The Central Bank of Iraq (CBI) known in Arabic as البنك المركزي العراقي is the country’s independent monetary authority and the cornerstone of Iraq’s financial system. Established in its modern form in 1947 and restructured under the Central Bank of Iraq Law of 2004, the CBI operates from its headquarters in Baghdad with a mandate to ensure price stability, manage the Iraqi dinar (IQD), and maintain a sound and resilient banking sector.
Currently led by Governor Ali Muhsin al-Alaq, the CBI manages over US$113 billion in foreign exchange reserves (as of 2024), making it one of the most significant financial institutions in the Middle East. Its decisions on interest rates, reserve requirements, and exchange rate policy have a direct impact on everyday life for millions of Iraqis.
What Is the Central Bank of Iraq (CBI)? Core Functions and Objectives
Primary Mandate: Ensuring Price and Financial Stability
At its core, the Central Bank of Iraq exists to preserve the value of the Iraqi dinar and maintain the overall stability of Iraq’s financial system. The CBI’s primary objectives, as enshrined in the Central Bank of Iraq Law 2004, are:
- Achieving domestic price stability (controlling inflation)
- Maintaining a stable and competitive exchange rate
- Fostering a sound and efficient banking and financial system
- Supporting sustainable economic growth and employment
Unlike commercial banks, which focus on profit, the CBI operates in the public interest. Its decisions on the money supply, interest rates, and foreign reserves affect the purchasing power of every Iraqi citizen, the cost of imports, and the attractiveness of Iraq to foreign investors.
Key Functions of the Central Bank of Iraq
The CBI carries out its mandate through several core operational functions:
- Monetary Policy Implementation: The CBI sets and implements monetary policy tools, including the bank rate (currently 3.9% as of August 2023) and reserve requirement ratios (currently 7.1% as of March 2023), to control liquidity and inflation in the economy.
- Currency Issuance: The CBI holds the exclusive authority to issue the Iraqi dinar (IQD), the national currency. It manages the printing, circulation, and withdrawal of banknotes and coins across the country.
- Foreign Reserve Management: The bank manages Iraq’s substantial gold and foreign exchange reserves, which stood at US$113 billion in 2024, primarily derived from Iraq’s oil export revenues.
- Banking Regulation and Supervision: The CBI licenses, regulates, and supervises all commercial banks and financial institutions operating in Iraq, ensuring they comply with the Banking Law and international standards.
- Payment System Oversight: The CBI oversees and develops Iraq’s national payment infrastructure, including interbank settlement systems, to ensure safe, efficient, and reliable financial transactions.
- Exchange Rate Policy: The CBI manages the value of the Iraqi dinar against major foreign currencies, intervening in the foreign exchange market to ensure stability and predictability for businesses and households.
Leadership and Governance of the Central Bank of Iraq
Current Governor: Ali Muhsin al-Alaq
The Central Bank of Iraq is currently led by Governor Ali Muhsin al-Alaq. Al-Alaq is not a newcomer to the role he previously served as CBI Governor from 2014 to 2020, during one of the most turbulent periods in Iraq’s recent history, which included the rise and fall of ISIL and its devastating impact on Iraq’s northern banking infrastructure.
He was reappointed as Governor in 2023, succeeding Mustafa Ghaleb, who had held the post since 2020. Under al-Alaq’s current leadership, the CBI has continued to focus on strengthening foreign reserves, stabilizing the exchange rate of the Iraqi dinar, and modernizing the country’s banking sector. His prior experience gives him a strong institutional understanding of the bank’s challenges and long-term goals.
The CBI’s Independence and Accountability
A critical aspect of the Central Bank of Iraq’s structure is its legal independence. The CBI is not directly controlled by the government of the day, which protects monetary policy from short-term political pressures. This independence is enshrined in two key legal frameworks:
- The Constitution of Iraq (Articles 103 and 110): These articles establish the CBI as an independent body and define the limits of government authority over monetary affairs.
- The Central Bank of Iraq Law 2004: This foundational legislation, enacted after the fall of the Saddam Hussein regime, formally established the CBI’s mandate, governance structure, and operational independence.
