The regulations were meant to prevent dollar transfers to corrupt actors. But they have ended up harming ordinary Iraqis who need U.S. currency for legitimate purposes.

When the United States and Iraq recently put tough new international banking rules into effect, the intent was to stem the illicit flow of dollars to criminal actors and money launderers, including those helping groups in Iran and Syria.

But in a country with a primarily cash economy, the changes created unintended hardships for ordinary Iraqis who need dollars for travel abroad. Demand for dollars has increased and the cost in Iraqi dinars at some local currency traders has surged.

Long lines are forming early in the day outside money changers’ shops, where Iraqis planning to travel outside the country often turn up grasping plastic bags stuffed with dinars, which banks outside the country do not accept. These days, it’s not easy to find a money changer who still has dollars. And those who do run out early.

“I don’t have any dollars left,” one currency trader, Abu Ali, said last week at his shop in Baghdad’s Karrada neighborhood.

The new rules, worked out in an agreement between the United States and Iraq, require greater transparency surrounding the wire transfers of dollars held as foreign currency reserves for Iraq in an account at the Federal Reserve Bank of New York. They went into effect late last year.

The agreement was part of a long-delayed modernization of Iraq’s financial system as it begins to conform to the rules that most countries follow and adapts to requirements for more transparency in international financial transactions.

But some Iraqi merchants and others who used to be able to make payments in dollars by international wire transfers have been unable or unwilling to satisfy the tighter transparency requirements. So they are turning to money changers, creating the greater demand for dollars on the Iraqi street that is driving up the price in dinars.

Every day, the Central Bank of Iraq facilitates wire transfers from its account at the New York Fed on behalf of Iraqi businesses and individuals to pay for goods from outside Iraq. The transfers are critical because few businesses have international bank accounts.

Separately, a sum in cash is sent to the Iraqi central bank, intended for currency exchanges and banks to distribute largely to Iraqis traveling abroad.

Until the new rules were put in place, there had been little in the way of electronic footprints to help U.S. officials trace whether some of the transfers were ending up in the hands of criminal actors.

For example, an Iraqi party might request that a wire in dollars be sent to a bank in another country, such as the United Arab Emirates, in payment for goods that are being imported into Iraq. But, the account in the U.A.E. could also be used to move dollars outside Iraq to launder money or supply a party under sanctions. So more information was needed to be sure that such transactions are legitimate.

The concerns about dollars ending up in the wrong hands date back to soon after the 2003 U.S. invasion of Iraq. At that time, American authorities were concerned primarily about cash transfers but the U.S. Treasury later turned its attention increasingly to wire transfers.

The Treasury wanted to ensure that dollars sent by wire were not being sent in violation of U.S. law to fronts or agents for parties under sanctions or criminal entities. In congressional testimony in 2016, for example, a top Treasury official noted three groups targeted by sanctions that were known to be active in Iraq: Al Qaeda, the Islamic State and the Iran-backed Lebanese militia Hezbollah.

With the Islamic State’s takeover of northern Iraq in 2014, it seized a branch of Iraq’s central bank and those concerns became more urgent. The situation underscored the need for more transparency in the dollar wire transfers.

After the Iraqis finally defeated the Islamic State in 2018, Iraqi and U.S. bankers and the Treasury began to discuss a new system for wire transfers.

Under the new regulations, both individuals and companies requesting wire transfers of dollars must disclose their own identity, and the identity of whoever is ultimately getting the money. That information is then reviewed by an electronic system as well as by experts at Iraq’s central bank and the New York Fed before payment is made.

The new system allows banks around the world to conduct automatic checks on transfers of money from Iraq to other countries, said Ahmed Tabaqchali, the chief strategist for Asia Frontier Capital’s Iraq fund.

“In short, the system heightens the visibility of red flags,” he said.

Now, many requests are being rejected, said Mudher Salih, a former deputy head of Iraq’s central bank and now a financial policy adviser to Iraq’s new prime minister, Mohammed Shia al-Sudani. Sometimes, he said, that is because of suspect identities but other times it is because many Iraqi businesses do not have the requisite licenses to import goods or are not properly registered as commercial entities and therefore are in violation of Iraqi law.

The rejections have created a greater demand for dollars at Iraqi money changers, which has sharply increased their cost for Iraqis with legitimate needs, he added.

Since 2003, there have been two Iraqi dinar rates for buying dollars; an official rate established by Iraq’s central bank and an unofficial street rate, which is higher. And when dollars are scarce, the street price goes up.

The difference between the two is creating hardships for Iraqis like Janna, a mother of four. She said she had been saving up to buy a refrigerator and had her eye on a German model that cost about $250. In October, that was the equivalent of 320,000 dinars. Today, because of the scarcity of dollars, the refrigerator would cost 375,000 dinars.

“It’s more than I can afford,” she said.

After the new wire transfer rules took effect, the quantity of dollars flowing daily into Iraq by wire fell sharply — on some days down by nearly 65 percent from $180 million to $67 million — compared with the period before the rules were implemented, according to the daily wire transfer numbers released by Iraq’s central bank.

The transfers have since picked up, but they are still often less than half of what they were before the new system was put in place.

It is not clear exactly how much of the drop in transfers reflects illicit recipients.

“I would not put down to fraud the almost 90 percent drop,” said Douglas Silliman, president of the Arab Gulf States Institute in Washington and a former U.S. ambassador to Iraq. “Maybe it’s 45 percent fraud and 45 percent incompetence or just not knowing how to deal with the new regulations.”