Iraq's Dollar Dilemma: Halt in Cash Shipments Had Minimal Economic Impact

The US halted dollar cash shipments to Iraq for about three months in response to the Iran war. However, this move was not as significant as it seemed, according to a recent analysis by the Atlantic Council.

One misconception is that the halt deprived the Iraqi government of its own oil revenues held at the Federal Reserve Bank of New York (FRBNY). In reality, Iraq's dollar accounts at the FRBNY are structurally different and linked through the conversion of oil revenues to dinars. The Central Bank of Iraq (CBI) withdraws cash dollars from one account and has them flown in regular shipments throughout the year.

The total amount withheld was estimated to be around $1 billion-$1.5 billion, but this represents a relatively small share of Iraq's economy. In fact, between March and June, the CBI sold $18.3 billion from its foreign reserves to Iraqi businesses and individuals via banks for cross-border transactions.

The value of the dollar against the Iraqi dinar in the parallel market remained flat between March and July, suggesting there was no panic demand for dollars among Iraqis. The broader data suggests that the withholding of dollar cash shipments had little to no meaningful economic impact.