From Souks to Supermarkets: Spending the Iraqi Dinar in Local Markets

The Iraqi Dinar has long been at the center of Iraq’s economy, evolving through years of economic shifts, political changes, and global influences. From traditional souks packed with fresh produce and handmade crafts to modern supermarkets selling imported goods, the way Iraqis use and perceive their currency has seen a remarkable transformation.

No matter if bustling bazaars or checking out at a supermarket, the dinar’s role in everyday transactions continues to shape local commerce.

The Iraqi Dinar in Daily Life

For most Iraqis, cash is still king. While global markets have shifted towards digital payments, Iraq’s economy remains largely cash-based. Shoppers at traditional souks count their Iraqi Dinars by the handful, bargaining over prices of spices, textiles, and gold jewelry.

Meanwhile, in modern retail spaces, supermarkets and shopping malls offer a contrast – fixed prices, card payments, and sometimes even digital transactions.

With 1 Iraqi Dinar currently valued at approximately 0.00076 USD, the numbers on price tags in local markets can be staggering for foreigners. A simple cup of tea may cost thousands of dinars, and larger purchases, such as home appliances, can easily reach the millions.

Despite this, the everyday rhythm of transactions remains unchanged, as Iraqis are accustomed to the high numerical values of their currency.

A Shift Toward a Digital Future

A significant transformation is approaching: the Central Bank of Iraq (CBI) is getting ready to launch a digital dinar. This initiative seeks to modernize the nation’s financial system by transitioning transactions from physical currency to digital platforms, thereby decreasing the reliance on banknotes for everyday purchases.

The digital dinar will function similarly to current electronic payment systems, enabling users to execute transactions through digital wallets and approved financial applications.

What’s the objective? To lessen cash dependency, bolster financial security, and integrate more individuals into the formal banking framework. This shift is particularly important in Iraq, where cash hoarding is prevalent due to a lack of confidence in banks. A considerable number of Iraqis continue to prefer keeping their wealth at home instead of in financial establishments.

With the introduction of the digital dinar, the government aspires to improve financial inclusion and curtail illegal financial activities that thrive in cash-dominated economies.

Traditional Markets: The Heart of Iraq’s Economy

Even as Iraq prepares for a digital transformation, the country’s souks (markets) remain vibrant hubs of commerce. These traditional marketplaces offer everything from fresh produce and spices to electronics and clothing.

Here’s how transactions work at souks:

• Cash-based: The vast majority of transactions are still conducted in paper dinars. Digital payments are rare, though some merchants accept mobile money transfers.
• Bargaining Culture: Prices in souks are flexible, and buyers often negotiate discounts based on the quantity they purchase.
• Gold and Jewelry: Many jewelry stores still price items in U.S. dollars, even though cash transactions in USD were recently banned. The official exchange rate is used for conversions.

Carrying​​ large amounts of dinars is common. Due to the currency’s relatively low value per unit, even a simple grocery run might require stacks of banknotes.

Supermarkets and Malls: The Modern Side of Spending

On the other end of the spectrum, supermarkets and shopping malls represent Iraq’s shift toward modern consumer culture. Major retailers like Carrefour and Baghdad Mall function in prominent urban areas, providing a well-organized shopping experience with set prices.

Here are the main distinctions between malls and souks:

• Set Prices: Unlike souks, supermarkets, and malls adhere to a rigid pricing structure, eliminating the necessity for bargaining.
• Digital Payments: While cash is still widely used, major supermarkets and chain stores are adopting card payments, with some experimenting with mobile payment options.
• Imported Goods: Many products, especially packaged foods and electronics, are priced in dinars but indirectly linked to the U.S. dollar, making them vulnerable to currency fluctuations.

Despite this modernization, cash remains the dominant form of payment. However, the upcoming digital dinar could change this landscape, making cashless payments more widely accepted in large retail spaces.

The Role of the U.S. Dollar in Iraqi Markets

For years, the U.S. dollar has played a significant role in Iraq’s economy, especially in high-value transactions. Real estate, automobiles, and even some luxury goods were frequently priced in dollars.

However, as of January 2024, Iraq officially banned cash transactions in U.S. dollars, marking a decisive step toward de-dollarization.

Here are the key effects of the ban:

• More Transactions in Iraqi Dinar: Businesses are now required to conduct domestic transactions in dinars, pushing the national currency to the forefront.
• Rising Demand for Alternative Currencies: Some international transactions have shifted toward other global currencies, such as the Euro, Turkish Lira, and Emirati Dirham.
• Challenges for Importers: Import-dependent businesses have faced difficulties adjusting to these changes, as many suppliers still prefer payments in U.S. dollars.

This ban took effect only a year ago, and not enough time has passed for us to see its real “consequences.”

Will Digital Payments Take Over?

Although digital payments are becoming more common, Iraq still faces major challenges in shifting away from cash transactions:

• Lack of Banking Trust: Many Iraqis are hesitant to store their money in banks due to past financial instability.
• Limited Financial Infrastructure: While urban areas have banking services, rural regions still rely heavily on cash.
• Public Awareness: Educating people on the benefits and security of digital payments remains a priority.

The success of the digital dinar depends on whether people and businesses trust the system enough to switch from paper money. While younger generations may adapt more quickly, naturally, older generations and traditional market vendors may take longer to embrace digital payments.

The Future of the Iraqi Dinar in Local Markets

Iraq’s economy is transitioning toward digital transactions, but cash still dominates local markets. Souks still thrive on physical dinars and bargaining, but we must admit that supermarkets slow down the adoption of digital payments.

The next big step is the digital dinar, which could modernize the system. However, its success depends on trust and infrastructure. For now, the Iraqi dinar remains the foundation of everyday spending, shaping commerce from souks to supermarkets.