Iraqi dinar trembles as US bars private banks from dollar transactions

Since late last year, the Iraqi government has been trying to control the exchange rate, to no avail

Protesters gather in front of the Central Bank of Iraq in Baghdad on July 26 as the dinar plummets against the US dollar. AP

The Iraqi dinar dipped sharply against the dollar on Wednesday, a few days after the US placed sanctions on Iraqi private banks for allegedly helping to transfer the greenback to Iran.

On Thursday, the Central Bank of Iraq announced that the US barred 14 Iraqi private banks from conducting dollar transactions after finding irregularities in transfers from last year.

The CBI said the banks had the freedom to use the Iraqi dinar and other non-US dollar currencies.

Over the past two days, the market rate jumped from 1,470 dinar to the dollar to 1,580 dinar, causing a chaos in the local market as the country depends heavily on imports.

Dozens of people protested outside the CBI headquarters in Baghdad on Wednesday, demanding immediate solutions from the government.

The representatives of the sanctioned banks denied any irregularities in their work, calling on government to intervene.

“We call on the brothers at the Iraqi government to use all the available means to undo the damage which occurred to us specifically, and to the Iraqi banking sector in general,” banker Haider Al Shamma said, reading from a statement on behalf the 14 banks.

"Forcing sanctions on a third of the Iraqi private banks from conducting dollar transactions will have negative consequences not only on the value of the Iraqi dinar against the US dollar, but it will have a very big impact on foreign investments.

"Our banks have nothing to do with political tensions but are independent financial institutions."

Since late last year, the Iraqi government has been trying to stop a currency crisis that has led to an increase in the price of goods, and led to street protests.

The Iraqi dinar has experienced volatility after the US tightened procedures for international transfers, with some blaming Washington for the currency's problems.

The US has complained that the dollar is being funnelled to Iran, Syria and Lebanon through the foreign currency auction run by the CBI. Iran and Syrian are under US sanctions.

Since then, the Federal Reserve Bank of New York has applied strict measures on requests for international transactions from Iraq, rejecting many and delaying others, leading to increased demand for the US dollar in Iraq.

It has also blacklisted several Iraqi banks suspected of money laundering and carrying out suspicious transactions.

The Iraqi government blames the US for the dollar chaos. It has taken a series of unsuccessful measures to contain the public's anger.