The Iraqi dinar’s rate of exchange with the US dollar bounced off a near-term low on Friday, raising hope that months of currency free-fall may finally be coming to an end.
Concerns around regional smuggling of US dollars have frustrated US economic ties with Iraq. Tightening the dollar supply in Iraq has weakened the potential for smuggling, but badly damaged Iraq’s economy.
This is a problem Iraq doesn’t need and shouldn’t have. A surging oil trade provides the Central Bank of Iraq with large amounts of US dollars in reserve, but the US is limiting the bank’s ability to import them, making the dinar worth a lot less in trade. That’s causing problems for Iraqis all across the country’s economy.
The crisis has already claimed the job of Central Bank Governor Mustafa Ghaleb Mukheef, who was fired just a week ago. His replacement, Mohsen al-Allaq, met with US Undersecretary of the Treasury Brian Nelson in Istanbul over the weekend.
The meeting was focused on Allaq selling proposals for Iraqi reforms and efforts against dollar smuggling, and trying to convince the US to open up the flow of dollars to Iraq. The post-meeting statement is vague as to what agreements were reached, but the Iraqi dinar did go up on the news, with investors anticipating a helpful outcome.
The US tightened the legal dollar market to try to prevent money laundering. A side-effect of this was a surge in the grey and black market dollar trade, creating all sorts of associated legal problems.
So long as the US dollar remains the de facto global currency of record, dollar smuggling will necessarily continue around the world, especially in places like Iran and Syria, where US sanctions intentionally curb trade. Forcing nations like Iraq to turn to smuggling just makes the process easier for smugglers and harder for the US to restrict.
The US obsession with sanctions on Iran and Syria will likely keep them from opening up Iraq’s economy too much. Clearly the central bank must seek a balance whereby Iraq’s economy isn’t unmanageable. The forex trade suggests many expect that to happen, but US regulatory and sanctions actions are always difficult to predict, and can cause any number of additional concerns.
Clearly, Iraq should not be selling it’s oil in dollars if they’re not allowed to fully utilize them.
Continuation of short term thinking … giving people another reason to cheer the creation of a true international currency … perhaps a UN dollar backed by gold, so uninflatable?
We have weaponized the $ to attack the civilian population of Iraq in order to attack the civilian populations of Iran and Syria. This is the ‘rules based’ global order that we always bray about.
excuse me? You have a failure of a currency and you’re blaming that on US monetary policy? Don’t have crappy currency and you wouldn’t have to rely on the US. Also, don’t try to fix the exchange rate above market value, and you won’t have arbitrage issues.
Now, if you wanted to claim your currency sucked because the US destroyed your production in a war, followed by completely inhumane sanctions, that would be one thing. But that’s not the complaint. The complaint is that the fed is finally raising interest rates (though not by nearly enough).
When your neighbor being slightly more responsible than you makes you look bad, you might consider changing your own life, rather than demanding your neighbor return to their previous poor lifestyle.
“The complaint is that the fed is finally raising interest rates (though not by nearly enough).”
No, the complaint is that the US regime is limiting the Iraqi regime’s ability to withdraw and spend the dollars its central bank holds in reserve at the US central bank.
This sort of US foreign micromanaging should sink the dollar as a reserve currency. If they do it to Iraq, why not every other supposedly sovereign nation?
Because people are realists and not idealists. Saudi Arabia knows america wouldn’t do this to them, Israel knows we wouldn’t do this to them, Germany knows we wouldn’t do this to them. Pretty much every country knows america’s foreign policy towards one country has nothing to do with america’s foreign policy towards any other country.
If saudi arabia stops transacting in dollars, it won’t be because “they’re afraid of america manipulating them”, seeing as they’ve been using their oil to manipulate american into supporting their war against Yemen, we know who’s in the driver seat. No If saudi arabia stops transacting in dollars, it will be because they no longer care about america’s military support, or because they know america is so desperate they’d give the military support anyway.
You’re right to a degree. Those three complicated allies have the strength and relevance to support independent policies. But they are not out of US control, and the US has and will throw allies like Germany and the EU under the bus when it serves US priorities, ie provoking Russia. Even the Saudis aren’t sacred, Israel maybe still for now.
America’s foreign policy to other countries has everything to do with its relations to the Israel.
Thanks for correcting my misunderstanding. I thought tightening was referring to the same tightening as is he’s l here in the US. But I was wrong.