Governor of the Central Bank of Iraq to Al Jazeera Net: We are constantly reviewing the deletion of zeros from the dinar, and there are no restrictions on our balances in America

​Baghdad - The Central Bank of Iraq has reduced its reliance on the US dollar in commercial transactions, according to the Governor of the Central Bank of Iraq, Ali Mohsen Al-Alaq, adding that the project to remove zeros in Iraq is subject to continuous review and study at the bank.

Countries remove zeros from their currency to revalue the national currency and simplify financial transactions. This is done by removing a specific number of zeros from the nominal value of the currency, making it appear less inflationary and more stable.

Al-Alaq confirmed, in an extensive interview with Al Jazeera Net, that the Central Bank has responded to global economic challenges such as rising energy and raw material prices, by amending some monetary policies in line with the international situation and to enhance confidence in the Iraqi dinar and prevent a sharp decline in its value.

He also stressed that the Central Bank of Iraq has increased its holdings of foreign exchange reserves and gold to enhance the country's financial position and financial stability in order to enhance its ability to confront potential economic crises. These are the details of the dialogue:

What steps have you taken to address the crisis of the dollar's rise against the Iraqi dinar and reduce the gap between the official price and the black market price?

The Central Bank of Iraq has established new mechanisms to cover local banks' accounts with their senders in other currencies (Chinese yuan, Indian rupee, euro and UAE dirham) in addition to the dollar, which has reduced reliance on the US currency in commercial transactions for the clients of these banks, with the Central Bank seeking to withdraw excess liquidity in the economy that puts pressure on the exchange rate and to prevent the exported currency from growing in an undesirable manner.

What is the status of the country's foreign reserves?

Foreign exchange reserves are the tool used by all central banks to maintain the stability of the local currency exchange rate against foreign currencies, as well as to reduce exposure to external crises by maintaining liquidity in foreign currency to absorb shocks in times of crisis.

The Central Bank of Iraq has a level of reserves that enables it to achieve this stability and provides it with sufficient flexibility to meet the demand for foreign currencies to meet the requirements of the balance of payments and other obligations.

According to the latest data on the level of foreign reserves adequacy, the foreign reserves of the Central Bank of Iraq cover 83.62% of the money supply in its broad sense, i.e. covering the cost of importing 15 months, while the global standard rate is 20% covering 6 months of imports.

However, foreign reserves management faces global and local challenges according to the economic nature of each country and the economic and geopolitical conditions it is going through.

What are the most prominent contributions of the Central Bank of Iraq in supporting the Iraqi economy?

The Central Bank responded to global economic challenges, such as rising energy and raw material prices, by amending some monetary policies in line with the international situation and to enhance confidence in the Iraqi dinar and prevent a sharp decline in its value, as the Central Bank raised interest rates to confront inflationary pressures resulting from changes in global prices and local demand, and issued new instructions to Iraqi banks to control cash liquidity.

The Central Bank of Iraq increased its holdings of foreign exchange and gold reserves to enhance the country's financial position and financial stability.

The bank also launched programs and initiatives aimed at increasing financial inclusion, including enhancing the spread of digital banks and online financial services, in addition to the Central Bank of Iraq's contribution to sustainable development.

It also played an important role in financing economic and development projects by providing soft loans and special financing programs aimed at supporting productive sectors while continuing to finance small and medium enterprises.

Has the banking sector in Iraq been affected by US sanctions imposed on some banks?

The sanctions imposed on banks are related to the decision to ban dealing in dollars, as banks were not included in the sanctions list issued by the Office of Foreign Assets Control, so the banks' activities continue, according to the applicable contexts and in all currencies except the dollar.

Regarding the situation of the Iraqi banking sector, it is experiencing a state of stability, as government banks still account for approximately 79% of the assets of the total banking sector, compared to 21% for private banks.

Are there any restrictions on the bank's use of its balances in the United States?

There are no restrictions on our balances in the United States, taking into account the application of international standards to combat money laundering and terrorist financing in foreign transfers.

What are the reasons for the low rate of use of bank cards in Iraq compared to neighboring countries? What are your steps to overcome this situation?

There are main reasons behind the low use of bank cards in Iraq, most notably the preference of many Iraqis to use cash in their daily transactions due to prevailing customs and traditions, in addition to the limited spread of banking services, as a large percentage of the population, especially in rural areas, remains unconnected to banks.

Finally, the lack of financial awareness plays a major role in the hesitation to use bank cards.

To address these challenges, we are working to improve and expand the digital infrastructure. In this context, the Central Bank of Iraq has begun establishing a national electronic payment company to encourage the banking and non-banking sectors and public institutions to develop this infrastructure.

