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WEEKLY NEWSLETTER
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Iraq
Index
When Iraq was part of the Ottoman Empire, a number of
European currencies circulated alongside the Turkish pound. With
the establishment of the British mandate after World War I, Iraq
was incorporated into the Indian monetary system, which was
operated by the British, and the rupee became the principal
currency in circulation. In 1931, the Iraq Currency Board was
established in London for note issue and maintenance of reserves
for the new Iraqi dinar (ID--for value of the
dinar--see Glossary).
The currency board pursued a conservative monetary
policy, maintaining very high reserves behind the dinar. The
dinar was further strengthened by its link to the British pound.
In 1947 the government-owned National Bank of Iraq was founded,
and in 1949 the London-based currency board was abolished as the
new bank assumed responsibility for the issuing of notes and the
maintenance of reserves. The National Bank of Iraq continued the
currency board's conservative monetary policy, maintaining 100
percent reserves behind outstanding domestic currency.
Initiated during the last years of Ottoman rule, commercial
banking became a significant factor in foreign trade during the
British mandate. British banks predominated, but traditional
money dealers continued to extend some domestic credit and to
offer limited banking services. The expansion of banking services
was hampered by the limited use of money, the small size of the
economy, and the small amount of savings; banks provided services
for foreign trade almost exclusively. In the mid-1930s, the Iraqi
government decided to establish banks in order to make credit
available to other sectors of the economy. In 1936, the
government formed the Agricultural and Industrial Bank. In 1940,
this bank was divided into the Agricultural Bank and the
Industrial Bank, each with substantially increased capital
provided by the government. The government established the
Rafidayn Bank in 1941 as both the primary commercial bank and the
central bank, but the National Bank of Iraq became the
government's banker in 1947. The Real Estate Bank was established
in 1948, primarily to finance the purchase of houses by
individuals. The Mortgage Bank was established in 1951, and the
Cooperative Bank in 1956. In addition to these government-owned
institutions, branches of foreign banks and private Iraqi banks
were opened as the economy expanded.
In 1956 the National Bank of Iraq became the Central Bank of
Iraq. Its responsibilities included the issuing and the
management of currency, control over foreign exchange
transactions, and the regulation and supervision of the banking
system. It kept accounts for the government, and it handled
government loans. Over the years, legislation has considerably
enlarged the Central Bank's authority.
On July 14, 1964, all banks and insurance companies were
nationalized, and, during the next decade, banking was
consolidated. By 1987 the banking system consisted of the Central
Bank, the Rafidayn Bank, and the Agricultural, Industrial, and
Real Estate banks.
In the 1980s, the Rafidayn Bank was in the contradictory
position of trying to maintain its reputation as a viable
commercial bank while acting on behalf of the government as an
intermediary in securing loans from private foreign banks. With
deposits of more than US$17 billion in 1983, the Rafidayn was
reportedly the largest commercial bank in the Arab world. It
managed to maintain a relatively sound commercial reputation for
the five years of the war, and in 1985 its total assets stood at
about ID10.4 billion and its total deposits, at more than ID9.5
billion--both figures having tripled since the Iran-Iraq War
began in 1980. This huge increase in deposits was attributed to
increased saving by the public because of the scarcity of
consumer products. Profits of ID290 million in 1985 represented
an increase of nearly 50 percent over 1980 levels. By 1985 the
Ralidayn had established 215 branches in Iraq, 104 of which were
in Baghdad; according to the Iraqi government, it also had seven
branches abroad. In 1986, however, the bank started to delay
payment of letters of credit owed to foreign exporters, and its
failure to make installment payments on a syndicated loan of 500
million Eurodollars, forced rescheduling of the debt payments. In
1987, with the exception of the Baghdad office of a Yugoslav
bank, the Rafidayn was Iraq's only commercial bank. In this same
year, the government ordered the Rafidayn Bank to double its
capital to ID100 million. This increase was to enable the bank to
improve and to extend its commercial services, so that it could
tap the public for the increased deposits that would enable the
bank to offer more loans. To the extent that new loans could
bolster the emerging private sector, the move appeared consistent
with other government efforts to make state-run operations more
fiscally efficient.
The other three banks in Iraq were so-called special banks
that provided short- to long-term credit in their respective
markets. Since its establishment in 1936, the Agricultural Bank
had grown to forty-five branches, of which four were in Baghdad.
In 1981, its capital stood at ID150 million and its loans totaled
ID175 million. The Agricultural Bank had also started a project
whose objective was to encourage rural citizens to establish
savings accounts. Meanwhile, the Industrial Bank had grown to
nine branches and offered loans both to private and to public
sector industrial and manufacturing companies. The Real Estate
Bank was composed of twenty-five branches and provided loans for
construction of housing and tourist facilities. The Iraq Life
Insurance Company, the Iraq Reinsurance Company, and the National
Life Insurance Company conducted the nation's insurance business.
Post offices maintained savings accounts for small depositors.
Data as of May 1988
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