While operationally independent, the CBI is not without accountability. It reports to and is overseen by the Council of Representatives (Iraq’s parliament) and is subject to audits by the Board of Supreme Audit, ensuring transparency and public accountability in its operations. The Governor and Board of Directors are appointed through a formal government process, maintaining a balance between independence and democratic oversight.
The Central Bank of Iraq Through History
Origins: From the Iraq Currency Board to the National Bank (1947–1956)
The story of Iraq’s central banking system begins in the era of the British Mandate. Prior to independence, Iraq’s monetary affairs were managed by the Iraq Currency Board, a body established under British oversight to administer the currency. This arrangement reflected Iraq’s status as a British protectorate, with limited monetary sovereignty.
In 1947, the National Bank of Iraq was established, marking a significant step toward full monetary independence. This institution took over the functions of the Currency Board and began building Iraq’s capacity to manage its own monetary affairs. The transition from a colonial currency board to an indigenous national bank was a foundational moment in Iraq’s post-independence economic history.
In 1956, the institution was formally renamed and restructured as the Central Bank of Iraq, taking on the full suite of functions associated with a modern central banking authority, including currency issuance, reserve management, and banking supervision.
The CBI During the Saddam Hussein Era (1968–2003)
The decades under the Ba’ath Party and Saddam Hussein’s leadership were marked by significant mismanagement of Iraq’s economy and monetary system. The CBI’s operational independence was effectively curtailed, as the bank was subordinated to the needs of the ruling regime, particularly during periods of conflict.
The Iran-Iraq War (1980–1988) and the Gulf War (1990–1991) placed enormous strain on Iraq’s finances and led to rampant inflation and currency devaluation. International sanctions imposed after Iraq’s invasion of Kuwait decimated the economy and severely limited the CBI’s ability to maintain foreign exchange reserves or stabilize the dinar. By the late 1990s and early 2000s, the Iraqi dinar had lost an enormous fraction of its value compared to the pre-war era, reflecting the catastrophic economic damage of war and isolation.
The 2003 Invasion, the Bank Heist, and Post-War Reconstruction
The 2003 US-led invasion of Iraq and the subsequent fall of Baghdad triggered a dramatic and chaotic episode in the CBI’s history. Just days before the fall of the regime, on March 18, 2003, armed men arrived at the Central Bank of Iraq’s headquarters with a handwritten note purportedly authorizing the withdrawal of US$1 billion in cash approximately $920 million in US dollars and the equivalent of $100 million in euros. This became known as one of the largest bank heists in history. Investigators later concluded that the withdrawal was authorized at the highest levels of the Saddam regime, with Qusay Hussein, Saddam’s son, widely implicated in orchestrating the removal of the funds.
Following the invasion, Iraq was placed under the administration of the Coalition Provisional Authority (CPA), which moved swiftly to reform the monetary system. A new Iraqi dinar was introduced to replace the old currency, which had become associated with the regime. The CPA also passed the Central Bank of Iraq Law 2004, formally re-establishing the CBI as an independent monetary authority and laying the groundwork for a modern, regulated banking sector.
The reconstruction period was arduous. The CBI had to rebuild its institutional capacity, re-establish trust in the banking system, and manage a fragile economy heavily dependent on oil revenues while navigating ongoing security challenges. Despite these obstacles, the CBI gradually expanded its foreign exchange reserves as oil production recovered.
Recent Challenges: The 2014 Mosul Looting by ISIL
In June 2014, the Islamic State of Iraq and the Levant (ISIL) seized the city of Mosul in a rapid military offensive. Among its targets was the Mosul branch of the Central Bank of Iraq. Reports indicated that ISIL looted approximately 429 billion Iraqi dinars (equivalent to around $429 million at the time) from the branch, providing the terrorist organization with a significant financial windfall that helped fund its operations and territorial expansion.
The looting of the Mosul branch was a stark reminder of the security vulnerabilities faced by financial institutions in conflict zones and posed a major challenge for the CBI’s efforts to maintain financial stability. The Iraqi government and the CBI worked to respond to the crisis, implementing emergency measures to prevent the looted funds from entering the financial system and stabilize the broader economy.
