The Iraqi Dinar revalue has been a hot topic among investors and economists for over 20 years. Will this Middle Eastern currency return to its pre-war exchange rates when one Iraqi Dinar was worth more than 3 US dollars? Today, with Iraq’s improving economy and ongoing banking reforms, the question of whether the Iraqi Dinar will revalue is still being asked in the financial markets. Investors around the world are watching Iraq’s oil revenues, GDP growth, and monetary policy to see if there are signs of a rate change.
This article examines the historical context of the Iraqi Dinar, current economic indicators, and the Central Bank of Iraq’s monetary policy to determine whether a revaluation is realistic. It also examines the conditions and timeline for such an event.
The Iraqi Dinar’s journey through history is the story of the country’s economic and political development. When first introduced in 1932 the Dinar replaced the Indian rupee and was pegged to the British pound. The currency was very stable for many years with one Dinar equal to $3.38 in 1973 before a small adjustment to $3.22.
In the 1960s and 1970s Iraq’s economy boomed with a real GDP growth of 8% and per capita growth of 4.7% which supported the Dinar’s value. But this stability started to erode during the Iran Iraq war in the 1980s. It deteriorated further after the 1991 Gulf War when UN sanctions and government policies led to hyperinflation of 448% by 1994.
The 2003 regime change was a turning point for the Iraqi Dinar. The currency had already hit its lowest level before this and exchange rates were all over the place. Market rates were fluctuating daily between 1,881 to 2,214 dinars per dollar in 2002. Two versions of the currency emerged during the transition – the “Swiss Dinar” in some areas and the “Saddam Dinar” in others.
After the regime change, several key monetary reforms were implemented:
The Central Bank of Iraq’s wire transfer system was modified. Transfers went from $180 million to $67 million after new regulations were implemented. These changes were to prevent unauthorized dollar transfers and to improve monetary control but initially created currency instability.
In recent years the Iraqi banking sector has been modernized with the Central Bank focusing on a stable monetary policy and a competitive financial sector. These are ongoing efforts to address the currency’s historical volatility and build a foundation for a future revalue.
Iraq’s economy is a mixed bag of challenges and opportunities that impact the currency’s stability. The country is extremely oil dependent with oil revenues accounting for over 99% of exports, 85% of the government’s budget and 42% of GDP.
Iraq’s GDP is expected to be around $264.1 billion in 2024, with a per capita GDP of $6,448.27. The International Monetary Fund (IMF) is expecting a 1.4% growth in 2024 after a 2.2% contraction in 2022.
This growth is mainly due to the oil sector, which is still the main driver of the economy. However, the IMF is warning of a widening fiscal deficit, which is expected to increase from 1.3% of GDP in 2023 to 7.6% in 2024, so fiscal adjustments are needed to stabilize debt and rebuild financial buffers.
The Iraqi banking sector has undergone significant modernization with several key developments:
This has resulted in a big increase in financial inclusion, the number of bank accounts increased by 10% in the first three quarters of 2024 to 11.02 million accounts. The Banking Sector Reform Project has also strengthened the regulatory framework and introduced a risk based supervision system which has improved financial stability and transparency in the sector.
Iraq has multiple international trade relationships, with oil exports being the main focus. The United States is a key trading partner, with bilateral trade reaching USD 12 billion in 2024. The European Union makes up 13% of Iraq’s total trade in goods, making it the third largest trading partner. Iraq has also increased trade with China, which is now 21% of Iraq’s exports.
Non-oil revenues are still low but increased in 2024 to 3.2% of GDP. This is a sign of progress in economic diversification. The government’s plan to expand bank branches across provinces and invest in digital financial infrastructure is a strategic move to build a resilient banking sector that supports overall economic growth.
The Central Bank of Iraq (CBI) has made significant monetary policy changes to address the economic challenges. In early 2024, the CBI reiterated its commitment to stabilize the Iraqi Dinar by keeping the exchange rate at 1,300 dinars per US dollar, which was adjusted from the previous rate of 1,450 dinars in February 2023.
The CBI’s exchange rate management has been consistent in intervening to maintain market stability. In 2024, the bank managed to keep the official rate steady at 1,300 dinars per US dollar while the market rate averaged 1,315 dinars per US dollar, resulting in an exchange rate gap of 1.2%. This is a sign of better monetary discipline and alignment with international standards.
The Central Bank has taken several measures to strengthen the dinar and stabilize currency markets:
This has boosted public confidence in the dinar. The CBI sold foreign currency worth USD 41.3 billion in 2024. The funds were allocated to increase bank balances abroad (79.5%) and cash sales (20.5%).
The CBI’s partnership with the US Federal Reserve is crucial for managing Iraq’s oil revenues, which reached USD 100 billion in 2023. These revenues are deposited in the IRAQ2 account at the Federal Reserve Bank of New York to protect it from international creditors.
Federal Reserve scrutiny of dollar transactions continued in 2024 to prevent money laundering and terrorism financing. The new electronic compliance platform introduced in 2023 has shown better results. The rejection rate was 10% in 2024. This has simplified international transactions and increased compliance among Iraqi banks.
In 2024 the CBI took another step to connect Iraqi banks with global banks. A major achievement was to expand the pilot program to allow 8 Iraqi banks to process dollar transfers through Citigroup and JP Morgan. This is a big step in modernizing Iraq’s banking infrastructure and connecting with the global financial system.
A currency revaluation needs to meet economic, regulatory and infrastructure requirements. Several conditions must be met to international monetary standards and domestic economic indicators for the Iraqi Dinar to be revalued.
A functioning international monetary system requires both nominal stability in exchange rates and domestic prices and adjustment capacity to economic shocks. Key economic indicators to watch for revaluation are:
In 2024 Iraq’s non-oil exports increased by 9% while the trade balance was positive at USD 8.4 billion due to stable oil revenues. But the broad money to international reserves ratio still needs improvement as foreign reserves was USD 99 billion and enough to cover imports for over 9 months.
