Every Day in Baghdad, an Auction Is Held: How Its Dollars Reach Tehran's FX Market

Why does Iraq's central bank sell hundreds of millions of dollars for dinars every single day? Today we learn how this daily dollar auction works, and how it reaches Tehran's currency market Because the very dinar traded in Baghdad's auction also gets a price in Tehran's exchange houses The dollar auction is a daily session where Iraq's central bank sells dollars for dinars to banks Licensed banks and exchange houses take part, and every buyer must document how it will use the dollars The central bank actually runs two rates, one for letters of credit and one for cash and remittances This auction both funds Iraq's imports and soaks up extra dinars circulating in the market On Monday, July sixth, the central bank sold two hundred seventy five million dollars in one session Suppose an exchange house buys a hundred thousand dollars officially, then resells them on the free market In Tehran's own free market, the Iraqi dinar gets its own price too, changing from week to week A bigger share of this corridor travels through hawala dealers and cross border trade instead The first common mistake is treating the official auction rate as Baghdad's free market rate The second mistake is confusing the Iraqi dinar with the United Arab Emirates dirham or the Turkish lira Here is the one thing to remember: the gap between official and free rates pushes those dollars onward Now you have the answer: that's exactly why Iraq auctions dollars every day. See you in tomorrow's lesson