Iraq’s Central Bank Crypto Ban: Rules, Enforcement & CBDC Plans

When the Central Bank of Iraq the nation’s monetary authority responsible for issuing the dinar and supervising banks first announced a crypto ban in 2017, it sent a clear signal: digital assets were not welcome in the formal financial system. Sixyears later, Iraq remains one of only ten countries worldwide that still enforce a blanket prohibition on cryptocurrency transactions. This article untangles the legal web, looks at how (or whether) the rules are enforced, and explains why the same institution is now pushing a state‑run Central Bank Digital Currency (CBDC).

Key Points

• CBI Circular No.125/5/9 (Nov2021) bans all banks, non‑bank financial intermediaries and payment providers from dealing with any virtual asset.
• The 2022 directive aligns the ban with Financial Action Task Force an intergovernmental body that sets AML/CTF standards recommendations, adding enhanced‑due‑diligence requirements.
• Religious rulings, especially from the Supreme Fatwa Authority of the Kurdistan Regional Government the top Islamic clerical council in Iraqi Kurdistan, reinforce the ban on specific scams like OneCoin.
• Enforcement against individual users is vague; most penalties target institutions, leaving a gray‑area for private traders.
• In March2025 the CBI announced a research‑driven plan to launch a state‑controlled Central Bank Digital Currency a digital version of the Iraqi dinar issued and monitored by the central bank, positioning Iraq as an early CBDC adopter in the Middle East.

Legal Framework Behind the Ban

The ban rests on two main documents. First, CBI Circular No.125/5/9 (issued 22Nov2021) states that any “virtual asset” has no legal tender status in Iraq and that supervised entities may not process, hold, or even facilitate crypto‑related payments. The circular explicitly mentions banks, non‑bank financial intermediaries and electronic payment service providers.

A follow‑up directive dated 26Mar2022 expands the scope by mapping the prohibition to the latest FATF global anti‑money‑laundering standards (2018‑2022 recommendations). It adds mandatory enhanced‑due‑diligence (EDD) steps, internal policy reviews, and a clear prohibition on using payment cards or e‑wallets for speculative trading.

Combined, these rules create a regulatory environment where crypto is not just unregulated-it is expressly illegal for any regulated entity to touch it.

Enforcement Reality: Institutional vs. Individual

Financial institutions face a straightforward compliance checklist: update AML policies, block crypto‑related merchant codes, and report any attempted breaches to the CBI. Non‑compliance can trigger fines, license suspensions, or even revocation. However, the law stops short of criminalising private ownership or peer‑to‑peer transfers.

For individual users, the picture is hazier. While no criminal code explicitly bans possession of Bitcoin or other tokens, the broader AML framework can be invoked if a user’s activity is deemed suspicious. In practice, law‑enforcement raids on informal trading hubs have been sporadic and often lack clear evidence of prosecution.

This enforcement asymmetry means banks bear heavy administrative burdens while a shadow market continues to flourish-albeit on a modest scale compared with nations like China.

Religious and Cultural Reinforcement

In 2018 the Supreme Fatwa Authority of the Kurdistan Regional Government issued a religious decree declaring the OneCoin scheme haram. While OneCoin was a specific fraud, the fatwa set a precedent: many Iraqi citizens view cryptocurrencies through a religious lens that aligns with the state’s financial policy.

This cultural backing amplifies the regulatory message, especially in regions where religious edicts heavily influence public opinion.

Why the Ban? Economic Pressures and Liquidity Gaps

Iraq’s macro‑economic backdrop provides context. Deposits represent only about8.8% of the total money supply, indicating a weak banking sector. Monthly budgetary needs hover around18-20trillion Iraqi dinars, yet cash flow shortages are chronic.

The 2020 devaluation of the dinar (from 1,182IQD/$ to 1,450IQD/$) sparked public anger as prices surged, underscoring the volatility that policymakers fear could be amplified by unregulated crypto markets.

In this fragile setting, the CBI argues that a total ban protects the financial system from “speculative bubbles, money‑laundering, and terrorist financing”.

CBDC: The State‑Controlled Digital Alternative

Ironically, while banning private digital assets, Iraq is moving ahead with a state‑run CBDC a digital version of the national currency issued and overseen by the central bank. In March2025, financial advisor MazharMohammedSaleh announced a research‑driven pilot aimed at reducing cash leakage, printing costs, and illegal money flows.

The proposed benefits include:

• Real‑time tracking of spending trends, aiding AML efforts.
• Greater financial inclusion by providing a digital payment channel for the unbanked.
• Enhanced monetary policy control through programmable money.

Critics warn that a government‑controlled CBDC could become a surveillance tool, especially given Iraq’s low scores on civil liberties and political rights. The Human Rights Foundation an international NGO monitoring civil freedoms rates Iraq’s financial freedom poorly, raising concerns about privacy in a digital currency system.

Comparison: Iraq vs. Other Crypto‑Regulation Models

Unlike China’s ban that is aggressively enforced across the board, Iraq’s policy is mostly a top‑down directive aimed at banks, leaving the informal sector relatively untouched.

Implications for Investors and Businesses

If you run a fintech startup or manage an exchange that wants to enter the Iraqi market, the answer is clear: you cannot. The CBI’s circular makes any crypto‑related service a violation of banking law.

For individual investors, the safest route is to keep crypto holdings offshore or on decentralized platforms that do not interact with Iraqi banks. However, moving funds in and out of the country may trigger AML scrutiny under the 2022 directive.

Companies interested in the forthcoming CBDC should monitor the Central Bank’s pilot announcements. Early participation could grant access to a government‑backed digital payment channel, but be prepared for strict KYC and data‑sharing requirements.

Criticism and Future Outlook

Legal scholars, such as those from Al Nesoor Law Firm a Baghdad‑based legal advisory practice, argue that a total prohibition creates a “legal vacuum” where illicit activity thrives under the radar, while legitimate innovation is stifled.

Human‑rights observers worry that the planned CBDC could become a surveillance apparatus, especially in a country where dissent is already monitored heavily.

Nevertheless, the CBI’s alignment with FATF standards shows a commitment to international compliance. As the global trend leans toward regulated crypto ecosystems, Iraq may eventually reconsider its blanket ban, perhaps moving to a licensing model that co‑exists with a state‑run digital currency.

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