. It settled at 1,270 against the greenback on Wednesday.
US and EU imposed sanctions on Syria as it initiated a deadly crackdown on rebels in March last year. Syrian-ally Iran, on the other hand, has been hit hard with an economic embargo over its alleged nuclear programme. Both Damascus and Tehran are said to be struggling for a need of foreign currency, especially US dollars.
Iraqi central bank governor Sinan al-Shabibi told AFP, that the country’s currency has been under a fierce attack since the beginning of 2012, with demand for the greenback skyrocketing between 40 and 50 per cent.
“The somewhat unstable political situation in Iraq and in the surrounding region led to a large demand for dollars, which is causing a higher exchange rate lately,” Shabibi said.
Iraq has been locked in political disputes between between the central government and the country’s autonomous Kurdistan region.
“This is one of the reasons, but the region surrounding us in general is not stable,” Shabibi said when asked if sanctions against Syria and Iran were one of the root causes of the increase in demand for dollars.
He added that central bank’s sales of dollars are needed because Iraq depends on large amounts of imports. “Financing neighbouring countries with dollars is not something we do on purpose,” he insisted.
However, he noted the demand for dollars seems to exceed what is necessary for imports.
“Iraq is the only country among its closest neighbours (Syria and Iran) which has huge revenues in dollars from oil,” Iraqi economist Hilal Tahan told AFP.
Baghdad earns around $7 billion in oil revenues per month.
“The increase of financial transfers of dollars to outside Iraq and the unstable political situation (in Iraq) are increasing the demand for foreign currency and the exchange rate for dollars,” Tahan said.
“Dollars have lately been smuggled outside Iraq, and that is why the auctions (by the Iraqi central bank) should stop for a certain period,” he added.
Mohammed al-Omari, 40, who owns a money exchange shop in Karrada in central Baghdad, told AFP that “the price of the dollar… was stable from 2008 until the start of this year,” when it became increasingly volatile due to measures taken by the central bank.”
“The street needs dollars, and when the auction is not pumping out dollars, it is forcing us to go to the black market, which leads to an instability in the prices, and losses” for Iraqi businesses, he explained.
Reports coming from Baghdad said the capital’s main Karrada exchange bureau has stopped dealing in dollars this week due to price fluctuations.
“I used to exchange between 50,000 and 150,000 dollars per day, but I stopped doing that since the prices became volatile and I began to lose money,” the 37-year-old revealed.
The central bank chief sought to play down concerns about the foreign exchange market.
“Iraq is not currently considering stopping the (dollar) auctions, which are part of a financial policy,” Shabibi said, insisting that “everything is under control.”
Sales manager Bassem al-Shammari said he was worried the shifting exchange rate is hurting sales, despite official assurance.
“Iraqi society is afraid to buy things when the exchange rates are… not stable,” Shammari said. “The process of decreases and increases is killing the market.”
“The instability started a week ago, and this matter did not affect the price of the goods, because we buy in dollars, and we sell in dollars.”
“Our sales have decreased by 50%,” the 40-year-old noted adding that the quantity of goods sold has also been affected.
Many Iraqi analysts insist the buy of dollars by Iranian and Syrian traders is driving the demand of US dollars high, while adding the situation will become more volatile in months ahead as US-led coalition tightens its noose around Tehran and Damascus.