Key Financial Indicators and Reserves
The financial strength and policy stance of the Central Bank of Iraq can be assessed through a number of key metrics. The table below summarizes the current financial indicators:
| Financial Indicator | Current Figure | As Of |
| Foreign Exchange Reserves | US$113 billion | 2024 |
| Gold Reserves | Included in total reserves | 2024 |
| Bank Rate (Interest Rate) | 3.9% | August 2023 |
| Reserve Requirement Ratio | 7.1% | March 2023 |
| Total Assets | Approx. 57 trillion Iraqi dinars | 2024 |
The Role of Oil Revenues in Building Reserves
The most critical driver of the Central Bank of Iraq’s impressive foreign exchange reserve position is Iraq’s oil sector. Iraq is one of the world’s largest oil producers and a major member of OPEC. The vast majority of government revenue and therefore the foreign currency flowing into the CBI’s reserves comes from oil exports.
When global oil prices are high, the CBI’s reserve position strengthens, providing it with greater capacity to intervene in the foreign exchange market, defend the value of the Iraqi dinar, and support government spending. Conversely, when oil prices fall sharply, as occurred in 2014–2016 and again in 2020, the pressure on reserves and the exchange rate intensifies.
This structural dependence on oil revenues represents a key vulnerability for Iraq’s monetary system. The CBI, in coordination with the government, continually works to manage this exposure for example, by building up reserves during boom periods and carefully managing spending during downturns. Efforts to diversify the Iraqi economy away from oil dependence are also a long-term priority that would, over time, reduce the volatility of the CBI’s reserve position.
The Iraqi Dinar and Exchange Rate Policy
The Iraqi dinar (IQD) is the official currency of Iraq, issued exclusively by the Central Bank of Iraq. Managing the exchange rate of the dinar is one of the CBI’s most visible and consequential responsibilities, directly affecting the cost of imports, inflation, and the living standards of ordinary Iraqis.
The CBI operates a managed float exchange rate regime. This means the dinar is not freely floating (determined entirely by market forces) nor is it rigidly pegged to another currency. Instead, the CBI actively intervenes in the foreign exchange market primarily through daily currency auctions to guide the dinar’s value within a target range, primarily against the US dollar.
These daily dollar auctions are a critical mechanism through which the CBI supplies US dollars to Iraqi banks and businesses, meeting the economy’s demand for foreign exchange. The volume and price set at these auctions effectively determines the official exchange rate. The CBI uses its large foreign exchange reserves as ammunition to defend this rate when necessary.
Exchange rate management has been a politically sensitive issue in Iraq. A devaluation of the dinar raises the cost of imported goods and can trigger inflation, while an overvalued rate can drain reserves and distort the economy. The CBI must constantly balance these competing pressures, often in the context of volatile oil revenues and complex political dynamics. In late 2020, the CBI devalued the dinar by approximately 22% against the dollar a significant and contentious step aimed at addressing a budget crisis caused by low oil prices.
The Central Bank’s Physical Presence in Iraq
Headquarters in Baghdad: An Architectural Landmark
The Central Bank of Iraq’s main headquarters is located in the heart of Baghdad, Iraq’s capital city. The current building, constructed in 1985, was designed by the internationally renowned Danish architectural firm Dissing+Weitling. The structure is notable for its elegant design featuring an inner courtyard and extensive use of marble, creating an atmosphere of institutional gravitas befitting a national central bank.
The CBI headquarters serves as the operational nerve center for all of the bank’s core functions, including monetary policy decision-making, foreign exchange operations, banking supervision, and currency management. It houses the bank’s leadership offices, including that of the Governor, as well as its key operational departments.
Future Vision: The Zaha Hadid-Designed New Headquarters
In a development that has captured international attention in both financial and architectural circles, the Central Bank of Iraq commissioned the late, legendary Iraqi-British architect Dame Zaha Hadid to design a new headquarters building. Zaha Hadid, who passed away in 2016, was one of the most celebrated architects of the modern era the first woman to win the prestigious Pritzker Architecture Prize and the CBI commission represents a deeply symbolic project for Iraq, connecting its future with one of its most internationally celebrated daughters.
The new headquarters, being carried forward by Zaha Hadid Architects following her passing, is envisioned as a striking, contemporary structure that reflects both the bank’s ambitions and Iraq’s cultural heritage. The project represents a significant statement about Iraq’s confidence in its future and its desire to project an image of stability, modernity, and openness to the world. While project timelines have been subject to delays, the design has generated considerable excitement as a potential landmark for Baghdad.
