For months, the United States has restricted Iraq's access to its own dollars, trying to stamp out what Iraqi officials describe as rampant money laundering that benefits Iran and Syria. Iraq is now feeling the crunch, with a drop in the value of its currency and public anger blowing back against the prime minister.
The exchange rate for the Iraqi dinar has jumped to around 1,750 to the dollar at street exchanges in some parts of the country, compared to the official rate of 1,460 dinars to the dollar.
The dinar's deterioration comes even though Iraq's foreign currency reserves are at an all-time high of around $100 billion, pumped up by spiking global oil prices that have brought increasing revenues to the petroleum-rich nation.Since the U.S. invasion of Iraq in 2003, Iraq's foreign currency reserves have been housed at the United States' Federal Reserve, giving the Americans significant control over Iraq's supply of dollars.
In other cases, the currency is smuggled across land borders under the protection of armed groups that take a cut of the cash, said Tamkeen Abd Sarhan al-Hasnawi, chairman of the board of Mosul Bank and first deputy of the Iraq Private Banks League. He estimated that as much as 80% of the dollars sold through the auction went to neighboring countries.
Unable to get dollars at the official price through banks, he said, traders turned to the black market to buy dollars, causing the price to rise. The new U.S. restrictions come at a time of increased tensions between the U.S. and Iran. Negotiations over a nuclear deal are floundering. Washington has imposed new sanctions and condemned Iran for cracking down on protesters and providing drones for Russia to use in Ukraine.
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