Economic instability weakens public trust in banks, says PM Barzani

ERBIL, Kurdistan Region - Kurdistan Region Prime Minister Masrour Barzani on Saturday acknowledged that lack of public trust in banks, caused in part by economic instability, is an obstacle in his government’s efforts to digitize the banking sector.

“One of the main problems and obstacles to having a strong and advanced banking system in Iraq and the Kurdistan Region is the lack of public trust in banks, which is due to many reasons, especially the instability of the political and economic situation,” he said at an economic forum in Erbil.

The Kurdistan Regional Government (KRG) “will provide all assistance to the banks in order to build trust between the banks and the citizens … the banks should expand their services,” Barzani said.

On Wednesday, an advisor to Iraqi Prime Minister Mohammed Shia’ al-Sudani told Rudaw that low trust in Iraq’s banking institutions means some 80 percent of household cash is being kept in people’s homes.

Barzani promised “quick changes” to expand the reach of electronic banking services, saying that electronic payment machines will be encouraged and the number of ATMs will be “increased tenfold.” 

The KRG will also modernize “how it pays and collects revenue” and its pension payments, said the premier.

“Within the next two years, pensioners in the Kurdistan Region will no longer have to spend hours in the summer heat and winter cold to receive their salaries. Instead, on a certain day, their money will go into their bank accounts,” he said.

Retirees often have long waits in front of banks to collect their pension payments and several have even died in the queues. 

As the Iraqi dinar continues to lose value against the US dollar, Barzani said that the KRG will continue to work with Baghdad. “We will combat money laundering,” he stated. “We will continue to coordinate and cooperate with the federal government to stabilize the Iraqi dinar.”

The federal government has struggled for several years to stabilize the dinar after devaluing it in 2020 during a liquidity crisis. It is also under pressure from the US to stem smuggling of dollars into Iran.

Last month, the Central Bank of Iraq announced that all transactions inside Iraq must be made in dinars starting in 2024. 

Many banks across Iraq have started preventing customers from withdrawing their money in dollars and only allowing them to withdraw in Iraqi dinars at the value set in the budget. The move has drawn a public outcry as the value of the Iraqi dinar against the US dollar in the markets is much lower than the one set out in the budget. 

The three-year federal budget passed in June set the exchange rate of $1 to 1,300 Iraqi dinars. The value of the dollar currently sits at around 1,600 dinars in the currency markets of Iraq and the Kurdistan Region. 

The depreciation of the Iraqi dinar has been attributed to the smuggling of dollars out of the country, mainly to neighboring Iran. The US in July banned transactions with 14 Iraqi banks for allegedly violating its rules. The move was another hit to the value of the Iraqi currency.