Regional Branches Across Iraq
Beyond its Baghdad headquarters, the Central Bank of Iraq maintains a network of regional branches to serve the entire country. These branches are located in:
- Basrah Iraq’s second-largest city and the center of its oil industry in the south
- Mosul the major city in northern Iraq, whose branch was looted by ISIL in 2014 and subsequently required rebuilding
- Sulaimaniyah a key city in the Kurdistan Region of Iraq
- Erbil the capital of the Kurdistan Region, serving as the CBI’s presence in the autonomous northern territories
These branches play a vital role in providing banking services, distributing currency, and supervising financial institutions across Iraq’s diverse and geographically spread regions.
How the Central Bank of Iraq Regulates the Banking Sector
One of the CBI’s most critical responsibilities is the regulation and supervision of Iraq’s commercial banking sector. Iraq has a mixed banking system that includes state-owned banks (such as Rafidain Bank and Rasheed Bank, which are among the largest), as well as a growing number of private banks and foreign bank branches.
The CBI’s regulatory role encompasses several key activities:
- Licensing: The CBI has exclusive authority to grant, suspend, or revoke banking licenses in Iraq. Any entity wishing to operate as a bank must meet the CBI’s capital, governance, and operational requirements.
- Prudential Supervision: The CBI conducts regular on-site and off-site examinations of banks to assess their financial health, risk management practices, and compliance with banking laws and regulations.
- Anti-Money Laundering (AML): The CBI plays a central role in Iraq’s AML framework, working to prevent the banking system from being used for money laundering, terrorist financing, or other illicit financial activity.
- Capital Requirements: The CBI sets minimum capital adequacy requirements for banks, in line with international Basel standards, to ensure banks can absorb losses and continue operating even during economic stress.
- Consumer Protection: The CBI also has a role in ensuring that banks treat their customers fairly and comply with relevant consumer protection regulations.
Iraq’s banking sector has faced significant challenges, including low levels of financial inclusion, heavy reliance on cash, weak corporate governance in some institutions, and the legacy of conflict. The CBI has been working to modernize the sector, promote digital banking, and increase the percentage of Iraqis with access to formal banking services.
The CBI’s Role in Iraq’s Economic Future
Looking ahead, the Central Bank of Iraq faces both significant challenges and meaningful opportunities as it seeks to support Iraq’s long-term economic development.
Key Challenges
- Oil Dependence: As long as Iraq’s economy remains overwhelmingly dependent on oil revenues, the CBI’s monetary management will be subject to the volatility of global commodity markets. Diversification of the economy is a long-term structural challenge that extends beyond the CBI’s direct remit but profoundly affects its operating environment.
- Financial Inclusion: A large proportion of Iraq’s population remains unbanked or underbanked, relying on cash for everyday transactions. Expanding access to formal financial services is both an economic opportunity and a significant logistical challenge.
- Institutional Trust: Building lasting public trust in the banking system, following decades of conflict, mismanagement, and corruption, remains an ongoing task. High-profile incidents like the 2003 heist and the ISIL looting have historically undermined confidence in financial institutions.
- Geopolitical Risk: Iraq’s location in a volatile geopolitical region means that external shocks from regional conflicts to US-Iran tensions can rapidly affect the economy and put pressure on the CBI’s policy framework.
Key Opportunities
- Digital Transformation: Iraq has a young, increasingly tech-savvy population. The expansion of digital banking, mobile payments, and fintech solutions represents a significant opportunity to improve financial inclusion and modernize the payments infrastructure.
- Reconstruction and Investment: As areas of Iraq that were affected by conflict continue to rebuild, there is substantial demand for investment in infrastructure, housing, and services. A stable, well-regulated banking sector is essential for channeling domestic and foreign investment into these areas.
- Reserve Strength: The CBI’s substantial foreign exchange reserves provide a meaningful buffer against economic shocks and give the institution credibility and capacity to defend monetary stability.
- International Partnerships: The CBI’s engagement with institutions like the IMF and World Bank provides access to technical assistance, policy advice, and international best practices that can support the modernization of Iraq’s monetary and financial system.
Frequently Asked Questions About the Central Bank of Iraq
Who is the current Governor of the Central Bank of Iraq?
