In the middle of a long queue waiting to enter a branch of the Rafidain Bank, Iraq’s state bank and its largest, is Baghdad woman who wished only to be known as Sadoun. She’s waiting in the queue to exchange her Iraqi dinars for US$500. Although she’s not saying so now, when she gets in there to the tellers, she may well pretend she is going overseas. She may even show her passport with a forged international visa stamped inside it. This allows her to take advantage of a recent government subsidy meant to artificially maintain the Iraqi dinar’s value; the state bank buys the dinars at a higher rate.
In Sadoun’s case, she will exchange IQD1,900 for one US dollar. In the unofficial exchange shops, which are found throughout Iraq, she would exchange around IQD1,200 for one US dollar. So that difference of around 10 percent makes the waiting in this queue worthwhile.
Sadoun is not the only person doing this. The fresh round of violence in Iraq which has seen over 500 dead in May, among other factors like politics, unresolved financial issues and regional conflicts, has caused dramatic fluctuations in the value of the dinar against the US dollar. Most Iraqis use dinars for small purchases, like groceries, but use US dollars when buying bigger ticket items – one of the main reasons for this is that they don’t need to carry around bags of cash in dinars, they need only take several bills in a wallet.
As local economist Majid al-Suri told NIQAS, “the decline in the dinar against the US dollar since April can be attributed to many political issues, as well as security and financial administration problems. This has seen many merchants and businessmen transfer money outside the country, exchanging their Iraqi dinar for dollars because they’re afraid the dinar will only become more unstable. A few months ago, Iraq’s central bank was selling around US$50 to US$150 million a day,” al-Suri explained. “Now demand has increased and it’s selling more than US$400 million a day. That’s a huge increase.”
The current security problems, which are reminding locals of the violent years between 2006 and 2008 when the country was virtually in a state of civil war, has also seen projects come to a standstill and the movement of cash around the economy slow down. Wealthier Iraqis are leaving the country and foreign firms are pulling their contractors out until things calm down. “Our parent company in Turkey has decided to pull all their Turkish staff out,” said one Iraqi employee of a Turkish construction company building houses in Baghdad. “We haven’t been able to do any business here at all over the past month; Iraqis have stopped building right now.”
Against this troubled backdrop, the Iraqi government is trying to shore up the dinar’s value. They are allowing state and private banks to exchange US$5,000 for dinars at an inflated, official rate for Iraqis who hold a passport and are planning to travel overseas or for medical treatment. They may only do this once a month.
However unlicensed exchange shops have been quick to take advantage of this. Iraq’s black market money market doesn’t have too many rules or regulations – anyone can buy US dollars from hundreds of both licensed and unlicensed exchange shops. And there’s currently a difference between the official exchange rate and that on the black market of between 8 and 10 percent.
“Getting a license from the bank requires a lot of paperwork and there’s also favouritism at work,” one money changer, Kazim Jassim, from Baghdad’s Mansour neighbourhood, told NIQASH. “That’s why I just started. I’ve been doing this for seven years now and never once has anybody asked me what I’m doing, or tried to stop me,” he explains.
And those money traders are approaching people on the street – especially if they look needy - and asking them if they’d like to make a comparatively quick profit. They give them the US$5,000 to take to the bank. The money is exchanged, then changed again on the black market. The profit of around US$400 is easy money for the money changers and the person who queued at the bank gets US$100 for their trouble.
NIQASH met up with a number of people who’ve been doing this kind of bogus banking regularly. “The visa stamps on our passports are forged,” one of them told NIQASH. “The exchange shops stamp the visas on our passports so that we can show it to the bank employees in order to convince them that we are travelling abroad.”
Some of the queue-standers said the bank employees had been catching on. Some were distrustful, others demanded a cut of the profits before they would do the exchange.
As a result of all of the above, there have been plenty of criticisms made of the way the Iraqi Central Bank and the Iraqi government are handing the currency crisis.
Sadrist MP Jawad al-Shuhaili, a member of the Iraqi parliament’s integrity committee, told NIQASH that the dinar’s decline could be traced back to the removal of the former Central Bank governor, Sinan al-Shabibi. Al-Shabibi, who is generally seen to have revitalised the Central Bank after 2003, tightened up several fiscal procedures that meant smuggling money from Iraq to Iran became much harder; eventually he had an arrest warrant issued against him.
Al-Shabibi was replaced by former Minister for Human Rights, Abdel Basset Turki. And now, al-Shabibi says, “the new administration of the bank is unable to control the dollar smuggling operations”.
The integrity committee is looking into Turki’s supervision of the Central Bank, al-Shabibi said. “Initial reports indicate that the monetary policies of the central bank are not very effective and that there are corrupt officials there who must be held accountable for the country’s ineffective monitory policies,” he said.
MP Majda al-Tamimi, a member of the parliamentary finance committee, says she expects the Iraqi dinar to decline further – and not just because of the black market exchange rates. It’s a systemic problem, she says. “There is no cooperation between the state institutions,” al-Tamimi explains. “And there’s no real supervision of ministries importing products from outside Iraq, such as the ministries of health and trade.”
However it’s also obvious there are no easy solutions to these problems. “The government should reconsider its fiscal policy and it should enact financial reforms for the banking and investment sectors,” economist Basem Antoine gives NIQASH a long to-do list for the Iraqi dinar’s recovery. “It needs to enhance the role of the private sector and fight administrative and financial corruption.”