Iraq’s De-Dollarisation Efforts and Diversification

Iraq is making a bold move to reduce its reliance on the US dollar. In a recent effort to boost its own currency, the Iraqi dinar (IQD), the government outlawed the use of USD for local transactions in May 2023. This follows the earlier decision to permit trade with China to be settled in the Chinese Yuan (CNY), further strengthening ties with the Asian giant.

Several factors are driving Iraq’s de-dollarisation efforts. A thriving black market for USD transactions has fuelled illegal activities and tax evasion, while also increasing demand for foreign currency. By restricting USD usage within the country, Iraq aims to crack down on these illicit practices and regain control over its financial system. Additionally, banning cash withdrawals in USD seeks to curb the black market’s ability to purchase dollars.

The dominance of the US dollar extends beyond economics. Any shift in US-Iraqi relations can significantly impact the dollar exchange rate in Iraq, highlighting the potential for the US to use the dollar as a tool for exerting influence. This is a concern shared by other countries like China and BRICS members, who are also advocating for de-dollarisation to lessen US economic and political control.

However, Iraq’s path to de-dollarisation is not without challenges. Public confidence in the dinar remains low, making individuals hesitant to switch from the perceived stability of the USD. Additionally, transitioning entirely away from the established global reserve currency will require a robust financial system and a strong Iraqi economy.

Looking ahead it will be interesting to see how successful Iraq’s efforts will be in boosting the IQD, and how China and US respond to a shift in the global currency dominance.

Only time will tell how effective Iraq’s de-dollarisation efforts will be. Nevertheless, this bold move reflects a growing global trend of countries seeking to lessen their dependence on the US dollar and establish more diversified economic partnerships.