A Banking Boom or a Dollar-Trading Empire? Why Iraq's Financial System Faces a Crisis of Trust

Despite having 87 banks, Iraq continues to struggle with financial inclusion and public trust. Is the country's banking sector serving the economy—or profiting from the dollar trade?

Iraq Has More Banks Than Many Major Economies—But Fewer People Trust Them

On paper, Iraq appears to have a thriving banking sector.

The country, with a population of around 46 million, is home to seven state-owned banks and roughly 80 private banks, giving it one of the highest bank-to-population ratios in the region.

Yet beneath those impressive numbers lies a stark contradiction: millions of Iraqis still prefer to keep their savings in cash at home rather than deposit them in banks.

Economist Mohammed Hussein argues that this disconnect exposes one of Iraq's deepest structural economic problems. The issue, he says, is not the number of banks—it is what many of them actually do.

His criticism revives a long-running debate over whether Iraq's private banking sector functions as a genuine financial system or whether much of it has evolved into a mechanism for profiting from access to U.S. dollars through the Central Bank of Iraq's foreign currency operations.

If that assessment is accurate, the implications extend far beyond banking. They touch investment, economic diversification, corruption, and Iraq's long-term financial stability.

87 Iraqi banks versus 20 Chinese banks; The banking sector or the dollar trading shop?

Economist Mohammed Hussein highlighted the basic problems of the banking sector in Iraq and compared it with major countries in the world.

He noted that Iraq, with a population of 46 million, has seven state-owned banks and about 80 private banks; China, which controls the world economy and has a population of 1.3 billion, has only 20 banks. The United States, with a population of less than 400 million, has 50 banks.

"The 80 private banks in Iraq cannot provide proper and professional banking services, which is why people do not trust them and hide their money at home, in the basement, under the walls and inappropriate places," he said.

“Most of these private banks were established in the past by parties, politicians and powerful people only with the aim of receiving dollars from the central bank at the official rate and then selling them at higher prices in the market and make a profit.

The Numbers Tell an Unusual Story

Hussein compares Iraq with some of the world's largest economies.

• Iraq: 46 million people — approximately 87 banks
• United States: nearly 350–400 million people — around 50 major nationally significant banks (though the U.S. has thousands of banking institutions if smaller community banks and credit unions are included)
• China: more than 1.4 billion people — roughly 20 dominant national commercial banks and major state-owned banking groups

The comparison is intended to highlight Iraq's unusually large number of licensed banks relative to the size of its economy.

While bank counts alone do not determine the health of a financial system, they raise an important question:

Why has a country with so many banks failed to build widespread public confidence in formal banking services?

Why Iraqis Still Hide Their Money

For many Iraqi families, cash remains king.

Instead of depositing their savings in banks, people often keep money:

• At home.
• In safes.
• Hidden inside walls.
• Buried underground.
• With trusted relatives.

This phenomenon reflects decades of political instability, sanctions, wars, banking crises, and weak confidence in financial institutions.

Without trust, banks struggle to attract deposits.

Without deposits, they cannot effectively finance businesses or economic development.

The Dollar Auction Controversy

Perhaps the most controversial criticism concerns Iraq's foreign currency system.

For years, the Central Bank of Iraq (CBI) has sold U.S. dollars to licensed banks and financial institutions to finance imports and stabilize the exchange rate.

Supporters argue that this mechanism is essential for ensuring sufficient foreign currency liquidity and supporting trade.

Critics, however, have long alleged that some institutions exploited the system by purchasing dollars at the official exchange rate and then profiting from selling them at higher prices in the parallel market.

Mohammed Hussein contends that many private banks were created primarily to benefit from this mechanism rather than to provide modern banking services such as:

• Business lending.
• Consumer finance.
• Digital banking.
• Mortgage lending.
• Investment financing.
• Financial innovation.

Although Iraqi authorities have introduced reforms in recent years to tighten oversight of foreign currency transactions, concerns about governance and transparency continue to shape public debate.

Why a Weak Banking Sector Hurts the Economy

A healthy banking system does much more than hold deposits.

Banks should channel savings into productive investment by financing:

• Small businesses.
• Factories.
• Agriculture.
• Housing.
• Infrastructure.
• Technology companies.

When banks fail to perform these functions effectively, economic growth slows.

Entrepreneurs struggle to obtain financing.

Young companies cannot expand.

Investment increasingly depends on government spending rather than private capital.

This is one reason Iraq continues to face challenges in diversifying an economy that remains heavily dependent on oil revenues.

The Cost of Public Distrust

Low confidence in banks creates a vicious cycle.

When people avoid depositing money:

• Banks have fewer resources to lend.
• Credit remains scarce.
• Businesses rely on informal financing.
• Economic activity stays concentrated in cash transactions.

Cash-heavy economies also face higher risks of tax evasion, money laundering, and corruption while limiting the effectiveness of monetary policy.

Digital Banking Could Change Everything

One opportunity for reform lies in financial technology.

Across the Middle East, digital banking, mobile payments, and electronic wallets have expanded rapidly.

If Iraq modernizes its banking infrastructure through:

• Online banking.
• Instant payments.
• Mobile banking.
• Digital identity systems.
• Faster cross-border transfers.

Public confidence could gradually improve.

Greater financial inclusion would also reduce reliance on cash and integrate more Iraqis into the formal economy.

Financial Reform Is Becoming a National Security Issue

Banking is no longer simply an economic issue.

Countries with weak financial systems often struggle to:

• Attract foreign investment.
• Prevent illicit financial flows.
• Combat corruption.
• Implement sanctions compliance.
• Integrate into global financial markets.

As Iraq seeks to deepen economic partnerships with the United States, Gulf states, Europe, and Asia, strengthening financial governance will become increasingly important.

International investors pay close attention not only to oil reserves but also to the quality of banking institutions.

The Bigger Question: Quantity or Quality?

The debate ultimately comes down to one issue.

Does Iraq need more banks—or better banks?

A modern financial sector is measured less by the number of banking licenses than by the quality of services it delivers.

Strong banks earn public trust by safeguarding deposits, extending productive credit, embracing digital innovation, and operating with transparency and sound governance.

If Iraq's banking reforms focus only on expanding the number of institutions without improving performance and accountability, the sector risks remaining disconnected from the needs of the real economy.

Conclusion

Iraq's banking paradox is striking: a country with dozens of banks, yet millions of citizens who still prefer to keep their savings at home. That disconnect points to a deeper challenge of trust, governance, and financial development.

While claims that many private banks were established primarily to profit from access to official U.S. dollar sales remain part of an ongoing public debate, they underscore the need for stronger regulation, greater transparency, and a banking sector that supports productive investment rather than speculative opportunities.

For Iraq to diversify its economy beyond oil, attract investment, and foster sustainable growth, rebuilding confidence in its financial institutions may prove just as important as any infrastructure or energy project.

Key Implications

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