Understanding the Central Bank of Iraq's Crypto Restrictions and Future CBDC Plans

• by Eamon Ledgerwood
• Oct 26, 2025
• 2 Comments

Understanding the Central Bank of Iraq's Crypto Restrictions and Future CBDC Plans

The Iraq cryptocurrency ban has made headlines for its harsh stance on digital assets, but what does it really mean for banks, businesses, and everyday users? This guide breaks down the legal framework, enforcement reality, regional comparisons, and the country’s parallel push toward a state‑run Central Bank Digital Currency (CBDC). By the end, you’ll know exactly where the line is drawn, why it was drawn, and what could change next.

Legal Backbone: How the Ban Was Enforced

Central Bank of Iraq is the sovereign authority that issued the first crypto prohibition in 2017, citing financial‑crime risks and consumer‑protection concerns. The ban was codified in CBI Circular No. 125/5/9, released on 22 November 2021. This circular explicitly forbids all supervised entities-including banks, non‑bank financial intermediaries, and electronic‑payment service providers-from conducting any transaction involving virtual assets or cryptocurrencies.

The circular also declares that digital assets have no legal tender status in Iraq, meaning they cannot be used to settle debts or obligations. A follow‑up directive on 26 March 2022 aligned the policy with the Financial Action Task Force (FATF) Recommendations, tightening anti‑money‑laundering (AML) and counter‑terrorist‑financing (CTF) rules around virtual assets.

What the Rules Actually Prohibit

• Banks cannot hold, trade, or facilitate cryptocurrency transactions.
• Payment cards, e‑wallets, and other electronic instruments are barred from being used for crypto purchases.
• Non‑bank financial intermediaries must conduct enhanced due‑diligence and are prohibited from offering crypto‑related services.
• Any internal policy that allows speculative trading of digital assets is deemed non‑compliant.

Violations trigger administrative penalties and may lead to revocation of operating licenses, but enforcement against individual users remains vague.

Enforcement Gaps: The Gray Zone for Individuals

While the CBI’s directives target institutions, they do not criminalize personal ownership of cryptocurrencies. This creates a legal gray area: individuals who hold Bitcoin or trade on peer‑to‑peer platforms are not explicitly breaking the law, yet they may attract scrutiny under AML statutes if large transfers are detected.

In practice, enforcement against private users is inconsistent. Some reports note occasional raids on informal trading hubs in Baghdad and Erbil, but many users continue to operate via offshore exchanges or VPN‑masked platforms. The lack of a clear criminal provision means the risk level varies case‑by‑case, often depending on the scale of activity and the visibility of the transaction.

Regional and Global Context: How Iraq Stands Apart

Only about ten countries worldwide maintain a total prohibition on crypto, placing Iraq in a small, restrictive cohort. By contrast, neighboring Saudi Arabia and the United Arab Emirates have adopted licensing regimes that allow regulated crypto services. China, while strict, still permits limited mining activities under tight state control, whereas Iraq’s policy bans both institutional and consumer‑facing services.

Chainalysis’ 2024 Global Crypto Adoption Index ranks Iraq near the bottom-practically zero measurable legitimate activity-while countries like the United Kingdom and Singapore sit at the top with robust regulatory sandboxes. This stark difference underscores Iraq’s isolation from the global trend of integrating digital assets into regulated financial ecosystems.

Religious Rulings: Adding a Cultural Layer

The restrictive stance receives backing from religious authorities. The Supreme Fatwa Authority of the Kurdistan Regional Government (KRG) issued a formal fatwa against the OneCoin scheme in 2018, labeling it impermissible under Islamic law. Although OneCoin was later exposed as a massive fraud, the ruling set a precedent that many Iraqi citizens interpret as a broader disapproval of all cryptocurrencies.

These religious pronouncements reinforce public skepticism and provide an additional compliance incentive for financial institutions wary of both legal and societal backlash.

Parallel Track: Iraq’s Push Toward a State‑Controlled CBDC

In March 2025, Mazhar Mohammed Saleh-a senior financial advisor to the Iraqi Prime Minister-announced that the CBI is researching a Central Bank Digital Currency. The proposed CBDC aims to reduce cash leakage, lower printing costs, improve tracking of financial flows, and bolster AML efforts. Unlike the outright ban on private crypto, the CBDC would be a sovereign digital token fully controlled by the Central Bank.

Key anticipated benefits include:

1. Enhanced visibility into spending patterns for regulatory bodies.
2. Potential to increase financial inclusion by providing a digital payment method for the unbanked.
3. Improved ability to enforce sanctions and combat illicit financing.

Critics, however, warn that a state‑run CBDC could become a tool for pervasive surveillance, especially in a country where dissent on social media already faces crackdowns.

Economic Backdrop: Why the Ban and CBDC Matter

Iraq’s financial system wrestles with severe liquidity constraints. Deposits represent only 8.8 % of the total money supply, and the government’s monthly budgetary needs hover between 18 and 20 trillion dinars. The 2020 devaluation of the dinar-shifting from 1,182 to 1,450 dinars per US dollar-triggered sharp price hikes and public unrest.

Faced with cash shortages and high inflation, the government sees a CBDC as a way to tighten monetary control while the crypto ban protects the fragile banking sector from volatile, speculative assets that could exacerbate liquidity risks.

Human Rights and Legal Critiques

The Human Rights Foundation’s CBDC Tracker rates Iraq poorly on financial freedom, noting that “the combination of a total crypto ban and a state‑run digital currency could dramatically expand governmental surveillance.” Legal analysts at Al Nesoor Law Firm argue that a balanced approach-encouraging innovation while safeguarding systemic stability-would align Iraq with emerging global standards.

Human rights groups also highlight that the lack of clear legislation on personal crypto ownership creates legal uncertainty, potentially exposing individuals to arbitrary AML investigations without due process.

Future Outlook: Will the Ban Stay or Evolve?

Two forces shape the next chapter:

• International pressure. Continued alignment with FATF recommendations suggests the CBI will keep tightening AML rules, but the global shift toward regulated crypto may eventually push Iraq to reconsider a total prohibition.
• Domestic demand. Underground trading networks signal persistent public interest. If the CBDC rollout proves cumbersome or invasive, citizens may intensify crypto use as a hedge against state surveillance.

For now, the official line remains clear: no licensed financial institution may touch crypto, and any future change will likely come through a formal amendment to CBI Circular No. 125/5/9.

Quick FAQ

Comparison Table: Crypto Policy Spectrum in the Middle East

Understanding the Central Bank’s hard line helps you gauge the real risk of engaging with crypto in Iraq. Whether you’re a fintech entrepreneur, an expatriate worker, or just curious about the regulatory climate, the key takeaways are clear: institutions are locked out, individuals operate in a legal gray zone, and a government‑run digital currency looms on the horizon.