Iraq to end dollar auction by start of 2025

BAGHDAD — Iraq will permanently shut down its long-debated dollar auction system, officially known as the Foreign Currency Sale Window and Electronic Platform, by the end of 2024, according to Ammar Khalaf, deputy governor of the Central Bank of Iraq.

In an interview with 964media, Khalaf dismissed any speculation about extending the auction’s operations beyond the set deadline, affirming that the decision is final. He reassured markets and consumers, noting that “the vast majority of traders have already adapted to the new system, which no longer provides direct dollar access from the central bank.”

The dollar auction system was introduced in 2003 with the aim of stabilizing the exchange rate, boosting purchasing power for lower-income citizens, and facilitating foreign trade.

Under the new system set to fully replace the auction, traders will be required to deposit their funds in Iraqi dinars at local banks that have established partnerships with foreign “correspondent banks.” These correspondent banks, working alongside U.S. financial institutions, will oversee compliance and verification procedures.

The Central Bank’s role will be limited to reinforcing dollar reserves in the accounts of banks that successfully pass these verification measures. Financial experts believe this shift distances the Central Bank from potential manipulation or fraudulent activities and protects it from possible U. S. sanctions that could carry severe consequences for Iraq’s economy.

Khalaf emphasized, “The deadline for shutting down the platform is fixed and will not be extended. Banks have been preparing for this transition since the start of this year when Governor Ali Al-Alaq announced the closure plan.”

He added that “97% of financial transfers are already being conducted under the new system. As we enter the new year, these transfers will continue seamlessly through correspondent banking channels, and any potential decline in Central Bank dollar sales is expected to be minimal and non-disruptive.”

Khalaf also noted that “most Iraqi banks have correspondent banking relationships and have been operating under the new mechanism since early this year. Traders are unlikely to face any issues unless their funds are held in banks without correspondent partnerships.”

Regarding the potential impact of closing Iraq’s dollar auction system on the exchange rate of the U.S. dollar against the Iraqi dinar—currently trading at a higher rate in the informal market than the Central Bank of Iraq’s official rate of approximately 1,300 dinars per dollar—Financial Advisor to the Prime Minister, Mazhar Mohammed Saleh, told 964media that this measure “will not affect the stability of the dollar exchange.”

He explained that, starting Jan. 2, 2025, the Central Bank of Iraq will no longer directly sell foreign currency for external transfer transactions related to financing foreign trade and other payments to local bank clients on a daily basis.

Saleh added, “In a rentier economy like Iraq, the majority of the market’s demand for foreign currency is met through the country’s international reserves, managed by the Central Bank of Iraq. However, the mechanism has now changed significantly.”

Under the new system, local banks will purchase their required foreign currency from the Central Bank in periodic replenishment batches.

These funds will then be deposited with a correspondent bank, internationally classified with a AAA rating, which will handle the financing of foreign trade transactions and ensure compliance with global anti-money laundering regulations.