The government of Iraq is struggling to control the price of the US dollar

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When Prime Minister Muhammad Shia al-Sudani entered Basra Stadium on Thursday to attend the final match of the 25th Arabian Gulf Cup, hundreds of Iraqis chanted: “Bring the dollar price down.”

The exchange rate of the US dollar against the Iraqi dinar hit 1:1.659 on Friday, its highest rate since 2004.

The rise in the dollar price started shortly after the new government took office at the end of October last year. During the previous government, the exchange rate was stable between 1,450 and 1,470 dinars per dollar.

Several reports attribute the rise to the “smuggling” of US dollars – or illegal transfers – from Iraq to Iran during the tenure of the new government, which was formed by a majority of militias and political groups close to Iran.

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An Iraqi source told Al-Monitor that US officials have raised the issue with Prime Minister Sudani several times, most recently last Monday by Brett McGurk, the White House coordinator for the Middle East and North Africa.

US ambassador to Iraq, Alina Romanowski, has been in close contact with the prime minister, holding more than a dozen meetings since the government came to power, and the exchange rate has always been at the top of her list.

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To address the problem, the Iraqi central bank banned four Iraqi banks from using US dollars: Al-Ansari Islamic Bank for Investment and Finance, Al-Qadhaf Islamic Bank for Finance and Investment, Asia Iraq Islamic Bank for Investment and Finance, and the Iraqi Investment Bank for the Middle East.

The central bank also announced it will monitor several other banks and financial organizations in an effort to stop the illegal use of dollars in Iraq.

Iran is facing a severe economic crisis due to sanctions, with the value of the US dollar against the Iranian rial recently reaching a high of 43,000 rials per dollar, the highest rate in history.

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Iraq regularly imports gas and electricity from Iran, which is exempt from US sanctions. However, Iraq is not allowed to transfer money to Iran. For example, Iraq transfers gas and electricity payments in Iraqi dinars to accounts in Iraqi banks owned by Iranians.

But given the current circumstances, Iran needs US dollars to contain rising prices and stabilize the economy.

However, the smuggling of US dollars is not limited to Iran. Iraqi militias also reportedly smuggle money into Syria and Turkey.

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