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Iraq Said To Be Planning Currency Overhaul, Redenomination

Iraq's 25,000-dinar banknotes apparently won't get you as far as they used to.
Iraq's 25,000-dinar banknotes apparently won't get you as far as they used to.
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BAGHDAD -- A senior Iraqi Central Bank adviser says the government has adopted a two-pronged plan to restructure the national currency in order to facilitate large transactions and make government accounts more efficient, RFE/RL's Radio Free Iraq reports.

Mudhhir Muhammad Salih, a member of the bank's advisory panel, told RFE/RL on June 23 that in the short term, larger banknote denominations of the dinar would be issued to simplify major transactions.

He said that because so many Iraqis still dealt mainly in cash, it was cumbersome to carry bags full of money to pay for expensive items like cars. The inconvenience leads people making such purchases -- as well as many entrepreneurs -- to use dollars for those kinds of transactions instead of dinars, something the government wants to end.

He added that large denominations equivalent to around $100 would be issued to simplify major purchases, and new coins and lower denominations would be introduced for smaller transactions.

In the longer term, Saleh said a redenomination was needed wherein three zeros will be dropped so that the 25,000-dinar banknote -- currently the largest denomination -- becomes a 25-dinar note.

He said the change was inevitable, considering the economy is expecting high growth in the coming years with a planned increase in oil production to finance reconstruction projects.

Saleh said there were currently some 29 trillion dinars in circulation in Iraq, represented by some 6 trillion banknotes of various denominations, most of them quite small. He said this also caused complications for the Central Bank and government, as well as commercial accounting departments.

Saleh said the monetary-restructuring plan was drawn up with the help of foreign experts and financial institutions, including the International Monetary Fund, of which Iraq has been a member since 1945.

The plan will soon be presented to the cabinet, which is expected to subsequently send a bill to parliament.

Saleh noted that until 1980 the Iraqi dinar exchange rate was 1 dinar/$3.3 compared to $1/1,168 dinars now due to hyperinflation that occurred during the latter part of the late ousted leader Saddam Hussein's reign.
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by: expatman from: Dubai, UAE
June 25, 2011 12:18
The Iraq dinar will increase in value in stages based on increments of 1 mbpd additional export over 3 mbpd. Projected in ten years the dinar will to be on par with the Saudi Riyal 3.75:1 USD. Follow the $600 billion expenditures of the international oil companies/IOC's, they have a 20 year contract with the Iraq Ministry of Oil. It would be foolish to think otherwise.

by: GK from: IRAQ
June 25, 2011 19:12
If they take the 3 zeros off then big business would lose so much money.u would think they would give u the value of ur money

by: Robert Bowles from: Ohio
June 25, 2011 21:02
Is the writer interrupting this right when they say they are lifting 3 zero"s ... what if is not off the currency but off the exchange rate.... which is 1170.00 then it would be $1.17 to US $ and .83 cents ERO ... hun where have I heard that before !
In Response

by: DaveP from: california
June 27, 2011 17:36
LOL... yes Robert... countries always pre-announce in the press 100,000% RVs.
Good grief, this whole dinar experience explains why scams are so easy to run. I never knew there were so many extremely gullible people in the world.
In Response

by: Gary from: Florida
July 01, 2011 14:06
Hi Dave. The lifting of the zero's refers to the removal of the notes with 3 zeros from circulation. Iraq has been removing these notes since 2009. If there was to be a LOP then why worry about the removal of these notes? LOP's only occur during periods of hyperinflation. iraq's inflation is currently 7%. If you are concerned then open a Warka account and keep your money in an electronic stage. The IMF stip was for Iraq to be "on par" with the USD. Look it up.

by: TOM from: IRAQ
June 26, 2011 05:46
You are correct GK, there will be no lop, iraqis would lose their savings if they have any.

by: JD from: Texas
June 28, 2011 04:10
I think Brian has had the clearest picture of how this is not a get rich quick scheme. But maybe its because I am a CPA and from a global standpoint, it doesn't make sense how you could turn $1,000 into $1M overnight?! Get back to work people! Brian - please offer more, its great!
In Response

by: Matt from: Florida
June 28, 2011 08:58
This all sounds wonderful, but here is my question. If the Iraqi government has a budget of 82b dinar for 2011 (per Reuters) , how will they put themselves in a place where they only have 29b total currency. It just doesn't make sense. How will they be able to improve infrastructure? Heck, how will they be able to pay their people?

