The paper investigates how monetary policy variables affect the stability of real exchange rate of Iraqi dinar covering the period between 2004 and 2023. The research aims to assess the articulation between significant monetary policy instruments particularly the money supply, which is M2, and governmental sales of foreign currency windows together with their impacts on changes on the exchange rates. Using an econometric quantitative approach and EViews-12, the model for this research will estimate and test underlying hypotheses along with analyzing data using the autoregressive distributed lag (ARDL) model.

Statistical inference pointed out a causal relationship for real exchange rate stability due to the monetary policy mechanisms. Actual pricing actions concerning the tendencies toward money supply M2 at the time witnessing the depreciation against the Iraqi dinar from the parallel market would add further fact that sales of foreign currency would improve stability for the exchange rate. The outcome designs go to a minus point that monetary policy became an important point in the equation of taming the exchange rate; external economic factors would also work short on where monetary policy proves to be inbound-constrained against structural challenges in Iraq as well.

It will further enlighten policymakers simply to prove that to further optimize monetary policy tools and to stabilize the foreign currency reserves contribute to the stability of exchange rates and to further economic growth.