Why has Iraq devalued its currency, and why are some MPs against it?

On Wednesday, Iraq announced it was devaluing its currency, altering the official exchange rate from approximately 1,300 dinars to the US dollar to 1,500 dinars. This change was made by the country's central bank after a Cabinet meeting the previous night, aiming to address financial, economic, and monetary needs. The previous exchange rate had been in place since 2023.

Prior to this, there had consistently been a disparity between the official rate and the market rate available to exchange shops. This gap had widened over recent months due to the US-Iran war, which has occasionally escalated into Iraq, and the disruption of shipping routes in the Strait of Hormuz.

Iraq's economy is heavily reliant on oil exports, with the majority of these exports previously shipped through the Strait of Hormuz. However, since the onset of the war, Iraq has had to resort to an overland route through Syria for oil shipments, which proves to be more costly and inefficient. Prior to the official devaluation, the unofficial exchange rate had surged to over 1,600 dinars to the dollar.

Following the announcement of the new official rate, the market rate promptly increased to over 1,700 dinars to the dollar. Consequently, under the new official rate, Iraq's Finance Ministry will sell dollars at 1,500 dinars each, whereas consumers buying from banks will pay 1,520 dinars for each dollar.