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Trump Threatened To Cut Off Baghdad's Access To Its NY Fed Cash

Published: January 11, 2020
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Source: Zero Hedge

After rejecting Iraqi Prime Minister Adel Abdul Mahdi's request to begin talks on the withdrawal of American troops, there are now more signs of the eroding ties between the two countries.

The Wall Street Journal reports that according to Iraqi officials (yes, Iraq has anonymous sources too), the Trump administration warned Iraq this week that it risks losing access to a critical government bank account if Baghdad kicks out American forces.

We are sure, to Schiff et al., that sounds a lot like 'quid pro quo', but how will they balance the need to hammer the president with their neocon/establishment desire to keep boots on the ground, whatever it takes?

The warning regarding the Iraqi central bank account was conveyed to Iraq’s prime minister in a call on Wednesday, according to an official in his office, that also touched on the overall military, political and financial partnership between the two countries.

When Iraq needs hard currency, its central bank can request a shipment of bills that it then distributes into the financial system through banks and currency exchange houses. While the country’s official currency is the dinar, U.S. dollars are commonly used.

“The U.S. Fed basically has a stranglehold on the entire [Iraqi] economy,” said Shwan Taha, chairman of Iraqi investment bank Rabee Securities.

The potential economic and financial fallout is weighing on Iraqi officials

“Whenever you have any amicable divorce, you still have the worry about the children, pets, furniture and plants, some of which are sentimental,” said a senior Iraqi politician.

The New York Fed, which can freeze accounts under U.S. sanctions law or if it has reasonable suspicion the funds could violate U.S. law, said it doesn’t comment on specific account holders, but as WSJ notes, this financial threat isn’t theoretical:

The country’s financial system was squeezed in 2015 when the U.S. suspended access for several weeks to the central bank’s account at the New York Fed over concerns the cash was filtering through a loosely regulated market into Iranian banks and to the Islamic State extremist group.

The New York Fed doesn’t publicly disclose how much money it currently holds for Iraq’s central bank. But according to the Central Bank of Iraq’s most recent financial statement, at the end of 2018, the Fed held nearly $3 billion in overnight deposits.

The last few years have seen the Iraqi banking system devastated...

An adviser to the prime minister, Abd al-Hassanein al-Hanein, said that while the threat was a concern, he did not expect the U.S. to go through with it.

“If the U.S. does that, it will lose Iraq forever,” he said.

Perhaps that is why Iraq has been building its de-dollarizing, gold reserves for the last few years...

So, after a year of desperately proclaiming that "The Fed is not political," it turns out that, in fact, The Fed is extremely geopolitical - we look forward to hearing the Left defend The NY Fed's "independent" decision to potentially cripple Iran's entire financial system.

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