In Mosul, there are no official banks anymore.So the Islamic State makes the rules: No high interest rates and exchange rates that work in their favour. The latter means that, ironically, the US dollar is king here.

Favourable exchange rates: An Iraqi man at one of the country's many exchange shops counts out US dollars. (photo: يوري كورتز)

There is one American who is particularly welcome on the streets of the extremist-run, northern Iraqi city of Mosul. And his name is Benjamin Franklin - the face of this particular founding father is on the US$100 bill. Because strangely enough for a group that declared itself an independent Islamic state in the middle of Iraq, US dollars play a vital role in the “state’s” funding and monetary policy, a policy they’ve invented that means they get to make more money from things like currency exchange.

What the extremists call Bayt Al Mal, or the House of Money in English, acts as a kind of ministry of finance for the territory that the Islamic State, or IS, group controls.

In Mosul, rules made up at the Bayt Al Mal govern the way that money traders and exchange merchants in the city can do business. These kinds of exchange shops were common before the Islamic State arrived here – they can be found in most other Iraqi cities too and make up a kind of informal banking network, combining currency exchange and money transfers. After state and private banks stopped operating in Mosul when the IS group took the city over almost two years ago, the exchange shops became the only form of banking available to locals.

The Islamic State members monitor the exchange shops' work and send spies in to make sure rules are not being broken.

The IS group has established its own exchange shops to compete with longer-established businesses in Mosul and locals say the extremists have also had private individuals open exchange shops, even though these are controlled by, and benefit, the IS group. It’s their way of controlling the money market. And even if the shops are not being run directly by the IS group, they must operate under strict regulations.

The Bayt Al Mal’s instructions on cash transactions are printed and hung on the windows of all of the exchange shops. IS members who work for the Bayt Al Mal monitor the work being done in the small exchange offices and they also send in spies to check rules are not being broken. During an interview conducted over a messaging app, Abu Saad*, one of the locals working in a cash office, told NIQASH that high interest rates, or riba, are strictly forbidden as is lending long term. Transferring cash, or receiving cash, cannot be done either, unless the Mosul local presents their identification card and proof of an address in the city.

The Bayt Al Mal also determines the exchange rate - it's more expensive to exchange dinars for dollars in Mosul than in Baghdad, for example - and severely restricts the movement of cash. Nobody may take more than US$10,000 with them unless they have a license to carry that much money – the licenses are issued by the IS group and are only given to local businessmen, Abu Saad explains.

According to one local man, Ahmad Salman*, who used to work for a bank in Mosul, the exchange shops run by the IS group don’t just exchange US dollars for dinars. Salman says they also facilitate the smuggling of US cash into the city. After the Iraqi government stopped sending almost any kind of funds into Mosul, there was a shortage of US dollars – this currency is often used for big ticket purchases or in business in Iraq, as the equivalent amount of Iraqi dinars would fill several duffel bags and nobody wants to carry that much paper around. Dollars were needed in Mosul and both Arab and Kurdish smugglers began taking advantage of this, making about 7 percent extra on whatever cash they brought into the city, Salman notes.

Baghdad used to be the most important route for smuggled US dollars but it has become more difficult to bring cash in this way after military operations were launched against the IS group in the Samarra Island area.

“The other source of smuggled US dollars now is Iraqi Kurdistan,” Salman told NIQASH. “Erbil and Dohuk in particular – and the money passes through the Mosul Dam area to get here.”

Syrian merchants who travel into Iraq via territory controlled by the IS group also bring US dollars into Mosul.

“The IS group is making around an extra 20 percent from all this money exchange,” another former banker still living in Mosul told NIQASH. All of the organization’s revenues tend to come in US dollars – sales out of factories it controls, profits from businesses, taxes it levies and fines for crimes. But as an employer – after all, the IS group run their territory as bureaucratically as a small, tyrannical government – the extremists also have to pay all of their staff, those working in healthcare or on street maintenance, for example. And they make the salary payments using Iraqi dinars.

So they get to double dip because they control the sources of cash, making extra revenue when people are forced to change dollars into dinars, or vice versa.

Interestingly, and somewhat ironically, the result of all of this wheeling and dealing is that the current master of Mosul’s money markets is the US dollar, followed by those worn out Iraqi dinars. As for the IS group’s legendary golden dinar, that everybody in Mosul got sick of hearing about, well, that isn’t being mentioned by anyone anymore.

*Names of individuals still in Mosul, or with families still in Mosul, have been changed for security reasons.