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July 17, 2012
Iraqi currency change to take effect next year
Many doubt that removing the zeros on the Iraqi Dinar will strengthen its value
As per a plan by the Central Bank of Iraq (CBI), new banknotes will be printed and introduced into the market starting from the beginning of 2013. The new banknotes will have three less zeros and the text and design will be modified as well.
Although, some economists argue that the disadvantages of the change outweigh the advantages, the CBI will start the implementation of the plan at the beginning of 2013 without the approval of the Council of Ministers.
"The zeros are removed for the purpose of increasing the value of Iraqi Dinars in a way that one Iraqi Dinar will be equal to one US Dollar," said Mahma Khalil, decision-maker of the parliament's Economic and Finance Committee, who argues that due to the increase in the oil and gas revenue of the country, the currency change is needed.
It is expected that this year's oil revenue will reach USD 100 billion; and by 2014, this number is expected to rise to USD 300 billion.
Dr. Ahmed Chawsheen, another member of the same committee, however, rejects this idea and argues that the value of money does not increase by removing zeros but rather by the development of industry and increase in domestic production.
By production, MP Shawsheen does not mean only oil and gas, but rather producing majority of market demands domestically, "then the value of currency increases automatically."
Aiyob Smaqayee, an economist, also argues that without a strategic planning for economic development, removing zeros would not only have little positive impact, but on the contrary may lead to negative effects on the economy.
A number of countries such as Turkey, Brazil and Argentine have in the past removed zeros from their currencies, but due to lack of strong economic policies, their currencies failed to gain notable value, and even depreciated afterwards.
Preventing or paving the way for money forging?
MP Khalil told the Kurdish Globe that by changing the currency, the possibility of forging money would be lowered, and hence he has expressed his support for the CBI initiative.
MP Dizayee, however, does not agree with his committee's head in this respectt, and states that changing the currencies will create a complication in the market and paves the way for corruption and misuse.
"The banks might change the currencies easily for a group of people but not for another group," Dizayee told the Kurdish Globe. "Moreover, there might be some wealthy people who keep their money to change it at a later stage if they think they make a profit out of it. These will create chaos in the market."
Reports have also indicated that in some countries, influential people had changed the old currencies in the banks and then withdrew them several times and changed them back again.
Iraqi is already at the top of the list of the world's most corrupt countries and this fact increases the possibility of further corruption through the currency change process.
Decreasing trust in Iraqi Dinars
In addition to internal chaos, Smaqayee also believes that changing the Iraqi Dinar several times would diminish the trust in the currency in the world markets and hence push its value down.
While Dizayee believes that printing new banknotes would cost a lot and is a burden on the CBI, Khalil states that the cost is only USD 125 million, which is not significant compared to the USD 65 billion balance of the CBI.
Smaqayee also argues that collecting the old notes and destroying them is yet another additional cost.
The nominations of the new banknotes
Khalil says the new currency will be in the shape of coins and banknotes. The coins will be in different nominations like IQD 0.25, IQD 0.5, IQD 1 and IQD 2. And the nominations of the banknotes will be IQD 5, IQD 10, IQD 25, IQD 50 and IQD 100.
Moreover, for the first time the Kurdish language will also be used on the new currency in addition to Arabic and English, with a proposal to print a picture of a historical site in the Kurdistan Region on one of the denominations.
According to the CBI plan, the new notes will be introduced in early 2013 and the changing process will be done gradually over a period of two years, during which both the old and the new currency will be used in parallel.
This gradual transition, according to Chawsheen, is a mistake and allows the possibility of corruption by the banks. He thinks that before introducing the new notes, an amount equal to the existent notes currently in circulation should be printed and thus the changing process should be conducted in one day, to prevent misuse and corruption.
Every day a different decision - Chawsheen told the Globe that the first mistake by the government was replacing the Swiss banknotes and adding zeros to it.
"Now they regret this and want to remove the zeros again," said Chawsheen. "By this they will confuse the public. Why adding zeros and removing them later?"
Three zeros were added to the Iraqi Dinar after the fall of Saddam's regime, and in 2013 and after less than 10 years, they will be removed.
- In 2003, new Iraqi Dinar banknotes were printed with three zeros added
- This banknote has been used since then
- In early 2013 new banknotes without the three zeros will be introduced
- For the first time Kurdish language will also be used on the notes
- The picture of a historical site of Kurdistan will also be printed on one of the denominations
- There will also be coins
- The coins will have 4 nominations: IQD 0.25, IQD 0.50, IQD 1 and IQD 2
- The banknotes will have 5 nominations: IQD 5, IQD 10, IQD 25, IQD 50 and IQD 100.
- The maximum nomination of the current notes is IQD 25,000.