Iraqi PM replaces Central Bank governor over currency drop

Mohammed Shia al-Sudani’s move comes after a fall in value of the Iraqi dinar against the US dollar, state media reported.

Iraqis demonstrate to denounce rising prices of basic food items, in al-Haboubi Square in the centre of Iraq's city of Nasiriyah in the southern Dhi Qar province on March 9, 2022
The Iraqi dinar hit new lows on Friday, reaching about 1,670 to the United States dollar [File: Asaad Niazi/AFP]

Iraq’s prime minister has replaced the governor of the country’s Central Bank following a weekslong plunge of the Iraqi dinar, the state news agency reported.

Prime Minister Mohammed Shia al-Sudani made the move after Central Bank of Iraq Governor Mustafa Ghaleb Mukheef told him he no longer wishes to stay on the job, the Iraqi News Agency reported on Monday.

Mukheef, who was in the post since 2020, was replaced by Muhsen al-Allaq, the agency added.

In a televised address, al-Sudani said: “Today, the central bank governor’s request for discharge was approved, as was the request for retirement by the president of the Trade Bank of Iraq.”

Without mentioning names, al-Sudani added that the successors for the key posts were “known for their experience, their abilities and their integrity”.

Al-Allaq, a former central bank governor, was named “acting governor”, an indication it could be a temporary posting.

The dinar hit new lows on Friday, reaching about 1,670 to the United States dollar. The currency has lost nearly seven percent of its value since mid-November. The official rate stands at 1,470 dinars to the dollar.

The drop in the past two months has affected markets in Iraq, where many are seeing their purchasing power take a hit.

Abu Ranad, a Baghdad resident, said he has to double-check price tags every time he comes to the supermarket.

Shops that have raised the prices of goods “always blame it on the dollar exchange rate because the products are imported,” he told Al Jazeera.

“In this case, the government should pay our salaries in dollars.” he added.

US ‘scrutinising foreign transfers’

Analysts and officials say the drop in value coincides with efforts to make Iraq’s banking system compliant with the Society for Worldwide Interbank Financial Telecommunication (SWIFT) international electronic transfer system.

Muzhar Saleh, an adviser to the prime minister, previously told AFP news agency that these steps, which began in mid-November, were required to access Iraqi funds held in the US.

Iraqi banks must now make “transfers on an electronic platform, verify the requests … and if it [the US Federal Reserve] has doubts, it blocks the transfer”, he explained.

Safwan Abdulhalim, an economist, said it is clear that the US Federal Reserve is “scrutinising foreign transfers from Iraq, especially to those countries unfriendly with the US such as Iran, Lebanon, Syria, and Yemen”.

“Consequently, Iraq’s daily wire transfers from the US have been cut from $240m to only $22m on a day,” he told Al Jazeera.

Some Iran-backed politicians in Iraq have blamed the drop on recent measures by the US Treasury. The United States has sanctioned several Iraqi banks dealing mainly with Iran, which is under US sanctions, amid concerns that hard currency is being routed from Iraq to Iran. Late last year, the US Federal Reserve began taking measures on transactions to slow the flow of dollars into Iraq.

The drop comes at a time when Iraq’s foreign currency reserves are standing at a record high of around $100bn.

Al Jazeera’s Mahmoud Abdelwahed, reporting from Baghdad, said the government has launched a campaign to “combat illegal currency trading”, and pledged to hold further discussions with Washington to stabilise its exchange rate.

But still, “many Iraqis are worried about an increase in prices ahead of the holy month of Ramadan, especially in imports such as gas and wheat”, he said.

The adoption of the SWIFT system was supposed to allow for greater transparency, tackle money laundering and help to enforce international sanctions, such as those against Iran and Russia.

Officials close to Tehran, such as Hadi al-Ameri, the head of the Iraqi parliament’s pro-Iranian Fatah Alliance, say this is a deliberate policy by Washington to “starve people”.

Meanwhile, in nearby Lebanon, mired in the worst economic crisis in its modern history, five European countries are probing the embattled Central Bank governor, Riad Salameh, on allegations of laundering public money in Europe. Switzerland first opened a probe two years ago, followed by France, Germany, Luxembourg, and Liechtenstein.

Source: Al Jazeera and news agencies