Recently, there was a Reuters news article with a headline titled, ‘Iraq to boost retail banking via mobiles, Internet.’ Upon reading that most people would naturally assume that this is good news for the Iraq banking sector. Many people perceived this as ‘huge’ news and have even tried to convince others of the same. What some need to understand is that, the people with this thought process just do not fully understand the banking system as it is here in Iraq. If they did, they would not had perceived this news as ‘huge’.
These individuals are the same people that also claim that Iraq does not have a tradable international currency (which Iraq does). At some point in time, hopefully in the near future, it will be good for the banking system, but that’s only when they they get the single payer system in place. It’s one thing to have it constructed and installed, training is another. If they are lucky, they will have it completed in the banking system by the end of the year. It will take them an additional 18 months to complete the training and get acclimated to it.
In case some of you are wondering how the banks in Iraq will transfer funds outside of Iraq, It will be by correspondent banking agreements. There are several banks that have correspondent banking agreements with foreign banks outside of Iraq. These Iraqi banks use the foreign banking system (SWIFT) to facilitate transactions abroad. The Iraqi bank has no single payer system that conducts the due diligence to investigate where the funds are exactly coming from. Keep in mind that there are Anti-Money Laundering Laws (AML). In Iraq the AML penalties are very harsh on the banks and on any individuals. The Iraqi banking sector is seeking ways to get away from the correspondent agreements. They want to stop criminals from funneling money, independently investigate exactly where the funds being sent or received are coming from, as well as who actually owns the money.
There is a caveat in that the Iraqi Parliament must pass legislation to even use this particular payment system. The CBI is not as independent as people think, they have to get the permission of the Iraqi government on nearly every move they make. Such as, 1.) Parliaments vote on the new Iraqi dinar currency, 2.) reviewing of the CBI Report on Re-Denomination Revaluation reports, and lastly, Ministry of Finance giving the approval of banking licenses.
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