What is the Iraqi Central Bank

The Iraqi Central Bank, more formally the Central Bank of Iraq (CBI), is the national central bank of Iraq. As such, it is responsible for domestic monetary policy management as well as supervision of the financial system. It was established as Iraq's independent central bank by law on March 6, 2004. The CBI has its head office in Baghdad, and four branches in Basrah, Mosul, Sulaimaniyah and Erbil.

BREAKING DOWN Iraqi Central Bank

The main objectives of the CBI are to ensure domestic price stability and develop a stable and competitive market-based financial system. In fulfilling these objectives, the CBI aims to support sustainable growth and employment in Iraq. In order to meet its objectives, the CBI undertakes the following main functions:

  • Implements Iraq's monetary policy and exchange rate policy
  • Manages and holds Iraq's gold and foreign exchange reserves
  • Issues and manages the national currency of Iraq, the Iraqi dinar (IQD)
  • Oversees the payment system and regulates and supervises the banking sector

The CBI has faced challenges in managing policy, including the ISIS insurgency in parts of the country from 2014 as well as falling oil prices. ISIS caused some severe financial disruptions: The CBI said that ISIS had looted approximately $800m worth of currency from banks in the country over the past few years (most of it denominated in Iraqi dinars), including from the Trade Bank of Mosul which is the main institution Baghdad uses for trade and financing. The decline in oil prices was the driving factor behind the fall in Iraq's foreign reserves, by $9bn from $54bn at end-2015 to $45bn at end-2016.

The CBI manages exchange rate policy for the Iraqi dinar, which is pegged to the US dollar. The IMF describes the peg as a key anchor for the economy (it is partly the USD peg that has resulted in sustained low and stable inflation in Iraq, around 2% average for the past few years).

The IMF does highlight some ongoing challenges for the CBI, including the need to implement measures designed to prevent money-laundering, counter terrorist financing and strengthen anti-corruption legislation. Deficient anti-money laundering and terrorism financing measures mean that Iraq is still on the Financial Action Task Force list; it is at risk of being blacklisted absent sufficient progress, which would affect correspondent banking relationships.

The IMF also recommends the CBI strengthen financial sector stability through measures to bolster bank supervision and proceed with plans to restructure the state-owned banks that dominate the banking system.