Economist: Dollar return is out of reach for restricted Iraqi banks

Baghdad (IraqiNews.com) — Prominent economic expert Ziad Al-Hashemi issued a sobering analysis on Monday, July 20, 2026, regarding the recent joint understanding between the Central Bank of Iraq (CBI) and the U.S. Department of the Treasury. Al-Hashemi cautioned that the official statements do not imply an imminent return to U.S. dollar transactions for the restricted Iraqi financial institutions, describing full dollar integration as currently “out of reach” due to stringent compliance benchmarks. The critique follows an announcement by the Central Bank of Iraq and a welcoming statement from Prime Minister Ali Falih al-Zaidi regarding a framework to qualify seven restricted Iraqi banks for a return to international correspondent banking channels. While the government celebrated the milestone as a major leap forward for global financial integration, Al-Hashemi emphasized that the U.S. Treasury has explicitly conditioned the lifting of restrictions on a series of rigorous structural reforms that remain far from complete. According to Al-Hashemi’s assessment of the official U.S. Treasury declaration, the transition for these restricted institutions will be heavily phased and contingent on challenging corporate governance overhauls: Alternative Currencies Only: The initial phase of the agreement only explores re-integrating select banks into global correspondent networks using non-dollar currencies, such as the Euro, UAE Dirham, and Chinese Yuan. Lack of American Correspondent Partners: To date, no restricted Iraqi bank has regained the ability to conduct foreign currency transactions, primarily because major U.S. banking institutions refuse to establish correspondent relationships with them. The Structural Phase One: The first phase of the CBI-led banking reform initiative is scheduled to conclude this summer, but eligibility for alternative currencies remains strictly tied to meeting baseline governance and compliance standards. The Stringent Path to the Dollar: To eventually handle U.S. dollars, banks must successfully complete all subsequent reform phases, pass a satisfactory third-party audit of their compliance functions, attract a qualified institutional investor, and meet international standards regarding professional competence, integrity, and fitness. Ownership Restructuring Barriers: Domestic banks view these extensive conditions as exceptionally difficult to implement, with the U.S. Treasury’s strict mandates regarding bank ownership percentages posing the most significant structural hurdle. Citing the formal documentation, Al-Hashemi highlighted the explicit security guardrails embedded within Washington’s fiscal policy toward Baghdad: “The United States will not tolerate the abuse of Iraqi banks by armed groups allied with Iran, and will take independent action, when necessary, to target such activities.” Al-Hashemi noted that the primary misconception in the local market stems from confusing the allowance of alternative currency clearing with the lifting of the actual U.S. dollar ban. He asserted that it is highly improbable for these seven banks to enter the U.S. dollar transfer system over the short or medium term. Beyond the lack of acceptance from institutional U.S. correspondent banks, the restricted Iraqi financial firms have failed to fully implement the comprehensive restructuring requirements mandated by the global consulting firm Oliver Wyman. The Oliver Wyman plan serves as the core technical benchmark for the Central Bank of Iraq’s broader strategy to modernize the domestic financial sector, increase corporate transparency, and combat money laundering and illicit financial flows. Until these foundational auditing and ownership criteria are completely satisfied, Al-Hashemi concludes that the financial integration celebrated during the Washington summit will remain an idealized roadmap rather than an immediate commercial reality. The post Economist: Dollar return is out of reach for restricted Iraqi banks appeared first on Iraqi News.