The Iraqi Dinar Revaluation in 2023: The Reasons Behind the Policy Change and the Results

The revaluation of the Iraqi dinar in 2023 happened on February 7. The revaluation was approved by the Iraqi Government based on recommendations from the Central Bank of Iraq in order to strengthen the Iraqi dinar against the US dollar. The official exchange rate was set to 1,320 dinars per one US dollar, as opposed to the previous rate of 1,460 dinars per dollar.

Before December 2020, the official exchange rate for the Iraqi dinar was set to 1,182 dinars per US dollar. The Iraqi government devalued the dinar to 1,460 per US dollar in December 2020 due to the falling oil prices (oil revenue makes up almost 95% of the Iraqi government's budget) in the international market which caused a liquidity crisis, in part caused by the global pandemic.

From December 2020 until February 7, 2023, the official exchange rate had remained the same. The newest revaluation of the Iraqi dinar in 2023 came as a result of the Iraqi dinar losing over 10 percent of its value in the months leading up to the revaluation, starting with December of 2022.

The Iraqi dinar started losing value against the US dollar because the Federal Reserve Bank of New York introduced new measures to stop the flow of dollars to countries sanctioned by the US government. To digress a bit, the dollars that Iraq makes from selling crude oil go into an account at the Federal Reserve Bank of New York.

At a request from the Iraqi government, the Federal Reserve Bank of New York provides the Iraqi government with hard currency. Some of those funds are transferred to commercial banks for various official reasons. Iraq has long been accused of corruption and of funneling dollars to Iran and Syria, two countries under US sanctions.

The new measures by the Federal Reserve Bank of New York imposed stricter rules, leading to delays in the transfer of dollars. Several Iraqi banks had also been sanctioned from dealing with the US dollar. All of this had led to a shortage of the US dollar in Iraq and had caused the Iraqi dinar to lose value.

As a result of all of this, the Iraqi government had chosen to revalue the Iraqi dinar on February 7, 2023, with the intent of strengthening the dinar against the dollar. However, as of August 2023, the new policy does not appear to have been successful.

While the official rate of the dinar to the dollar is still set at 1,320:1 IQD:USD, the market rate of the dollar is higher. In mid to late July, the market rate of the dollar was approximately 1,470 dinars per dollar.

At the end of July, the value of the dinar had further fallen, to approximately 1,570 dinars to the dollar, as a result of the US Treasury Department and the Federal Reserve Bank of New York blacklisting 14 private Iraqi banks from dealing in dollars, for the same reasons the new measures were introduced by the FRBNY at the begging of 2023.

Iraqi Prime Minister Mohammed Shia' al-Sudani and central bank chief Ali al-Allaq were set to meet on Sunday, July 30, to discuss measures to stabilize the dinar against the dollar. We will keep you informed as the situation progresses.