The Banking Industry in Iraq How to receive More US dollars and bypass currency restrictions
The Iraqi private banks are still in limbo. They continue to operate with limited funds even after the Central Bank of Iraq (CBI) directed all private banks to increase their operating capitals from the previous June 2016. An Iraqi Parliament member from the Economy and Investment commission recently stated that the Iraqi private banks are operating the dollar auctions with forged invoices to import foreign commodities.
The private Iraq banks have limits that are imposed by the CBI each day in regards to foreign currency exchange. How the Iraqi banks get around this is called Letters of Credit (LC) and that allows the Iraqi banks to exchange Iraqi dinar (IQD) for foreign currency (primarily U.S. dollars.)
I’ll give you a brief explanation on what happens when a private bank wants to increase their dollar exchange beyond the CBI recommendations. Here’s a scenario; you have an Iraqi businessman that is buying materials from an Iranian manufacturer who wants to be paid in U.S. dollars, this Iraqi businessman will likely need to visit an Iraqi bank to complete the transaction. The Iraqi bank receives the documents from the Iraqi businessman detailing the purchase of say, one million dollars of materials that happens to be located in Iran. The Iraqi dinar (IQD) currency that is equaled to one million dollars is deposited inside the Iraqi bank. The Iraqi bank representative travels to the nearest Central bank currency exchange and gives the documents to the CBI representative detailing the business transaction. The Iraqi bank representative then receives the US dollars and returns back to his Iraq bank. One might think that this is all legit and that the Iraqi bank probably does this several times a day (assists Iraqi businessman.) After all, the assumption is that this is what a bank does in Iraq, to assist businessman in acquiring funds for their construction projects. The only problem is, the Iraqi businessman gave fraudulent documents to the Iraqi bank. There are no materials in Iran that he intends to purchase. It’s all a fraud and many times it’s done with full knowledge of the Iraqi bank. This is how the Iraqi banks and many foreign exchange services get around the daily limits of foreign exchange. In addition, they sometimes offer business documents to start the process of foreign currency exchange. This is just another way the banks acquire more U.S. dollars and then they turn around and sell at a higher price. The banks buy the USD at a low price and then sell the USD to the businessman or the public at a higher price.