The country’s central bank said in a statement that the new exchange rate had been decided at a meeting of Iraq’s Cabinet the night before “to meet the relevant financial, economic and monetary requirements.”

The previous exchange rate was set in 2023. In practice, there has always been a gap between the official rate and the market rate used by exchange shops.

That gap had widened in recent months as a result of the U.S. war with Iran — which has sometimes spilled over into Iraq — and disruptions to shipping in the Strait of Hormuz.

Iraq’s economy relies heavily on oil exports, most of which were shipped via the strait before the war. Since the war started, Iraq has resorted to shipping oil overland through Syria for export, but the route is more expensive and less efficient.

The devaluation of the dinar means that each dollar earned from oil exports brings in more dinars, helping the Iraqi government cover domestic spending. But it also makes imports more expensive, which potentially drives up prices for consumers.

Iraqi traders said they risked losing money as a result of the devaluation, while consumers are worried that prices will increase.

Ali al-Bahadili, a businessman in Baghdad who sells clothes imported from China, said he will lose out as a result of the exchange rate change.

“People owe us in Iraqi dinars, and we owe people in China in dollars,” he said.

The unofficial rate had risen to more than 1,600 dinars to the dollar before the official devaluation was announced. After the announcement of the new official exchange rate, the market rate jumped to more than 1,700 dinars to the dollar.

In the city of Irbil in northern Iraq, many exchange shops were shuttered after the change was announced.

At the new official rate, Iraq’s Finance Ministry will sell dollars at 1,500 dinars for $1, while consumers purchasing from banks will pay 1,520 dinars for a dollar.