NEW IRAQI DINAR
By AHMAD NOOR
Aug 09 - 15, 2004
Saddam dinar with his image was introduced after the Gulf war to replace the old currency; and swiss dinar was used in north of Iraq. New Iraqi dinar issued on October 15th 2003 replaced its predecessors as the national currency.
Coalition Provisional Authority (CPA) felt the need of new currency for numbers of reasons:
—There was lack of security and anti-fraud features in Saddam dinar. The banknotes in circulation issued after the 1991 Gulf war were without watermark or metal line due to technical difficulties. That was the major reason for many forgeries.
—There were only two denominations of Saddam's dinar notes 250 & 10,000 and there were no coins which cause transaction problem.
—Another aim was uniformity of currency all over Iraq.
—Further reason was economic stability. In April 2003, following the end of major combat operations; Iraqi economy was in distress because of closure of oil sales, imposition of UN sanctions. At that time United Sates officials said that a new currency was needed, to introduce some stability without a proper currency in circulation there was a fear of inflation. The US decided to distribute $20 bills to the civil servants to boost the economy. This was not an issue of "dollarizing" the economy but to get money that had real value into people's hands.
—In the long run, Washington wanted the new Iraqi government to pick its own currency, as Afghanistan adopted a new one after the fall of the Taliban.
Keeping in consideration all the above mentioned reasons and problems, the administrator for CPA in Iraq, Paul Bremer announced that the CPA would print and distribute new banknotes for Iraq. The key Iraqis, including officials at the Iraqi Central Bank as well as leaders of the autonomous regions in northern Iraq were consulted on this issue and fully supported this decision.
CPA officials selected Britain's De La Rue Pic to lead the work, without allowing competitive bids from other companies. The company led a consortium of global currency specialists to manufacture the banknotes. De La Rue is the world's largest commercial security printer and papermaker, involved in the production of over 150 national currencies and a wide range of security documents such as travelers cheques and vouchers. Thomas De La Rue began printing British postage stamps in 1855 and also obtained the contract for all Indian postal requirements.
The new currency has six denominations of 50, 250, 1000, 5000, 10000 and 25000 dinar notes to make it more convenient for transaction. The new notes are not only of higher quality and durability but also have many anti-fraud features that provide essential protection.
The image of Saddam was eliminated and new banknote of 10,000 includes pictures of Abu Ali Hasan Ibn al-Haitham (known as Alhazen). He is said to have 'invented' the camera obscura. Also, an eminent physicist and mathematician he developed analytical geometry by establishing linkage between algebra and geometry. The US treasury has a strong dinar policy and is working with the CPA to reinstate a strong decentralized banking system in Iraq.
The conversion rates for new Iraqi dinars with the previous dinars as:-
—One "old dinar" exchanged for one new Iraqi dinar.
—One "swiss dinar" exchanged for 150 new Iraqi dinar.
—It is also convertible into other currencies at the prevailing market exchange rates.
The new Iraqi dinar is also available in the money markets of Pakistan. People are investing heavily in this new dinar with the hope of heavy returns. Because the potential investors have seen the stability of Afghani currency but in case of dinar they are expecting significant growth. In 1990's, when Iraq was an economic leader in its region, Iraqi dinar worth was an outstanding $ 3.20 (US dollar). The governor State Bank of Pakistan Dr. Isharat Hussain has said that the new Iraqi dinar may crash/drop in its exchange value and warned the people to avoid buying it for investment point of view.
Whenever someone invests in currency, the risk is there like other businesses which arise from uncertainty about the future. This perception of risk is often defensive, anticipating negative rather than positive outcomes.
Political events disrupt businesses and affect on their profits, for example wars and similar disturbances. The invasion of Kuwait by Iraq in 1990 followed by the Gulf War in 1991 affected many businesses adversely. Now, the situation is much like that and political risk is very high because of the continued clashes between insurgents and security forces.
Currency risks for organizations/individuals involved, directly or indirectly in international trade and finance because:
—Free market exchange rates are volatile, in both the short and long term.
—The future movements in exchange rates can't be predicted accurately.
The following graphs show the trading range in the Saddam/Swiss dinar, swiss dinar/dollar and exchange rates & regime change in Iraq within a typical period.
Iraq is a uniquely attractive place to do business in a central Middle East location. It has rich agricultural and abundant natural resources including oil. Iraq has bright and hardworking people (close to 25 million population) with demand for goods and services they have been unable to purchase for years. The provisional government has also set up.
The new foreign direct investment law permits investment by foreigners with very few restrictions. It permits foreign investors now to own up to 100% of enterprises in all sectors except natural resources. Iraq also recently passed a new banking law permitting six international banks to begin providing credit and other banking services. The country is currently establishing a new set of commercial laws to assure investors of enforceable property and other rights, bankruptcy protection, foreclosure capability and a well-functioning judicial system for settling commercial disputes. Taxes and tariffs are low. Iraq has a flat 5 percent tariff.
Oil and related businesses dominate the economy in Iraq. The heaviest infrastructure investments in future are likely to be in electric power, oil production, refining, distribution and water treatment. Industries such as cement, aggregates and other construction materials are expected to do well.
As we know, Iraq floats over a lake of oil and its reserves are sufficient to feed the world's need for decades to come. We too, like so many other forward-thinking investors believe that there is great potential for this country to expand. Therefore it is great opportunity to invest in new Iraqi dinar.
The investment potential with the Iraqi dinar is quit high. Many researchers believe that the dinar's value will stabilize even some experts said that it will grow upto $1 (USD). But time and patience constraints are there.