Iraq's central bank has eased restrictions on private banks in its Kurdistan region, telling them they could keep branches there open just a week after ordering them closed, central bank sources told Reuters on Tuesday. The reversal of the bank restrictions signals a step towards de-escalating a conflict between Baghdad and the Kurdish region that erupted after the Kurds held a referendum on independence in September.
Banking sources said at the time of the closure of bank branches last week that the measures were intended to control the flow of hard currency into the Kurdish region. The central bank will monitor foreign currency transactions very closely, the central bank sources said on Tuesday.
The Baghdad government responded to the Kurdish independence referendum by swiftly seizing the Kurdish-held city of Kirkuk and other territory disputed between the Kurds and the central government. It also banned direct flights to Kurdistan and demanded control over border crossings.