Dr. Haider Nima Bakhit – University of Kufa, Faculty of Administration and Economics
The stability of the monetary system is considered one of the most important objectives of monetary policy, as it contributes to enhancing confidence in the national currency, achieving financial stability, and supporting economic activity. However, the Iraqi economy faces multiple challenges related to liquidity management, represented by the high volume of cash circulating outside the banking system, weak financial inclusion, and continued reliance on cash transactions in most economic activities. This has led to the emergence of a gap between the volume of the circulating money supply and the volume of liquidity available within banks. Therefore, the Central Bank of Iraq views enhancing financial inclusion and transitioning towards digital payments as one of the most critical pillars of financial reform in the coming years.
Available official data from the Central Bank of Iraq indicates that the volume of currency circulating outside the banking system reached 93.4 trillion dinars at the end of 2024, while the broad money supply (M2) amounted to approximately 174.0 trillion dinars. This means that more than half of the cash liquidity remains outside the banking sector, which limits the ability of banks to finance economic activity and significantly weakens the effectiveness of monetary policy tools in Iraq. Conversely, during 2023 and 2024, Iraq witnessed a clear expansion in the use of electronic payment methods, as part of the Central Bank’s efforts to reduce reliance on paper cash. Additionally, the National Financial Inclusion Strategy (2025–2029) included ambitious goals represented by raising the rate of bank or digital account ownership to 50% of the adult population by 2030 and increasing the use of digital payments to 85%, in a manner that enhances the financial system’s ability to attract hoarded money and integrate it into the economic cycle.
From this standpoint, the importance of linking the zero-removal project with digital transformation emerges, ensuring that monetary reform is not limited to replacing banknotes after the zeros are removed, but rather transforms into a tool for returning hoarded funds to the banking system. This is achieved by encouraging the use of bank accounts, electronic wallets, and digital payment systems, thereby addressing the problem of cash liquidity shortages and enhancing the efficiency of monetary policy in Iraq.
