Dollar restrictions weigh on Iraq daily life

In Iraq's southern city of Basra, Al-Harith Hassan has been struggling to withdraw his salary in dollars for months as the government tries to curb the country's addiction to US currency.

"When we go to withdraw our salary, they only give us a fraction of it, in instalments," said Hassan, who is paid in dollars for his oil field logistics job.

Oil-rich Iraq is hardly short of dollars -- it has foreign currency reserves of more than $100 billion (93 billion euros).

But in its fight against a booming currency black market, Baghdad has imposed ever-tighter restrictions on the use of American bucks.

For people like Hassan, this can mean a severe cut in his earnings. 

He used to withdraw his money and change it at semi-tolerated exchange shops for rates up to 1,600 dinars per dollar. 

But increasingly, he says he can only withdraw his cash in dinars at the official rate of 1,320 dinars per dollar. The banks and central bank have traded blame for who is imposing the new restrictions.  

"This is a problem. It means that our salary is losing 20 percent of its value," said Hassan. 

More restrictions are coming as the government tries to stop dollars dominating the economy.

From January, Iraq's central bank will require every commercial transaction to be made in dinars. Existing US currency deposits will still be accessible in dollars, but new money wired from abroad will only be available in dinars, at the official rate. 

'Illicit trade'

One of the main factors feeding the demand for foreign currencies in Iraq is "the smuggling of US dollars to countries and entities facing US sanctions, including Iran and Syria", said Hayder al-Shakeri, a researcher at the Chatham House think-tank.

Shakeri also noted the "illicit trade" of certain highly taxed goods, such as cigarettes.

Prime Minister Mohamed Shia al-Sudani acknowledged in September that sanctions preventing dollar transfers to Iranian banks had driven Iraqi traders to the black market.

Iraq and Iran's central banks were working on a mechanism to regulate such trading, he said.

In late November, the government announced steps to encourage importers of goods like cigarettes, cars, gold and mobile phones to use official channels to obtain dollars.

And, at least officially, the Hawala over-the-counter money transfer system, no longer transfers money in dollars.

'Monetary sovereignty'

A year ago, Iraq adopted the international electronic transfer system known as SWIFT in order to monitor dollar usage, help tackle money laundering and ensure the respect of international sanctions.

In February, the prime minister said the new regulations had cut foreign currency trades from around $200-300 million per day to $30-50 million.

"We are consolidating our monetary sovereignty," Mudher Salih, financial policy adviser to the prime minister said.

"We cannot accept dealing with two currencies within the national economy", he told AFP.

Seeking to stave off inflation, the government allows importers to obtain dollars at the official rate in key sectors like food, medicine, and construction.

And it is encouraging banks and importers to favour alternative currencies like the euro, Emirati dirham, and Chinese yuan, to reduce dollar demand.

For now, the gap between the official and unofficial dollar rates is still causing headaches for authorities. 

Police recently caught several people at Baghdad airport as they were planning to travel with dozens of debit cards and use them abroad to withdraw thousands of dollars at the official rate, which they could sell for a profit on the Iraqi parallel market.