The current Governor of the Central Bank of Iraq is Ali Muhsin al-Alaq. He was reappointed to the role in 2023, having previously served as Governor from 2014 to 2020. He succeeded Mustafa Ghaleb in his second term.
What is the main function of the Central Bank of Iraq?
The primary function of the CBI is to maintain price stability and ensure a sound financial system in Iraq. This involves implementing monetary policy, issuing the Iraqi dinar, managing foreign exchange reserves, regulating and supervising commercial banks, and overseeing the national payment system.
Where is the Central Bank of Iraq headquarters located?
The Central Bank of Iraq’s headquarters is located in Baghdad, Iraq’s capital city. The current building, designed by Danish firm Dissing+Weitling, was constructed in 1985 and is notable for its inner courtyard and marble architecture. The CBI also has regional branches in Basrah, Mosul, Sulaimaniyah, and Erbil.
How much in foreign currency reserves does the Central Bank of Iraq have?
As of 2024, the Central Bank of Iraq holds approximately US$113 billion in foreign exchange reserves. These reserves are primarily accumulated from Iraq’s oil export revenues and are managed by the CBI to support exchange rate stability and provide a buffer against economic shocks.
What is the Central Bank of Iraq’s bank rate?
As of August 2023, the Central Bank of Iraq’s bank rate (its primary policy interest rate) stands at 3.9%. The reserve requirement ratio for commercial banks is 7.1%, as set in March 2023. These rates are subject to change as the CBI adjusts its monetary policy stance.
Does the Central Bank of Iraq regulate private banks?
Yes. The Central Bank of Iraq is the sole regulatory and supervisory authority for all banks operating in Iraq, including private domestic banks, state-owned banks, and foreign bank branches. It grants banking licenses, conducts supervisory examinations, and enforces compliance with Iraq’s Banking Law and international standards.
What happened to the Central Bank of Iraq during the 2003 invasion?
Just before the fall of Baghdad in March 2003, an estimated US$1 billion (approximately $920 million in US dollars and $100 million equivalent in euros) was removed from the CBI’s vaults. Qusay Hussein, the son of Saddam Hussein, is widely believed to have orchestrated this withdrawal. Following the invasion, the Coalition Provisional Authority restructured the CBI through the Central Bank of Iraq Law 2004 and introduced a new Iraqi dinar to stabilize the economy.
Who is designing the new Central Bank of Iraq headquarters?
The new Central Bank of Iraq headquarters was commissioned from Zaha Hadid, the legendary Iraqi-British architect who was the first woman to win the Pritzker Architecture Prize. Following her death in 2016, the project is being carried forward by Zaha Hadid Architects. The design is expected to be a striking modern landmark for Baghdad.
How does the Central Bank of Iraq manage the Iraqi dinar?
The CBI manages the Iraqi dinar through a managed float exchange rate policy. It conducts daily foreign exchange auctions to supply US dollars to the market, which effectively sets the official exchange rate of the dinar against the dollar. The CBI uses its substantial foreign exchange reserves to intervene and maintain stability when market pressures push the rate outside its desired range.
What is the history of the Central Bank of Iraq?
The CBI traces its history to the Iraq Currency Board established during the British Mandate era. The National Bank of Iraq was founded in 1947 to manage the country’s monetary affairs independently, and in 1956 it was renamed the Central Bank of Iraq. The institution underwent major transformation after the 2003 US-led invasion, with the Central Bank of Iraq Law 2004 establishing its current mandate and governance structure. It has faced numerous challenges, including the 2003 bank heist, post-war reconstruction, and the 2014 looting of its Mosul branch by ISIL.
Conclusion
The Central Bank of Iraq stands at the intersection of Iraq’s turbulent past and its hopeful future. From its origins in the British Mandate era to its reconstruction after 2003, and from managing the aftermath of ISIL’s destructive campaign to building one of the largest foreign exchange reserve stockpiles in the Middle East, the CBI has been central to Iraq’s story.
Under the leadership of Governor Ali Muhsin al-Alaq and backed by US$113 billion in foreign exchange reserves, the CBI today is better positioned than at almost any point in its history. Yet significant challenges remain from reducing the country’s structural dependence on oil to expanding financial inclusion and building lasting public trust in its institutions.
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