BAGHDAD — Iraq’s Cabinet and the Central Bank of Iraq (CBI) officially devalued the Iraqi Dinar, adjusting the exchange rate from 1,300 to 1,520 dinars per U.S. dollar at the official end-user window.
The decision has sparked widespread public anxiety and political backlash in parliament, with market exchange rates spiking above 1,680 dinars per dollar and wholesale markets briefly shutting down.
Why Did Iraq Devalue Its Currency?
Iraq relies on oil revenues for over 90% of its state budget.
Maximizing Local Revenues: Because oil is exported in U.S. dollars, a weaker dinar gives the Finance Ministry more local currency for every dollar earned.
This immediately boosts the government's cash flow to cover public sector salaries, pensions, and state spending. Precaution Against Regional Crisis: Regional conflict and shipping disruptions in the Middle East have heightened economic risks, prompting Baghdad to adopt "advance precautions" to safeguard foreign exchange reserves and maintain government liquidity.
Encouraging Domestic Production: The Central Bank argues that adjusting the exchange rate will make foreign imports more expensive, thereby incentivizing local industries, agriculture, and non-oil investments over time.
Why Are Iraqi Members of Parliament (MPs) Against It?
The decision faced swift resistance across parliamentary blocs, with lawmakers summoning the Finance Minister and the Central Bank Governor to face questioning:
Surging Inflation & Household Burden: Iraq relies heavily on imported food, medicine, and consumer goods. MPs argue that devaluation reduces the purchasing power of citizens—effectively slashing public salaries in real terms while driving up everyday living costs.
"Citizen's Pocket" Solution: Lawmakers criticized the administration for using currency devaluation as an easy fix for budget mismanagements, stating that the public should not pay for fiscal deficits.
Parallel Market Volatility: Instead of narrowing the gap between official and black-market exchange rates, the decision triggered immediate panic in currency exchanges, pushing informal street rates even higher.
Demand for Reversal: Several MPs have begun gathering signatures to demand a vote aimed at blocking or reversing the rate hike.
