The Iraqi government revised the exchange rate for the US dollar to the Iraqi dinar Tuesday.
The Central Bank of Iraq decided to amend the exchange rate to 1,300 dinars to the dollar, down from the previous rate 1,460 dinars. The decision was approved by Iraq’s Council of Ministers, Iraqi Prime Minister Mohammed Shia al-Sudani’s office said in a statement.
Central Bank governor Ali Mohsen Al-Alaq said the decision was made "in order to alleviate the burden of citizens," the official Iraqi News Agency reported.
Why it matters: Iraq’s official dollar-to-dinar exchange rate was set at approximately 1,200 dinars to the dollar until late 2020, when Iraq lowered the rate to 1,460 and decreased oil prices amid a liquidity crisis. Iraq depends on oil sales for revenue. Devaluing a currency can sometimes boost exports and reduce local debt burdens.
The rate became more of an issue after Sudani’s government took office in October, when illegal smuggling of dollars to Iran increased, according to Iraqi media reports. In November, the US Federal Reserve increased scrutiny over Iraqi dollar transfers out of the United States in an effort to curb dollar transfers to sanctioned Iran. The restrictions limited the dollar supply further, thus boosting the its value against the dinar.
The dinar began to trade below the official rate on the street, going for more than 1,600 to the dollar last month, leading to protests in Baghad.
The government has taken a few actions in response to the currency issue. In January, Sudani removed the head of the Central Bank.
The fall in the dinar’s value has hurt Iraqis. Devalued currencies lead to inflation for big importers like Iraq. Food prices have risen there in recent weeks, according to a poll by Al-Monitor and Premise.
Sudani said last November that he intended to increase the dinar’s value so as to alleviate pressure on Iraqis, Kurdistan 24 reported.
Know more: Sudani held a call with US President Joe Biden last week. The two discussed Iraq’s economic situation, among other issues.