Dr. Nazaket Hussen
Iraq’s exchange rate policy has become a major economic issue, affecting businesses, household budgets and the purchasing power of ordinary citizens. Although the government has taken steps to stabilize the dinar, the gap between the official and unofficial dollar rates continues to raise questions about the effectiveness and fairness of its policies.
The Central Bank of Iraq sets the official exchange rate, while the dollar’s value in the parallel market is influenced by supply, demand and restrictions on access to foreign currency. When the two rates diverge, businesses and individuals who cannot obtain dollars at the official rate often face higher costs.
The problem became more visible after Iraq introduced tighter controls on dollar transfers in late 2022 and early 2023. The measures were intended to improve oversight of foreign currency transactions, strengthen compliance with international banking standards and prevent the misuse of dollars. However, they also created difficulties for some traders and increased pressure on the parallel market.
These challenges have consequences beyond the currency market. Iraq imports many of the goods its population consumes, including food, medicine, household products and construction materials. When importers pay more for dollars, their costs may rise, and those increases can eventually reach consumers through higher prices.
The impact is particularly difficult for people whose incomes remain fixed in Iraqi dinars. Public employees, pensioners and other citizens with limited savings have little room to absorb rising living costs. Even when their salaries remain unchanged, the amount they can buy may decline. Small businesses also face pressure when the cost of importing goods rises while customers struggle to afford higher prices.
People who earn dollars may benefit when converting their income into dinars, but that advantage can be reduced if prices rise at the same time. The effects therefore vary depending on income, savings, spending patterns and access to foreign currency.
Iraq’s dependence on oil revenues makes the situation more complicated. Oil exports provide most of the government’s income and supply the dollars needed to finance imports and public spending. This dependence leaves the economy vulnerable to changes in global oil prices and limits its ability to create stable, diverse sources of income.
A lasting solution requires more than defending an official exchange rate. The government and the Central Bank must improve access to legitimate dollar transfers, strengthen banking services, increase transparency and address the causes of pressure in the parallel market. At the same time, supporting domestic production and diversifying the economy would reduce dependence on imports over time.
Ultimately, exchange rate policy should be judged not only by the stability of the dinar but also by its effect on people’s daily lives. If ordinary citizens continue to lose purchasing power while businesses struggle with currency costs, stability on paper will offer little comfort to those paying the highest price.