A growing crisis grips Iraq’s financial system as dollar hoarding outside banks reaches alarming levels. According to a top advisor to the Iraqi Prime Minister, nearly 90% of the country’s money supply remains outside the formal banking system.
Mazhar Mohammed Salih, financial advisor to Prime Minister Mohammed Shia’ al-Sudani, revealed that between 87% and 90% of all currency is held in cash. This trend, he warned, seriously threatens Iraq’s financial stability and limits long-term growth.
Salih explained the magnitude of the problem with a clear example. Out of 100 trillion dinars in circulation, nearly 92 trillion dinars never enter the banking system. These idle funds sit in homes instead of supporting economic activity.
This dangerous habit of dollar hoarding outside banks stems mainly from public distrust. Many Iraqis avoid banks due to past scandals, lack of transparency, and poor service. Religious concerns also play a role, as interest-based banking conflicts with Islamic beliefs. In addition, many people remain unfamiliar with basic banking tools and services.
Salih stressed that Iraq’s economy has plenty of cash, but banks remain liquidity-poor. The government faces similar hurdles. Meanwhile, the public keeps large sums at home, unused and unproductive.
To address this issue, Salih proposed a series of urgent reforms. He emphasized the importance of deposit insurance to win public trust. Clear guarantees and strong public awareness campaigns can encourage more people to deposit their money.
He also called for promoting government bonds with sovereign guarantees to attract savers. Another critical step involves expanding digital financial tools. With broader access to electronic payments and card-based banking, more Iraqis could open and use bank accounts regularly.
Salih explained that expanding digital inclusion could break the harmful habit of hoarding. It would also help boost economic investment and energize Iraq’s financial system.
However, deeper structural issues still cripple Iraq’s banks. Many institutions rely too heavily on the Central Bank’s currency auctions instead of financing growth-driven investments. Corruption, poor legal protections, and inflexible services worsen public mistrust.
Withdrawal limits, theft concerns, and outdated laws all discourage citizens from using banks. Most banks focus on state-linked activities and lack the ability to offer modern services.
Though digital banking interest is rising, progress remains slow. The infrastructure is weak, and regulations remain undeveloped. Most Iraqis convert digital salaries into cash immediately, proving that dollar hoarding outside banks still dominates daily life.
Without swift reforms and stronger trust in the system, Iraq’s financial future will remain fragile.