Prague, 23 January 2004 (RFE/RL) -- Like any speculative fever, the run on the new Iraqi dinar is generating stories that are the stuff of legend. Many of the stories are coming from Baghdad's currency-exchange shops, where the rush to buy the new currency has been going on for weeks.
The owner of one shop on Karada Street, a main Baghdad thoroughfare, told the AP that one customer recently came in and bought 40 million dinars -- roughly $30,000 -- then stuffed it all into a large duffel bag. The plan was to drive to Jordan, eight hours across the desert, and sell the notes there to other speculators desperate to join the frenzy.
"People are demanding the Iraqi currency, which is really flattering...This is now a currency that people want to hold."
But the stories are by no means limited to Baghdad. In neighboring states and across the immediate region, the new Iraqi currency is being traded vigorously, and often clandestinely, as people scramble to invest.
The Egyptian press has widely reported that large amounts of smuggled Iraqi bank notes now have become the most frequently confiscated item at the country's airports. Reporters note this has happened despite the usual heavy competition from smuggled Viagra pills, mobile phones, and computers.
And in Lebanon, one of the biggest news items last week was the impounding of about $20 million in new Iraqi dinars that arrived at Beirut airport aboard a private plane.
Lebanese police arrested four people on suspicion of smuggling, only to receive an urgent complaint from the Iraqi Interior Ministry, which said it had sent the money as payment to a British company for security equipment. Beirut is now demanding the Iraqi officials send proof before they decide whether to return the money.
Analysts say the new dinar -- sometimes called the "Bremer" dinar -- has fluctuated in value since it was introduced by Coalition Provisional Authority (CPA) head L. Paul Bremer in October. But the currency climbed to record highs immediately before it became the sole Iraqi legal tender one week ago. That was after a three-month period during which Iraqis could turn in their Hussein-era bills for the new notes at banks.
Walid Khadduri, editor in chief of the Cyprus-based "Middle East Economic Survey," returned from Baghdad early this week. He says the new dinar's rate against the dollar has been about 40 percent stronger in recent days than it was when it was first introduced.
"In October, when they introduced the new dinar, it was 2,000 dinars to the dollar. And [the exchange rate] went down to almost 1,100 dinars to the dollar."
But he says that top economists he spoke to in Baghdad expect the new currency to stabilize within a few weeks to a rate of about 1,500 to $1. That is because the jump in the new dinar's value is driven only by hopes of future gains, not by actual changes in the country's economy.
"What you saw last week, that was merely speculation. It does not reflect any changes in the economy, any laws, any significant thing. As we go on, as oil production increases, as more money goes in, more aid, and U.S.-funded projects start taking off, then you would see the dinar gradually improving," he said.
Iraqi banking officials have had a range of reactions regarding the new dinar's rise. Some have expressed satisfaction that Iraqis and foreigners again appear interested in holding the local currency. During the previous decade, under UN sanctions, Iraqis saw inflation make their money virtually worthless against the dollar, and most tried to keep their savings in dollars or other hard currencies.
Ahmad Salman Jaburi, the deputy governor of the Central Bank of Iraq, said last week that "this indicates that people are demanding the Iraqi currency, which is really flattering for us.... This is now a currency that people want to hold."
But Iraqi Central Bank Governor Sinan Shibibi called the rise "not justified" and said he would have preferred smoother growth for the new money. He said "there's probably some kind of speculation, people have bright prospects for the Iraqi economy.... It is now a trustworthy currency, but [the rise] is not justified because it's a big jump. You really want something smooth."
The big jump has caused financial difficulties for Iraqi businessmen who have their capital in dollars, as well as for Iraqis receiving their salaries in dollars from foreign employers. They have seen their spending power undercut in the marketplace where, despite the influx of dollars under the U.S. occupation, the money of choice is the dinar.
"Many people were hurt. I saw several Iraqis, expatriate Iraqis, who have brought in money and invested in small services, small hotels, laundries, and they were really not happy because they brought in the dollars to open these small ventures, but they were paying employees and buying their goods in dinars. And they were not banking on the dinar being so high," Khadduri said.
Despite the spike in the new dinar's value, the real tests for Iraq's economy and its new money still lie ahead.
Unemployment in the country currently remains at an estimated 50 percent -- about where it was before the U.S. toppled Saddam Hussein's regime in April -- and most major reconstruction projects have yet to begin.
U.S. and foreign companies are currently competing for a first wave of contracts to be awarded in March as part of Washington's stated plan to spend some $13 billion on Iraq's reconstruction during this fiscal year.