The study indicates that after applying the electronic platform and the conditions established by compliance requirements, the restricted foreign exchange reserves become the main driver in money creation through the monetary base. The foreign exchange reserves function is dependent on the monetary base; therefore, the increasing international demand for Iraqi dinars in foreign trade financing and the movement of reserve funds contribute to changes in the domestic money supply. Consequently, the increase in foreign reserves through the surplus of the current account leads to an increase in the domestic money supply, which may affect exchange rate stability. Therefore, monetary policy faces challenges in controlling excess liquidity, and it can be argued that the low flexibility of foreign reserves to exchange rate changes is related to monetary sterilization policies. In Iraq, foreign reserves are largely governed by the components of the monetary base and are restricted by oil revenues through the government budget. The monetary base expands when the Central Bank increases domestic credit. In the context of Iraq and other oil-dependent rentier economies, an expansionary monetary policy (an increase in domestic credit) may lead to an increase in money supply if foreign reserves decrease. Conversely, an increase in foreign reserves can contribute to monetary expansion through the growth of the monetary base.
