This is What Happens When the IQD Rate Readjusts

The Upside of the IQD Increase in Value

When the Iraqi dinar (IQD) begins to strengthen against the U.S. dollar, a ripple of economic and social changes will sweep across Iraq. 

For decades, the dinar has lingered at relatively low exchange rates, reflecting the country’s post-war reconstruction challenges, political volatility, and dependence on oil revenues. As the dinar appreciates, investors, ordinary citizens, and government institutions will all benefit from tangible advantages. Yet, just as there is a bright side, there are also potential downsides that deserve careful consideration. Below, we explore how a rising IQD/USD exchange rate would reshape the landscape for each of these groups, as well as the broader Iraqi economy.

An immediate beneficiary of a stronger dinar would be Iraqi investors who hold savings and assets in local currency. For many years, uncertainty about currency stability has driven individuals and businesses to keep value in U.S. dollars or even foreign currencies, such as the euro. 

When the exchange rate begins to tilt in favor of the IQD, savers who have kept their funds in dinars will see their purchasing power grow relative to the dollar. For example, if a retirement fund or family savings of 1,000,000 dinars, formerly equivalent to roughly $ 650, now appreciates to $ 700, that extra margin feels like a direct gain for anyone depending on local-currency assets. 

Moreover, confidence in the dinar’s stability encourages more Iraqis to deposit money in local banks rather than hoarding cash at home or converting to foreign currency. When more capital remains onshore in dinars, banks experience greater liquidity, enabling them to extend more credit for new businesses, housing loans, and consumer financing. In this way, a stronger IQD creates a virtuous circle: investors feel rewarded, banks can lend more, and domestic enterprises gain access to needed capital for expansion.

Iraqi citizens at large would also feel positive effects in their day-to-day lives. As the dinar strengthens, imported goods from countries that price in dollars become more affordable. Families will notice that certain food staples, electronics, and household items are less expensive at the checkout. This drop in import-driven prices can help curb inflationary pressures that have, in recent years, eaten into household budgets. 

For someone who once felt that a bag of rice or a carton of milk was straining the monthly grocery allowance, a stronger currency translates into tangible relief. Beyond consumer goods, the cost of overseas education and medical treatment can become more affordable for families who send their children or seek specialized care abroad. In short, a rising dinar lightens the burden on Iraqi households that rely on imported products and services.

At the same time, remittances sent by Iraqis living and working overseas will be converted into more dinars when exchanged locally. Many families depend on remittances from relatives in the Gulf states or Europe, and the stronger IQD means that each dollar sent home can buy more local currency, directly translating into greater purchasing power for the recipient. 

For a family waiting on monthly remittances to cover living expenses or school fees, that might be the difference between covering tuition and falling behind. Positive sentiment toward the dinar can also encourage diaspora investors to repatriate a portion of their funds back home, whether through property purchases, small business ventures, or bank deposits, thereby further stimulating domestic economic activity.

For the Iraqi government and its fiscal outlook, a stronger dinar carries several advantages. Because Iraq’s national budget and public debt are largely denominated in U.S. dollars—especially the servicing of foreign loans—a rising IQD means the government requires fewer dinars to meet dollar-denominated obligations. 

Imagine a government payment of $1 billion in external debt. If the exchange rate moves from 1,310 IQD per 1 USD to 1,250 IQD per 1 USD, the dinar cost of that same $1 billion falls by 100 billion dinars. Those freed-up dinars can be redirected toward infrastructure projects, social programs, or debt reduction. An appreciating currency can also bolster the government’s credibility in international financial circles: lenders and foreign investors often view a stable or strengthening currency as a sign of sound monetary policy and improving macroeconomic fundamentals.

Moreover, public servants whose salaries are paid in dinars benefit indirectly as the cost of imported goods and services falls, mitigating pressure on wages. In sectors such as healthcare and education, where equipment, textbooks, and specialized pharmaceuticals are often imported, procurement becomes cheaper for the government. 

Resources previously stretched thin to acquire medical devices or school supplies can instead be devoted to expanding coverage, upgrading facilities, or adding new programs. For a government struggling to meet the needs of a growing population, each dinar saved on imports can translate into improved social services.

The Downside of the IQD Increase in Value

Yet, amid these positives, a dinar appreciation is never a universal boon. One of the most immediate downsides falls on Iraqi exporters and any domestic industries that compete with foreign producers. For decades, Iraqi oil—priced globally in dollars—has been the engine of the national economy. When the dinar strengthens, each dollar of oil revenue converts into fewer dinars, potentially reducing the domestic currency proceeds for the central government and the national oil company. 

