What Is the Iraqi Central Bank?
The Iraqi Central Bank, 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.
- The Central Bank of Iraq (CBI) is the national bank of Iraq, charged with carrying out monetary policy and supervising the country’s banking system.
- The CBI was established in its current form in 2004, subsequent to the U.S. invasion of Iraq, and maintains its currency pegged to the U.S. dollar.
- The CBI has faced special challenges over the years, including looting of banks by ISIS and fluctuations in the price of oil critical to Iraq's economy.
Understanding the 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 to 2017 as well as fluctuations in 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.
Changes in oil prices are also a challenge. Oil exports represent Iraq's primary source of foreign currency. The decline in oil prices from 2015 to 2016 was the driving force behind the fall in Iraq's foreign reserves, by $9 billion from $54 billion at end-2015 to $45 billion at end-2016. In early 2020, amid the global slowdown in economic activity during the COVID-19 pandemic, world oil prices collapsed, putting economic and social conditions in the war-torn country under extreme pressure. Total Iraqi oil revenue fell by almost half from $5.5 billion in Feb. 2020 to $3 billion in March.
The CBI manages exchange rate policy for the Iraqi dinar, which is pegged to the U.S. 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.