Iraq Central Bank head says dinar revalued to control inflation

ERBIL, Kurdistan Region - The recent revaluation of the Iraqi dinar is aimed at ensuring that inflation does not impact the ability of citizens to purchase goods, the head of the Iraqi Central Bank told Rudaw on Tuesday. 

Iraq earlier in February restored the exchange rate of the IQD-USD to 1,300 per dollar, the highest value of the dinar since 2020, amid a depreciation of the dinar leading to a surge in prices of basic goods and protests by Iraqi citizens. 

“The main reason is the rise of inflation, and we don’t want to prevent the citizen [from purchasing goods] especially as the average prices rise,” Ali Mohsen al-Alaq, governor of the Iraqi Central Bank, told Rudaw’s Diyar Kurda during an Iraqi delegation visit to Washington. 

However, despite the official rate of the IQD gaining value, the currency markets still sell the dinar at around 1,550 to $1, a stark difference from the official rate of 1,300 set by the Central Bank. 

“The official rate should not exceed 1,300 IQD in the markets. We do not see any reason or notion to sell the dollar higher than this price, as long as the Central Bank is committed and dedicated to providing the dollar at the official price,” Alaq said, calling on exchange markets to avoid illegitimate operations and to sell the dollar at the official price. 

Alaq defended the recent revaluation by assuring that the dinar enjoys a strong number of backup options and added that the value set by the Central Bank is a “realistic value and not made-up.” 

“The main goal is to stabilize the prices.” 

In January, the value of a dollar was placed at 1,750 IQD in the currency markets of Iraq and the Kurdistan Region - the highest exchange rate during the depreciation.

The drop of the Iraqi dinar value was attributed to corruption, smuggling dollars out of Iraq, and pressure from the United States.

According to Alaq, the changes that emerged from their meetings with US officials will ensure that a more careful auditing process is executed for Iraq transactions and that the platform for transferring funds internationally will stabilize. 

Iraqi Prime Minister Mohammed Shia’ al-Sudani - who has vowed to control the unstable exchange rate - sacked the governor of the country’s Central Bank in late January, replacing Mustafa Ghalib Makhif with Alaq as protests in Baghdad ensued after prices of goods surged.

Iraq’s public servants are particularly affected with the instability in the exchange rate, as they continue to suffer with a reduced salary from the drop in currency value. 

The Iraqi Central Bank in late 2020 devalued the dinar against the US dollar by 22 percent, dropping it from 1,182 IQD to 1,450 IQD and sparking public outrage. The devaluation came in an effort to combat a national liquidity crisis and bring in much-needed cash to the government’s coffers.