More than 85% of Iraq’s cash is outside the banking system, TBI head says

BAGHDAD — More than 85% of Iraq’s cash supply sits outside the banking system, much of it held in people’s homes, the head of the state-owned Trade Bank of Iraq said.

“This represents a very large problem because banks need the money to return to the banking system so they can perform their role in the economic process,” Ali Abdul Ridha al-Alwan told journalists. Cash held outside banks breaks the liquidity cycle, he said, describing a chain running from institutions injecting liquidity through to salaries and spending: “Any disruption in one of the links in this chain may cause the process to stop or falter.” He put the cause down to a lack of public confidence built up through decades of political and economic crises.

On transactions between Iraq and Iran under sanctions, Alwan said several bodies handle the file — financial authorities, the foreign ministry, the Central Bank and TBI — and that “the bank will always be a supporting link.” He said TBI works to explain its procedures to international banks and that measures are meant to meet international standards rather than target customers, adding that tests and questionnaires run by international banks in recent years found Iraqi banks still had work to do on compliance.

The Central Bank issued a directive on Aug. 29 requiring due diligence on accounts linked to politically exposed persons, and sources told 964media that banks have been told to build databases covering politicians and relatives to the third degree, drawing on Financial Action Task Force recommendations and the U.S. Treasury.