Washington (IraqiNews.com) – Iraq and the United States have agreed on a framework that would allow several Iraqi banks that have been cut off from international financial networks to gradually re-establish access to cross-border banking services, boosting confidence in the country’s financial sector and supporting the Iraqi dinar.
The agreement was reached after negotiations between Central Bank of Iraq Governor Nizar Hussein and senior US Treasury officials, following Prime Minister Ali al-Falih al-Zaidi’s visit to Washington, during which Baghdad requested increased economic and financial cooperation with the US.
According to the agreement, Iraqi banks that complete the first phase of the central bank’s restructuring and relicensing program and meet international standards for compliance, governance, and risk controls will be able to reconnect to correspondent banking networks for transactions in currencies apart from the US dollar.
Those who subsequently meet further regulatory and compliance criteria will be entitled to continue transactions in US dollars, restoring full access to international payment channels.
According to the central bank, seven Iraqi banks are presently eligible to re-enter correspondent banking partnerships in non-dollar currencies and may ultimately recover access to dollar transactions when more compliance inspections are completed.
The decision is a significant advance in Iraq’s multi-year effort to reform its banking industry, which has faced challenges due to inadequate anti-money laundering measures and concerns about illegal dollar transactions.
These limitations hampered access to foreign currency, increased the difference between the official and parallel exchange rates for the Iraqi dinar, and made trade finance difficult for many importers.
Expanding correspondent banking ties is projected to promote the flow of international commerce and investment, streamline cross-border payments, and reduce pressure on Iraq’s foreign currency market by providing banks with more access to global financial networks.
According to analysts, greater financial linkages could help boost dinar trust by enhancing the efficiency and transparency of foreign currency transactions.
The Central Bank said that the deal is part of a larger goal to modernize Iraq’s banking sector, align it with international regulatory norms, and increase involvement from global financial institutions.
It further said that Iraqi bank oversight will be enhanced, with institutions that fail to fulfill governance, compliance, or anti-money laundering criteria facing penalties such as limits on foreign banking activity or the loss of operating licenses.