The Central Bank, in cooperation with public and private institutions, is working to organize awareness campaigns aimed at increasing the public's knowledge of the benefits of using bank cards and electronic payment methods to enhance confidence in the banking system.

The bank focuses on improving security and increasing transparency, and has created a platform to manage public complaints related to the financial sector, which helps in developing strategies to address any issues facing financial institutions.

It works to encourage financial innovation by supporting the development of services such as electronic wallets, banking applications, and opening digital banks. It is currently working to launch a national financial inclusion strategy that includes solutions to most of these challenges, in addition to financial awareness programs targeting various segments of Iraqi society. All of this has led to an increase in the number of bank cards in 2023 to 19.75 million cards and the number of bank accounts to 13.3 million accounts

Where has the digital banking project reached?

The Central Bank of Iraq issued licensing controls for digital banks in Iraq during May of this year, and is in the process of studying the submitted applications in light of the requirements for digital banks, taking into account the risks and determinants related to digital banks, especially with regard to cybersecurity risks.

The main objective of licensing digital banks is to keep pace with developments in the banking environment, as well as to provide diversity in the provision of banking services in light of technological progress that contributes to enhancing financial inclusion by facilitating customers' access to banking services.

In light of the International Monetary Fund's statement that internal imbalances in Iraq have worsened due to the large financial expansion and the decline in oil.. How do you view its demands to correct the financial situation?

Naturally, the country's dependence on rentier resources leads to bearing the costs of external shocks that are beyond control, represented by negative oil price shocks, and because the country needs more spending than any stable country due to the circumstances it has gone through during decades of wars and destruction, which requires increasing spending on infrastructure, which is the main pillar of the shift towards economic diversification. All of this has led to pressure on the capabilities of public finances, especially the revenue side, and thus resorting to borrowing, so we agree with the International Monetary Fund regarding reforming the public finance situation, and the positive effects of this that support the independence of monetary policy in achieving its primary goal, which is stabilizing the general price level by controlling liquidity levels.

Will deleting zeros from the dinar destabilize the financial situation in Iraq?

The process of deleting zeros from the currency means replacing a new currency with the old currency in order to simplify the accounting process between consumers, and is often resorted to by countries that suffer from high inflation and have become unable to deal with paper currencies of very weak value.

Many believe that the process of deleting zeros is an economic and monetary reform process and is resorted to in cases of high inflation and currency collapse, which reduces the feeling of economic collapse (a monetary illusion process), but this process, if it is not supported by real economic factors and accompanied by radical reforms, becomes negative.

The project of deleting zeros in Iraq is subject to continuous review and study at the Central Bank of Iraq, taking into account the existence of an issued currency volume that exceeded 100 trillion dinars after it was 6 trillion in 2004, the year following the exchange of the currency that was undesirable and poor in quality.

In addition to a wide cash supply approaching 179 trillion dinars, which requires specialized cadres, especially in the bookkeeping process, which government banks are still suffering from due to the circumstances the country has gone through.

How will Iraq's repayment of all its debts to the International Monetary Fund (IMF) reflect on the country's economic situation as a whole?

Iraq's repayment of all its debts to the IMF, which have accumulated over the years as a result of the Fund's loan programs to address the economic challenges that Iraq faced in previous years, could have a positive impact in the long term by enhancing credit and improving financial sustainability, in addition to its repercussions on the country's economic situation through:

Improving economic confidence and Iraq's credit rating and obtaining financing on better terms in the future.

Enhancing the confidence of foreign and local investors in the Iraqi government's ability to fulfill its financial obligations.

Achieving greater independence for Iraqi economic sovereignty, which makes the country less vulnerable to external pressures and interference in its economic policies.

Reducing financial pressures and reducing financial burdens, which reduces pressure on the general budget.

​Directing financial resources towards infrastructure projects, economic development and improving the ability to finance development projects.

Reducing pressure on foreign reserves, which positively affects the stability of the currency and the country's ability to cover its imports and maintain financial and economic stability.

Where have the procedures of the Central Bank of Iraq reached to localize the salaries of employees of the Kurdistan Region of Iraq?

We would like to point out that this bank has taken the necessary measures to complete the process of localizing the salaries of employees of the Kurdistan Region of Iraq in terms of providing the Federal Court with a list of banks licensed by this bank and operating in the region, and providing the infrastructure and electronic payment systems that support salary localization operations in the region, which clarifies the controls for opening a bank account and adopting an electronic signature for the same purpose.

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