Iraq initially fixed its exchange rate with only limited monetary policy, then used more and more direct controls and monetary finance under the impact of war and conflict in the 1980s and 1990s. The 2003 invasion and occupation involved several years of liberalised forex arrangements but limited and incoherent monetary policy, followed by more active and ordered use of (changes to) the exchange rate as key monetary instrument.

Years Targets and attainment Classification
1974-81 exchange rate fixed to USD, no autonomous forex market;

nationalised banking system in mainly planned economy with large oil exports, central bank with very limited independence: monetary growth dominated by fiscal and oil developments, no monetary instruments in regular use but discount rate and interest rates occasionally varied, indicative credit guidelines from 1979

augmented exchange rate fix AERF
1982-2002 [Note: no Article IV reports between 1984 and 2004, only limited information available]

Iraq-Iran war 1980-88; Iraq invades Kuwait 1990, forced to withdraw 1991; sanctions from 1990, followed by bombing campaign from 1998; monetary policy seems to have been subordinated to war effort 1980s and then to survival in face of sanctions 1990s; no data on inflation 1979-90; official exchange rate peg unchanged 1983-2003, but Ilzetzki, Reinhart and Rogoff (2019) note multiple exchange rates 1982 and 1983, and classify exchange rate regime Jan 1982-Dec 2005 as managed float/parallel market/multiple exchange rates; Foote et al (2004) indicate inflation in 1980s mostly single-digit, but big change in 1990s with inflation volatile and often high and exchange rate depreciating rapidly, in context of very low use of banks and high use of notes and coin; King (2004) says resort to printing press from 1991 or so


multiple direct controls MDC

2003-6 US-led invasion 2003, 2003-4 all policy decisions made by occupying authorities; 2005 January election for transitional assembly, April-May formation of Iraqi government; new constitution October, elections of new Parliament Dec 2005, new government April 2006;

currency reform late 2003 in context of dysfunctional banking system and central bank with few instruments; continued inflation; relatively liberal forex market with de facto peg of exchange rate to USD from May 2004

unstructured discretion UD
2007-17 ongoing insurgency, security problems; US troops withdrawn December 2011; ISIS insurgency takes territorial form 2014; in absence of other monetary instruments, appreciation used 2007-8 to counter rising inflation and dollarisation, then return to exchange rate stability, except for small depreciation 2012 and small appreciation 2015-16; indirect central bank financing of government deficit from 2015 loosely structured discretion LSD

Selected IMF references: RED 1975 pp38,40, 64-5; RED 1976 p36; RED 1983 pp22; SR 2005 pp11-12, 16-17, 18-20, 21-2, 25-6; SR 2006 pp4, 8; SR 2007, pp9-10, 16, 18; SR 2010 p10; SR 2013 pp9-10, 17; SR 2015 pp9, 16.

Additional references: Foote et al. (2004); King (2004); Ilzetzki et al. (2019).

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