Iraq’s problems are rooted in corruption, not currency

Deleting zeros from a national currency can make a country’s numbers look better – but it cannot, by itself, make an economy healthier. This is among the primary problems facing Iraq as officials revive discussions to redenominate the dinar, an idea first floated more than two decades ago.

For a heavily cash-based society such as Iraq’s, the suggestion has some merit. Removing two zeros could redirect some of the vast quantities of cash held outside Iraq’s banking system back into circulation. Right now, millions of Iraqis keep their savings at home, in safes or buried. This underlines a profound lack of confidence in the country’s financial institutions.

It is not difficult to understand why so many Iraqis prefer to keep their money close to hand. Corruption – Iraq’s Achilles heel – enriches those on the inside but also erodes public belief that the state is on their side. The scale of the wealth being recovered in the country’s latest anti-corruption drive will only compound this belief. On Sunday, the authorities announced the seizure of more than $26 million in cash and more than 60 kilogrammes of gold in one sweep – adding to the hundreds of millions already seized.

It is not just the sums involved that dismay the Iraqi public, but the fact that it is often government officials who are complicit. Recent efforts to curb corruption are welcome, but they are also exposing how graft has reached the very top of Iraq’s political class – those officials who are tasked with representing Iraqi voters and the country’s interests. Sunday’s seizures, for example, have been linked to Adnan Al Jumaili, the former deputy oil minister for refining affairs. Mr Al Jumaili, who also served as the general director of the Northern Refineries Company, was arrested in May as part of a widening inquiry into alleged waste and embezzlement in refinery projects overseen by the ministry.

Iraq’s circumstances make untangling this web of energy-related official corruption particularly urgent. Oil provides at least 90 per cent of the federal budget, leaving public finances acutely vulnerable to manipulation. The closure of the Strait of Hormuz has sharply reduced Iraq’s oil exports and revenue, while Baghdad still faces monthly salary, pension and welfare commitments of about $6.5 billion.

This matters for any attempt to revive Iraq’s dinar, which decades ago was among the strongest currencies, with three dinars to the dollar. Today it is more than 1,300 to the dollar. If citizens do not trust banks, courts or government institutions – including those who run them – then they will have little reason to believe that swapping out banknotes will change the economy. A currency overhaul may provide a technical solution for some problems, but it is not a substitute for stronger banks, trustworthy public financial management, greater transparency and a serious effort to diversify an economy that remains overwhelmingly dependent on oil. Iraq’s problems are as much about confidence as they are about currency.