The international monetary framework requires countries to meet certain standards for currency stability. Modern monetary systems focus on domestic policy direction towards growth with low inflation rather than fixed exchange rates. This is a shift from the old systems like Bretton Woods which was based on fixed exchange rates.
In 2024 the IMF praised Iraq for keeping the inflation rate at 2.5% which is in line with international standards. The CBI has avoided competitive devaluation and is complying with IMF guidelines and has increased its credibility in the global financial system.
Banking sector modernization is a prerequisite for currency revaluation. Current global payment systems face challenges with cross border transactions which cost 5.8% on average and that’s around USD 38 billion per year going to intermediaries.
Iraq’s banking system needs:
In 2024 Iraq made progress by implementing ISO 20022 for more efficient cross border payment systems and adopted distributed ledger technology (DLT) in pilot programs. 27% of global banks are using DLT and Iraq is joining its regional peers in the testing phase for blockchain based payment networks. The CBI also partnered with SWIFT to modernize its transaction systems and is in line with international best practices.
The CBI should continue to strengthen its supervision and modernize payment infrastructure to meet international standards. This modernization includes developing robust risk management and clear governance for new financial technologies.
Recent economic data shows Iraq’s journey to currency revaluation is complex. Iraq’s GDP was volatile, growing 7% in 2022 and -2% in 2023, and that’s a big challenge to achieving a stable economy. For 2024, the IMF is projecting a recovery of 1.4%, which means still a big challenge to achieve a stable economy.
The short term outlook is mixed. Iraq’s fiscal position is still under pressure. The budget deficit is projected to be 5.2% of GDP for 2024-2025. The fiscal break-even Brent-equivalent oil price is USD 85 per barrel in 2024, which means that government finances will still be under pressure due to fluctuating oil prices.
The banking sector infrastructure is still under developed, state owned banks manage around 85% of the total assets. The gap between official and parallel exchange rates has widened, the parallel rate reaching 1,700 IQD/USD in 2024 which is 25% weaker than the official rate. This is a sign of market uncertainty and challenge to maintain currency stability.
Iraq’s long term prospects depend on several structural reforms:
In 2024 non-oil revenues improved slightly to 3.5% of GDP which means gradual progress in diversification. The World Bank says Iraq’s growth potential is moderate if these reforms are implemented. But external shocks especially oil price volatility is a big risk – every USD 10 per barrel change in oil price affects the budget by 4.5% of GDP.
Critical elements influencing potential currency revaluation include:
The Central Bank of Iraq has made progress in adopting ISO 20022 and expanding electronic payment systems, which will increase transaction efficiency by 15% in 2024. Number of bank accounts also increased by 10% to 11.02 million.
The IMF says foreign exchange market volatility and reduced oil production affected Iraq’s growth. Foreign reserves reached USD 99 billion in 2024 which is 10 months of imports, a cushion against external shocks. But the structural imbalances in the economy including private sector growth is still an obstacle to currency stability.
Recent geopolitical tensions added another layer of complexity to revaluation. Regional conflicts and domestic protests created market uncertainty which will affect the timeline of any big revaluation. The CBI is still working to close the gap between official and market exchange rates but progress is limited due to structural imbalances in the economy.
The question of revaluation of the Iraqi Dinar is still uncertain. Some think that Iraq’s economic recovery and oil wealth will lead to revaluation but there is no evidence to support that. The CBI has not announced any big revaluation and if it happens it will be gradual not sudden.
The “deletion of zeros” means the proposal of Iraq to redenominate its currency by removing three zeros from the dinar. This is to simplify transactions and stabilize the economy but it doesn’t mean change in the value of the currency. Redenomination will make the currency easier to use domestically but not equivalent to revaluation that will increase the exchange rate to USD.
The Iraqi Dinar exchange rate to USD is stable for years and managed by the CBI. Currently it’s around 1,300 IQD to 1 USD. This rate has seen small adjustments but no big revaluation and still reflects the current economic situation in Iraq.
Investing in Iraqi Dinars is highly speculative and risky. The dinar is not traded widely on the global forex market, and high transaction costs plus limited liquidity make it a tough investment. Some investors hope the dinar will appreciate, but experts say it’s based on speculation, not economic fundamentals.
People buy the Iraqi Dinar because of speculation of revaluation. Some think Iraq’s oil wealth and future growth will increase the value of the currency. But, these investments are risky and often based on misinformation or over-optimism. Investors should do their own research and be cautious of guaranteed returns.
The value of Iraqi Dinar is affected by oil revenues, political stability, foreign investment and economic reforms. Iraq’s dependence on oil exports makes its economy vulnerable to oil price fluctuations and corruption and political instability hinders growth. Until these challenges are addressed the chance of a big increase in dinar value is slim.
Despite banking reforms and monetary policy changes the revaluation of Iraqi Dinar faces big challenges. The value of the currency is still tied to Iraq’s oil based economy, banking sector modernization and ability to maintain stable economic indicators.
For revaluation to happen, Iraq needs consistent growth, less dependence on oil, better banking infrastructure, and adherence to international financial standards. Right now, the gap between official and parallel rates and structural economic problems make revaluation unlikely in the near future.
Investors and observers can follow dinarit.com for updates on Iraqi Dinar. The timing of revaluation will depend on Iraq’s implementation of reforms and achieving economic stability.
Progress is being made, especially in banking modernization and anti-money laundering, but there is still a lot of work to be done. Iraq needs to focus on diversifying the economy, strengthening financial institutions, and achieving political stability. That will take time and consistent effort and require patience and a long-term perspective.
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