Iraq devalues dinar to ease cash crunch, leaving traders in limbo
Summary
The Iraqi government lowered the value of its currency, the dinar, against the US dollar to address financial problems caused by disruptions in oil exports. This change has created uncertainty and losses for traders who buy goods in dollars but sell them in dinars.Key Facts
- Iraq devalued the dinar by about 15%, changing the official exchange rate from 1,320 to 1,520 dinars per US dollar.
- The devaluation helps the government get more local currency from oil revenues to pay public salaries and expenses.
- Iraq’s oil exports, which fund most government revenue, were disrupted by the US-Israeli war on Iran and the Strait of Hormuz crisis.
- Traders face losses because imported goods cost more in dinars, but they must sell goods within Iraq in dinars, not dollars.
- Some traders have stopped buying and selling until prices stabilize.
- The Iraqi government inherited a large public debt and must find ways to cover about $6.7 billion in monthly expenses.
- Options to address the financial crisis included salary cuts, delayed payments, or taking foreign loans, but the government chose devaluation.
- Iraq’s foreign currency reserves fell from $106 billion to about $80 billion amid the crisis.
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