Prof. Dr. Nassif Jassim Al-Jboory The importance of the banking system as a fundamental pillar for development and investment Banks represent the lifeblood that feeds any economy; they are not just places to keep money, but the financial intermediary that collects idle savings from individuals and institutions and injects them in the form of loans and investments into productive sectors (such as industry, agriculture, and real estate). In a country like Iraq striving for reconstruction and growth, the banking system is supposed to be the primary driver for attracting domestic and foreign capital, facilitating trade, and mitigating the risks associated with financial transactions. The absence of a sophisticated banking system hinders development and keeps the economy reliant on outdated and inefficient methods. The reality of Iraqi banks: the dominance of state-owned banks and the lack of public trust in the private sector. The Iraqi banking landscape is characterized by a clear structural flaw that manifests itself in two main points: •Public sector dominance: Major state-owned banks (such as Rafidain, Rasheed, and the Trade Bank of Iraq (TBI )) control approximately 80% to 85% of the country's total assets and deposits. This monopoly stems from these banks' control over the processing of state employee salaries and the accounts of government institutions. •Weak public trust in the private sector: Despite the presence of dozens of private banks, most suffer from a lack of public confidence. This stems from past experiences of some private banks failing or going bankrupt, in addition to many focusing on foreign exchange transactions and dollar purchases rather than providing genuine banking services (such as financing and investment). Consequently, the phenomenon of "home hoarding" persists , with most citizens preferring to keep their money at home ("under the floorboards") rather than depositing it in banks. Exchange rate crisis: The impact of the gap between the official rate and the parallel market rate Iraq has witnessed the emergence of two distinct exchange rates for the US dollar against the dinar: the official rate set by the Central Bank (for commercial transactions that meet the regulations), and the parallel rate on the black market. This gap negatively impacts financial stability in several ways. •High inflation and high prices: Most small traders and importers rely on the parallel market to provide dollars, which raises the cost of imports and translates directly into higher prices for basic commodities and food for the citizen. •Confusion in the investment environment: The gap between the two prices creates a state of uncertainty and volatility, as it is difficult for the local or foreign investor to prepare accurate feasibility studies or predict his real profits and costs. •Speculation and money laundering: The price gap tempts speculators to circumvent the system to obtain dollars at the official rate and resell them in the parallel market to make illicit profits, which strains the country’s cash reserves and affects Iraq’s international financial reputation. •Compliance and dollar terms: The imposition of strict international restrictions and standards (such as the Remittance Platform and FATF rules ) to monitor the movement of funds and combat money laundering has led to restrictions on the central bank’s daily dollar sales and a limit on irregular transfers. •The phenomenon of the cash economy: Citizens are keeping money in their homes (hoarding) instead of depositing it in banks due to a lack of trust, which has led to most of the cash flow leaving the banking system and disrupting its investment. •Delays in financial inclusion and system modernization: The slow adoption of electronic payment and digital services by society, and the continued reliance on traditional paper transactions, are delaying the development of the Iraqi banking sector. •Vision for reform: Implementing transparency and self-regulation within banks, while developing their technological and security infrastructure to build a modern and reliable banking sector. •Supporting financial inclusion: Providing facilities and incentives (such as reduced fees and prizes) to encourage citizens and merchants to use cards and bank accounts instead of cash