Iraq's $100 billion foreign reserves: Safeguarding stability and global credibility

Shafaq News

27-01-2025

Shafaq News/ Iraq's foreign currency reserves, now exceeding $100 billion, play an essential role in maintaining economic stability, supporting the local currency, and enhancing the country's global creditworthiness, officials and economic experts said.
Mazhar Mohammed Saleh, the financial and economic advisor to the Iraqi Prime Minister, told Shafaq News that foreign reserves are essential for addressing balance-of-payments challenges and stabilizing the economy. "Countries with substantial reserves ensure economic stability and can address balance-of-payments issues effectively," Saleh said.
He emphasized the importance of diversifying reserves into foreign currencies, gold, and bonds, adding that the US dollar remains the dominant global currency. "The dollar is the most accepted and widely used currency for international transactions and offers the greatest flexibility," he explained.
"Countries prefer assets that provide stable annual returns, like government bonds. Gold, by contrast, does not offer fixed returns and is harder to liquidate during crises compared to foreign currencies and bonds," he said.
Iraq's Reserve Composition
According to the Central Bank of Iraq, the country's reserves consist of $106 billion in foreign currencies and gold, including 152.6 tons of gold valued at $16 billion. This makes Iraq the 29th-largest holder of gold globally and the third in the Arab world, following Saudi Arabia and Lebanon.
Economic expert Abdul Rahman Al-Mashhadani, a university professor, explained that Iraq invests portions of its reserves in US Treasury bonds, with holdings ranging between $31 billion and $34 billion, while the remaining reserves remain liquid. "The reserves are the property of the state, not the government, ensuring long-term economic stability," he said.
'Gold in Iraq's reserves is used strategically to generate returns by taking advantage of market fluctuations, Iraq buys gold when prices drop and sells when they rise, earning profits. However, storing gold in global banks incurs storage fees," Al-Mashhadani added.
According to Al-Mashhadani, despite its substantial reserves, Iraq lacks a sovereign wealth fund to reinvest surplus revenues into diverse sectors, unlike countries like Saudi Arabia. "Iraq does not have sovereign funds to invest surplus reserves, which limits opportunities for diversification."
External Investments
Former Central Bank of Iraq official Mahmoud Dagher said Iraq's reserves are distributed globally among major financial institutions. "Iraq holds reserves in institutions like the US Federal Reserve, the European Central Bank, the Bank of England, and the Bank for International Settlements in Switzerland, as well as in banks in the UAE and Saudi Arabia," Dagher said.
These reserves are made up of foreign currencies, bonds, and gold. "The Central Bank of Iraq manages these assets, generating returns through investments in bonds and other financial instruments. This is what we call external investments," Dagher explained.
Currency Stability
Jamal Cougar, a member of the Parliamentary Finance Committee, highlighted the importance of the reserves in stabilizing Iraq's currency. "The large reserves serve as a critical safeguard for the local currency, ensuring its stability. They allow the central bank to intervene in case of any disruptions in financial policies," he said.
Amid many speculating that the currency would collapse, Cougar dismissed these concerns saying that 'such fears are unfounded'.
Long-Term Growth
Economist Hilal Al-Taan said Iraq has significantly increased its reserves since 2003. "Iraq's foreign currency reserves have grown to over $110 billion, with gold holdings exceeding 150 tons. These reserves are a testament to the country's financial resilience and economic growth," he said.
Taan explained that Iraq's reserves generate consistent returns through strategic investments in bonds and currencies. "The continuous reinvestment of these reserves contributes to long-term financial stability and steady returns," he concluded.