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Iraq's Central Bank moves to strengthen dinar against US dollar

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The plan includes a measure to buy more Chinese yuan. Other states are also considering using the yuan more.

December 24, 2022

Iraq's Central Bank has a new plan to increase the value of the Iraqi dinar against the US dollar.

The bank released a statement this week outlining the plan. The measures are as follows:

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• Reducing the US dollar to Iraqi dinar exchange rate for travel or internet purchases from 1,470 dinars to 1,465.
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• Helping private banks strengthen their foreign currency reserves that are not the US dollar. The Central Bank specifically named the Chinese yuan, the euro, the Emirati dirham and the Jordanian dinar.
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• Providing options to the public for selling foreign currencies in government banks for the purpose of travel for the Hajj pilgrimage, medical treatment and study.
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What it means: For years, the official rate of the US dollar to the Iraqi dinar was $1 to 1,182 dinars. Both dollars and dinars are used in Iraq, and the rate on the street was often rounded up to 1,200 dinars to the dollar.

In December 2020, Iraq's Central Bank lowered the dinars\u2019 exchange rate to 1,470 dinars to the dollar for individuals and 1,460 for banks. The decision was due to a liquidity crisis, low oil prices and economic hardship related to the coronavirus pandemic.

Central banks often devalue their own currency in a bid to boost exports. Exporting something priced in the local currency becomes cheaper in foreign currencies. Iraq\u2019s major export, however, is oil, and oil is priced in US dollars.

Another reason a country may devalue its currency is to reduce local debt burdens. Any US dollars Iraq collects, such as via oil revenue, are now worth a larger amount in dinars. This makes more sense in the case of Iraq, since the low oil prices in 2020 led to less government revenue converted to dinars.

The Iraqi government wanted to increase its cash amount with the devaluation, the Iraqi Kurdish news outlet reported in 2020. Any US dollars that the government receives are now worth more in dinars.