Here is the link to the Reuters reference: http://mobile.reuters.com/article/idUSTRE71J1SP20110220?irpc=932
In Response

by: Matt from: Florida
June 28, 2011 10:20
Sorry my numbers where wrong. That should have been 82b dollars (not 82b dinar) as compared to 29b dinar total currency. This actually makes the number worse for Iraq.
In Response

by: Brian
June 28, 2011 16:13
How can they spend more money than they have in circulation? Because to a large extent, they're spending $ not Dinars. Much of Iraq's spending income isn't coming from internal taxes collected in Dinar's - it's coming from a combination of foreign aid, the USA war budget / "supplemental spending", and "petro-dollars". Most wages for Iraqi's, etc, is in Dinars, but a lot of the expensive infrastructure projects (which make up the bulk of the budget) is in "petro-dollars" : Iraq sells oil to the US directly for $ (not Dinars) and will then spend much of the same received $ back on employing US reconstruction, industrial & defence contractors without a single Dinar changing hands in the process. Also, that $82.6bn budget includes a $13.4bn deficit.

Same is true of other "petro-dollar" countries. Eg, between 45-75% of Saudi Arabia's government budget is technically $ paid by American oil consumers and not Riyal's coming from domestic Saudi taxation. Only some of these incoming $ are converted to Riyals, the rest are re-spent on imported defence equipment, foodstuffs & agriculture, non-oil related industries, transport & medical equipment, etc. This is how much of the mid-East economic region works. Notice the article said "budget" in dollars (what gets spent) and not "revenue" (where and in whose currency the money actually comes from).

by: Gmart from: USA
June 28, 2011 18:59
Come on, are you being SERIOUS? let's think people. when the USA did a re-denomination of the 1000bill did we say okay the 1000 bill is now worth $1. You guys need to read history and use some common sense. They are going to introduce smaller bills which they are already doing. They will eliminate the 3 zeros of their currency. THIS DOES NOT AFFECT THE EXCHANGE RATE. They will give you whatever equaled the 25k note. For those who want to argue this...USE COMMON SENSE, the wealthy have many of the BIG notes, so automatically the wealthy INCLUDING their own government and officials become BROKE? Right? WRONG! STUPID PEOPLE ANNOY ME. GET A BRAIN & STOP RAINING ON PEOPLE'S HOPES. The currency will revalue and it might not be as high as some think but history proves that currency goes up and down just like stocks...maybe if majority of you weren't looking at bogus forums for your TRUTH then there wouldn't be such a craze of debbie downers. Read REAL NEWS like AKNEWS.COM or http://english.aljazeera.net/news/middleeast/

Get it from the source and shut up already. RV GO GO GO!
In Response

by: JD from: Texas
June 29, 2011 03:16
You are right, currency does go up and down like stocks. In order for the currency to go up, the country needs to show economic viability. Exactly how a company's stock price increases. Yes, the currency will re-value but only at a nominal increase in value. In time, it will continue to increase IF their economy strengthens as predicted. Brian's arguments are bullet proof, I would wager he has the credentials to speak the ebbs and flows of the global economy. So far, I have not heard of ANYONE's credentials that speaks so strongly of the pie in the sky rates supposedly coming down the pipe. No one is raining on other's hopes, just a voice of reason to stay grounded and expect to hold these dinars for a while.
In Response

by: Gary from: Florida
July 01, 2011 13:56
Brian's comments are not bullet proof. Here's why: The Iraqi government has been removing the notes with 3 zeros from circulation since 2009. If they were to LOP the currency then why remove the notes? LOP only occurs when there is hyperinflation-check out the history. Iraq's inflation is currently 7%. If you are worried about a LOP then open a Warka account. Your money is electronic there-no exchange of notes-just an adjustment to your net worth once the exchange rate becomes "on par" with the USD, which by the way was a stipulation from the IMF to the GOI. This is very real-not a pipe dream.
In Response

by: Brian
July 01, 2011 18:21
Hi Gary. There's a great deal of misunderstanding with the removal of high-denom notes. The Iraq govt isn't going around stealing them from people and giving nothing in return, they're simply printing more lower denom notes, ie, replacing 1x 25,000 note with 5x 5,000 notes. This doesn't reduce the money supply in the way some pumpers claim it does. Europe has done the same thing by withdrawing the 500 Euro note that was targeted by counterfeiters - but it hasn't made the Euro value go up a ridiculous 99,999%. The vast majority of denomination banknotes printed in any currency are the lower commonly used notes. The highest denominations usually make up just a fraction. As an example of the Euro, there are only 56 million 500 Euro banknotes printed out of 6 billion total banknotes (approx 0.1%). Same is true of Iraq with the 25,000 notes. It simply doesn't make any difference as different denomination banknotes don't get RD'd at different rates. It's one rate for everything in the currency.

