Regional curbs put Iraq under currency attack

Baghdad: Iraq's central bank said it's under a "currency attack" as traders buy US dollars in daily auctions and resell them on the black market in Syria and Iran, which face hard currency shortages due to sanctions.

Demand for the greenback at the central bank auctions has risen since November to about $200 million to $300 million a day, compared with about $160 million in the prior 12 months, the deputy central bank governor, Mudher Salih, said in an interview in Baghdad on Tuesday.

Rial weakens

"Now we are checking the applications to buy dollars from the auctions more closely. We are afraid that some of it may be related to money laundering," Salih said. "We are now under a currency attack because of the regional situation."

Iranians are having trouble accessing foreign currencies due to the rial's plunge, US Treasury Undersecretary David Cohen said on December 1. The Iranian currency weakened this year after the US and allies prepared for further sanctions that may include an oil embargo, the state-run Mehr news agency reported on January 2. The allies accuse Iran of a covert plan to build nuclear weapons, a charge Iran's government denies.

Syria, Iran's regional ally, has also come under greater US, European and some Arab sanctions over a violent crackdown on pro-reform protests that began early last year. A European oil embargo is affecting Syria's revenues and giving the state far less access to foreign exchange, David Butter, regional head for the Middle East at the Economist Intelligence Unit, said December 14.

Pressure on reserves

Rising demand for dollars "is affecting our dollar-sale auction," Salih said. "This isn't in the interest of the Iraqi economy and it will suck foreign currency reserves." Foreign exchange reserves in Iraq, holder of the world's fifth-largest crude deposits, touched $60 billion this year, the most in its history, he said.

At its Wednesday auction, the central bank sold $252.25 million in notes at a fixed selling price of 1,170 Iraqi dinars for each US dollar, data on its website show.

Lowering Deficit

The country will reduce its budget deficit to 11 per cent of economic output this year from 14 per cent in 2011, deputy central bank governor Mudher Salih said. In 2013 the central bank will cut three digits from the currency, reversing a policy it introduced in the 1980s to address the government's budget deficit.

The yield on the country's six-month treasury bills fell 110 basis points to 8.2 per cent at the last auction on December 13, according to data compiled by Bloomberg. That was the lowest yield since August 2010.

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