The Central Bank of Iraq (CBI) has announced it will terminate its electronic platform for monitoring and transferring US dollars abroad by the end of 2024. This move, aimed at streamlining financial transactions and aligning with global banking standards, has sparked a mixed response from experts, traders, and policymakers.

A Bold Shift in Financial Oversight

The electronic platform, established to monitor compliance and curb money laundering, has played a pivotal role in facilitating dollar transfers for years. However, experts view its termination as a "bold step" with significant regulatory and economic implications.

Critics warn that removing the platform could lead to challenges such as increased black-market reliance and inflationary pressures. Kazem Al-Shammari, a member of Iraq's Parliamentary Economic Committee, emphasized the need for stringent oversight, stating, “Licensed Iraqi banks must deliver dollars to legitimate traders and industrialists. Enhanced monitoring mechanisms will be introduced to ensure proper usage and minimize risks of misuse or sanctions.”

Parliament plans to summon the CBI Governor for discussions after its legislative recess to ensure transparency and accountability in the transition.

Simplified Transfer Framework

The new system replaces the multi-step approval process—previously involving the CBI, the Federal Reserve, an auditing company, and transferring banks—with a streamlined model. This allows direct transfers between Iraqi and intermediary banks, with continued auditing oversight.

Uday Al-Alawi, head of the Iraqi Economic Alliance, explained that while this simplifies transactions, only five Iraqi banks currently meet the criteria to operate under the new framework, potentially causing delays during the scaling phase.

Transparency and Economic Concerns

Economic experts see the transition as an effort to enhance transparency and reduce bureaucracy. However, international economic expert Nawar Al-Saadi warned that the absence of the platform’s strict oversight could increase risks of money laundering and black-market activity, potentially destabilizing Iraq’s financial system.

“Demand for dollars in parallel markets could surge, driving up exchange rates and reducing purchasing power,” said economic researcher Diaa Al-Muhsin, who called for gradual implementation and sectoral support to mitigate potential fallout.

Strategic Transition and Alternative Currencies

CBI clarified that the decision is part of a broader strategy initiated in 2023. By 2024, 95% of transactions had shifted to direct mechanisms between Iraqi and foreign correspondent banks, with only 5% relying on the electronic platform.

The bank highlighted the increasing use of alternative currencies—such as euros, yuan, and dirhams—for trade with key partners like the UAE, Turkiye, India, and China, which account for 70% of Iraq’s imports.

In a statement, CBI reassured that “the official dollar rate will reflect true economic activities, stabilizing prices and controlling inflation,” while cautioning that rates outside official channels represent attempts to circumvent legitimate pathways.

Economic Implications

The termination of the platform marks a turning point in Iraq’s financial landscape, aiming to modernize banking practices and enhance compliance with global standards. However, the path forward remains fraught with challenges, as stakeholders call for careful oversight to prevent unintended economic disruptions.