Iraq Dollar Corruption
العربية

How the auction works

How the auction works

The mechanism is not secret. It is public, it runs on most working days, and it is documented. What remains contested is who benefits from the gap it creates.

  1. 1

    Iraq is paid in dollars

    A

    Crude sales are settled in United States dollars and deposited in an account held at the Federal Reserve Bank of New York.

  2. 2

    The state spends in dinars

    A

    Salaries, pensions and the budget are paid in Iraqi dinars. The dollars must therefore be converted into local currency.

  3. 3

    The Central Bank sells dollars

    A

    A daily window offers dollars to licensed banks at the official rate. This is the auction. Access to it is a licence, not a market.

  4. 4

    Banks present documents

    A

    A transfer abroad requires trade documents intended to prove that the dollars pay for imports. Cash withdrawals have historically faced lighter requirements.

  5. 5

    The market pays more

    B

    The parallel rate — the price of a dollar on the open market in Baghdad — sits above the official rate. The difference between the two is the spread.

Why the gap matters

A persistent spread turns access to the auction window into a transfer of public wealth. A bank that buys at the official rate and sells into the parallel market earns the difference without producing anything. The wider the spread, and the weaker the documentation required, the larger the transfer. That is the subject of this site.