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

Looking for a clear picture of why Iraq’s financial regulators shut the door on digital coins? This article breaks down the Central Bank of Iraq’s crypto ban, the legal scaffolding behind it, how the rule plays out on the ground, and why a state‑run digital currency is suddenly on the table.

Key Takeaways

• The Central Bank of Iraq (CBI) has enforced a total prohibition on cryptocurrency transactions since 2017.
• CBI Circular No. (125/5/9) and the March2022 directive are the legal backbone, aligning Iraq with FATF recommendations.
• Enforcement focuses on banks and payment providers; individuals operate in a gray area that still carries AML risk.
• Iraq is simultaneously developing a government‑controlled Central Bank Digital Currency (CBDC) as a “safe” alternative.
• Human‑rights and legal experts warn that the CBDC could magnify state surveillance while the crypto ban may stifle financial innovation.

Even if you’ve never heard of Iraqi finance before, the story highlights how a country can ban a technology yet still chase its benefits under strict state control.

What the Central Bank of Iraq Actually Bans

In November2021 the CBI issued CBI Circular No. (125/5/9) is a directive that explicitly forbids all supervised financial institutions-from commercial banks to e‑wallet providers-from dealing with virtual assets or cryptocurrencies. The circular makes it clear that digital tokens have no legal‑tender status in Iraq, meaning no court can enforce a claim to convert a crypto token into dinars, gold, or any other commodity.

Just months later, on 26March2022, the CBI released a follow‑up directive that mirrors the Financial Action Task Force (FATF) recommendations for 2018‑2022. It forces institutions to adopt enhanced due‑diligence procedures, to vet customers for money‑laundering red flags, and-crucially-to ban the use of payment cards, e‑wallets, or any other instrument for speculative crypto trading.

The Legal Framework in Detail

Two documents form the backbone of Iraq’s crypto policy:

1. CBI Circular No. (125/5/9) - November2021: Outlaws crypto‑related activities for all entities under CBI supervision.
2. March2022 Directive - FATF Alignment: Adds AML/CTF obligations and tightens the ban on payment‑instrument usage.

Both orders stress that virtual assets are not “legal tender,” a phrasing that removes any contractual enforceability from crypto transactions. The language also reflects Iraq’s desire to stay on the right side of global AML standards while keeping a hard line on digital‑currency adoption.

How Enforcement Plays Out on the Ground

In practice, the ban hits banks, non‑bank financial intermediaries, and payment service providers hardest. These institutions must redesign internal policies, train staff on the new AML checks, and install system blocks that prevent crypto‑related transfers.

For ordinary citizens, the picture is messier. While there is no specific criminal law that makes owning Bitcoin illegal, using a bank account or a prepaid card to buy crypto can trigger AML investigations. Enforcement against individual users is uneven; raids are rare, but financial‑crime units have flagged suspicious e‑wallet activity several times in recent years.

That inconsistency fuels a modest underground market. Small‑scale traders use peer‑to‑peer platforms, often operating out of private chat groups, to swap dollars for Bitcoin or USDT. The scale is nowhere near China’s underground exchanges, but the activity shows that a total ban does not erase demand.

Why Iraq Is Still Pursuing a State‑Run Digital Currency

In March2025, Mazhar Mohammed Saleh is the financial advisor to the Iraqi Prime Minister who announced the country’s move toward a Central Bank Digital Currency (CBDC). Saleh pitched the CBDC as a “gradual alternative to paper currency,” promising benefits such as:

• Reduced cash leakage and lower printing costs.
• Better monitoring of spending trends to combat money‑laundering.
• Improved financial inclusion for underserved populations.

The state‑run token would be fully overseen by the CBI, giving the government real‑time visibility into every transaction. In other words, Iraq wants the efficiency of digital money without handing control to private crypto developers.

Economic Pressures Behind the Policy

Iraq’s macro‑economic picture is shaky. Deposits represent only about 8.8% of the total money supply, a sign of weak banking depth. The budget needs roughly 18‑20trillion dinars per month, but cash flow remains tight. The 2020 devaluation-from 1,182 to 1,450 dinars per dollar-spooked citizens and sent food prices soaring.

These liquidity constraints make the government nervous about any financial instrument that could further drain cash reserves or destabilise the dinar. By banning private cryptocurrencies, the CBI hopes to keep money within the formal banking system, while a CBDC offers a way to digitise cash without the “risk of capital flight” that a borderless crypto could bring.

International Context: How Iraq Stands Apart

Only ten countries worldwide enforce a full crypto ban as of 2025, and Iraq ranks among the strictest. Unlike China, which allows limited crypto‑mining and trading in special zones, Iraq’s prohibitions extend to payment cards and e‑wallets-areas many other jurisdictions ignore.

Neighboring Gulf states have adopted licensing models that let regulated exchanges operate under strict AML rules. By contrast, Iraq’s approach is binary: either you are a licensed financial institution that must stay away from crypto, or you are an individual navigating a legal gray zone.

To put the ban in perspective, see the comparison table below.

Critiques and Human‑Rights Concerns

Legal analysts at Al Nesoor Law Firm is a Baghdad‑based firm that advises on financial regulation and has warned that Iraq’s blanket ban creates a legal vacuum. The firm argues the policy discourages fintech innovation while offering no clear pathway for legitimate crypto‑based services.

The Human Rights Foundation is an international NGO that tracks digital‑rights impacts; its CBDC Tracker rates Iraq poorly on financial freedom. The organization points out that a state‑run CBDC could consolidate financial data in a single government database, raising fears of increased surveillance-especially in a country where dissent on social media can lead to arrests.

These critiques highlight a tension: protecting the financial system from illicit flows versus stifling legitimate entrepreneurship and individual privacy.

Future Outlook - Will the Ban Hold?

Several forces could reshape the landscape:

• International Pressure: As global markets push for interoperable crypto standards, Iraq may face pressure from trade partners to relax its stance.
• Technology Gaps: Limited enforcement capacity means the underground market could expand if citizens seek alternatives to a cash‑heavy economy.
• CBDC Rollout: If the Iraqi CBDC launches successfully, policymakers might argue the digital‑currency need is met, reinforcing the ban.

For now, the ban remains firmly in place, and anyone needing to move money across borders or invest in digital assets must either travel abroad or rely on informal networks.