You also greatly misunderstand what happens to bank accounts (all bank accounts in IQD currency) - they'll be "lopped" too when the currency changes from IQD to the new currency. ie, if you have an account with 1m IQD Dinar in it, it will be RD'd down to whatever ratio the new currency is to the old (probably 1000:1 if they're lopping 3 digits), so you'll have 1,000 of the new currency in it (but which is worth 1,000x more than the old so it won't lose its $1,000 value). In no way shape or form will you turn $1k of Dinar into $1m just by sticking it into a bank account during a lop no matter who you bank with any more than sticking $1k's worth of Old Turkish Lira into a bank will magically become $1bn after their 6-digit lop. If that were true, every man, woman and child living in Turkey must all be secret billionaires! Bank deposits are converted at the exchange rate of new for old currencies. They don't keep the same face value (which is precisely why bank notes need to change in the first place - nothing retains its face value after a lop which is the whole point of a lop). There is no "one rule for notes, another for bank accounts". All get lopped at the same rate. This is nothing new - it's happens dozens of times before on every continent on Earth, and the rules for Iraq are no exception just because it has a little oil or some confused / dishonest pumpers say it is.

Also "LOP's only occur during periods of hyperinflation" is another untrue "pumper myth". Most LOP's occur *after* inflation has fallen after a period of chronic / hyper inflation. No-one "lops" during high inflation because it doesn't boost any confidence in the currency if prices continue to rise after the lop. So the fact that inflation is falling in Iraq actually justifies a lop even more.

by: Steven from: ALaska
June 29, 2011 19:08
Ok people lets put a few ideas out there to simplify this discussion.... Iraq may have up to 25% of the worlds KNOWN oil reserves left. It is also what is know as light/sweet crude thats easy to extract for a cheap price... BTW I work in the oil fields.... All aspects in life are currently based on petroleum pruducts. Even food. Thats absurd you say? Its not. Not very many farmers plow their fields with horses anymore. They use tractors or combines.... Those usually run on fuel and not horses.... Then it has to be transported.... Lets look at plastics... We all use it in one form or another... Then there is the various gases we use from lighting cigarettes to bbq to cooking.... All those are also petroleum based...i can go on and on with this.
Now iraq may have a currency that is over printed. If they remove the 0's a 25k dinar note will become a 25 dinar note. If you change the nominal value to 1.17 from the .1170 rate then the value stays the same and they are able to do a redenomination without businesses losing their proverbial backsides with a LOP. This would also allow them to get back to the (artificially) value of the 1980 that Shabibi has stated several times is the goal. Maybe they will LOP maybe they wont... Only time will tell. If they do LOP Iraq will fall apart. They a proud people and they will set Iraq on fire. Then all of the lives lost there will be for nothing until more are lost. That is off my point...
Simply put iraq has too much wealth. Eventually they will revalue their currency. Its only a matter of time.

by: mats from: fiji
June 30, 2011 04:52
How is the iraqi dinar 25000 dinar note would it be change to a single 25 dinar note once the three zero strip off or what the real stories behind the scene? I wanna know the real story!

by: john from: new york
July 01, 2011 01:26
my head is going to explode reading all of this! Lol

by: Car from: Calgary
July 01, 2011 04:15
That is the funnest thing I've heard yet about the 1000 us $ the exchange rate didn't change that's why it was not worth any less or more. Just like in Canada our 1000. Bills was exchanged for 10 x 100= 1000
You make no sense to your reference!
25,000 = 25. let's hope it goes to 3.00 it will = 75.00
In Response

by: Gary from: Florida
July 01, 2011 13:44
Remember two things: Iraq has been removing the notes with 3 zeros from circulation since 2009. If they were going to LOP why worry about the removal of these notes so far in advance? 70% have been removed-reducing the M2.

Also, note through history, including Turkey and the RV of the lira, LOP's or devaluations only occur during times of high inflation. Iraq's inflation has been kept low, typically under 5%-now 7%. That's why a LOP will not occur.
In Response

by: Brian
July 01, 2011 18:34
"70% have been removed-reducing the M2."

Hi Gary. The above is not true. That claim comes from someone confusing M0/M1 figures (only banknotes in circulation) with M3 (total Dinar in circulation). That claim is openly debunked in paragraph 7 of this article we're commenting on itself : "Saleh said there are currently some 29 trillion dinars in circulation in Iraq, represented by some 6 trillion banknotes of various denominations." That 29t in circulation figure is just one week old. It hasn't gone down at all - someone just compared "total money" to "banknotes" and got confused.

It also says "most of them [banknotes] are quite small" which means removing 25,000 won't make any difference because they make up less than 1% of the 6tn Dinar in circulation.

"Also, note through history, including Turkey and the RV of the lira, LOP's or devaluations only occur during times of high inflation."

Turkey didn't "RV" they redenominated. The two things are completely economically different. A genuine "RV" is a peg adjustment (like China "RV-ing" the Remminbi vs the $). Free floating currencies cannot "RV" they can only appreciate. Iraq's inflation has only recently fallen to 7% yes, but in prior years it was high. It's this past inflation not current inflation, that lops take out.
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