Consider a barrel of oil sold for $70: under a weaker exchange rate, $70 might have been worth 101,500 dinars. If the dinar strengthens by about 7 percent, those same $70 may only yield 94,650 dinars. Over the course of millions of barrels exported daily, that margin becomes substantial, tightening fiscal revenues. As oil exports account for over 90 percent of government revenue, any swing in the exchange rate can ripple rapidly through public finances.

Outside the oil sector, non-oil exporters—such as local producers of dates, textiles, or agricultural goods—face stiffer competition. When the dinar’s value increases, Iraqi products become more expensive on the international market. 

Buyers in regional markets like Turkey or Iran may look to cheaper alternatives, such as Turkish textiles, rather than Iraqi-made garments. Even niche export sectors feel this squeeze: handicrafts, honey, and specialty produce lose price competitiveness. 

Sustaining export revenues may require Iraqi businesses to lean heavily on cost-cutting measures, quality differentiation, or niche marketing—none of which are quick fixes. As exporters struggle to maintain their market share, some may cut back on production or lay off workers, leading to localized job losses, particularly in rural areas where agriculture and small-scale manufacturing dominate.

Another potential downside involves the tourism sector. In recent years, Iraq has invested in religious pilgrimage tourism—cities such as Najaf and Karbala host millions of visitors annually. A rising dinar means that pilgrims paying in U.S. dollars will find their dinars buy less locally. Accommodation, meals, transportation, and souvenirs become more expensive for foreign visitors. While a slight appreciation may not deter deeply committed pilgrims, a more pronounced shift could flatten the number of seasonal visitors, especially those coming from lower-income neighboring countries. Reduced tourism inflows not only cut into hospitality revenues but also ripple through local restaurants, taxi operators, and artisans who depend on that annual stream of guests.

In addition, rapid currency appreciation can complicate central bank policy. The Central Bank of Iraq (CBI) may face pressure to intervene, selling dinars and buying dollars to prevent an overly sharp rise in the IQD/USD rate. Such interventions deplete foreign currency reserves, which are already a linchpin of the banking sector’s confidence. If reserves dwindle too far, the CBI might struggle to defend the dinar against speculative attacks, undermining long-term stability. 

Moreover, a strengthening currency must be balanced against the risk of deflation: if prices of imported goods fall too quickly, domestic producers may be forced to cut prices to compete, squeezing profit margins and possibly leading to layoffs. A mild, well-paced appreciation can be managed, but an abrupt swing could prompt the central bank to tighten monetary policy, raising interest rates at a time when growth remains fragile.

Middle-class and lower-income households also face mixed effects. While cheaper imports benefit consumers, those who have taken loans or mortgages in U.S. dollars can see their repayment burden increase in dinar terms if the U.S. dollar temporarily spikes again. 

A rapidly fluctuating exchange rate can increase uncertainty for families deciding whether to borrow, invest in property, or start small businesses. If banks pass on any central bank rate hikes, borrowing costs climb, potentially slowing consumer spending and dampening a budding economic recovery.

Finally, there is a political dimension to consider. Currency fluctuations are highly visible to the public, and if appreciation is perceived as benefiting wealthy savers, foreign investors, or urban elites disproportionately, public opinion may sour. Many Iraqis earn income in dinars but do not save large sums; their primary concern remains access to affordable food, fuel, and electricity. 

If the headline on the front page proclaims that “1 USD Now Costs 1,210 IQD, Down from 1,310,” households may not immediately grasp how that change translates into their daily lives. Without clear communication from the Iraqi government and the CBI, explaining that a stronger dinar can lower living costs over time, the narrative risks being misinterpreted. Politicians may face pressure to reverse or stall appreciation by forcing the central bank’s hand, thereby undermining long-term monetary credibility.

In sum, a rising Iraqi dinar against the U.S. dollar is a double-edged sword. On the positive side, investors and savers benefit from increased purchasing power; ordinary citizens see cheaper imports and more favorable exchange rates for remittances; and the government can stretch its budget further in dinar terms when servicing dollar-denominated debts. 

Summary of the Downside

Yet the downsides are also significant: oil and non-oil exporters may lose competitiveness, tourism revenues could slip, and the central bank may be forced into difficult reserve management decisions. There is also the risk that rapid currency swings—whether up or down—create uncertainty for households and businesses, complicating credit decisions and investment plans. 

Ultimately, the key to harnessing the benefits of a stronger dinar lies in implementing measured, transparent fiscal and monetary policies, maintaining clear communication with the public, and pursuing parallel efforts to diversify the economy so that Iraq is not reliant on any single source of revenue. With those safeguards in place, Iraq can steer toward sustainable growth and a future in which its national currency reflects the true potential of a recovering and diversifying economy.