Dollar Dinar
Jenine Izaguirre
In the election of 2000, John Ashcroft managed to lose his Missouri seat in the U.S. Senate by losing to a dead man. However, in the last few weeks, we have seen the U.S. dollar do one better, as it has lost ground to what was supposed to be a dead currency, the Iraqi dinar, better known as the Saddam dinar, which portrayed the face of the allegedly-deceased Iraqi president. In both cases, the loser was thought to be invulnerable only to be bitten by reality.
As the Wall Street Journal tells its readers, when U.S. forces entered Baghdad April 9, the dinar traded at about 4,000 to a dollar.1 Whenever U.S. personnel paid for anything in Iraq, it was in dollars, not dinars. However, the dollar's apparent rise has gone south, as the Saddam dinar two weeks later traded at 1,800 to the dollar. To put it another way, the dollar lost more than half of its value to what surely has to be one of the weakest currencies in the world. The dinar, like the regime that printed it, was supposed to fade into history. Instead, it roared back to the point that it was even preferred, on the margin, to the mighty dollar.
With Saddam's picture all over the dinar, the U.S. looked upon this turn of events as something of a humiliation. For all the U.S. government's weaponry, all its tactics and bombs, its ability to overthrow governments and install new ones, and seemingly direct the course of history through sheer firepower, there is one thing that the U.S. was not able to do: abolish the operation of the economic laws of supply and demand. The central bank having been bombed, the supply of dinars was limited and fixed, even as dollars flooded into the country. That led to the stunning result that the dinar grew in value as the dollar fell, and all the firepower in the world couldn't stop it, at least it has not yet.
To suspicious minds, at least one of the reasons for the hostilities in Iraq was the fact that the U.S. dollar has become a second-fiddle currency to the Euro, at least when it comes to oil-producing countries accepting payment for petroleum. A stronger U.S. military presence in the Middle East supposedly would put a stop to that nonsense. But unlike the mid-and-late 1980s and 1990s, when the dollar was the de facto world currency, the dollar seems to have run out of steam.
American authorities, not surprisingly, have tried to put the best spin on this turn of events. Iraqis are patriotic, we hear, tending to gravitate toward national pride. Perhaps so, but it would seem that the reasons are deeper and more complex than just Iraqi patriotism. After all, if Iraqis truly believed that the dollar was the better deal for them, they would be more likely to swallow hard and accept the greenback. Devotion to a dead tyrant does not seem to be reason enough for people to risk their life savings.
The dinar rose because it still worked to facilitate exchange, and, without a central bank, it was suddenly protected from inflationary pressures. The dollar, meanwhile, was circulating in ever growing quantities, and the Federal Reserve always stands ready to print more.
And there's a larger issue too: the dollar's decline in Iraq is a microcosm of a larger but more troubling issue, one that the White House and the Federal Reserve System cannot spin away with its political happy talk or pretend does not exist. Both the U.S. economy and the dollar are in trouble, and their difficulties are intertwined with each other.
During the early 1980s, the U.S. economy was in its worst downturn since the end of World War II, yet the dollar was strong relative to other world currencies, many of which were mired in an inflationary morass, a holdover from the creepy decade of the 1970s. Although the U.S. Government had begun to incur massive budget deficits, the dollar was still the favored world paper, as producers of oil and manufactured goods overseas were more than willing to take dollars as payment.
In return, dollars flowed back here to purchase U.S. securities to finance the deficits, build manufacturing plants, and Japanese investors even went on a real-estate buying binge in this country, purchasing landmarks such as the Rockefeller Center in New York City. Even though the bottom dropped out of the real estate market in the early 1990s, foreigners holding U.S. dollars still had not had enough as money found its way into the stock market boom.
As we so well know, the party is over, and it has been over for a long time, except that few people here want to believe it, especially those who hold political power, at least for now. The dollar has been taking a beating for some time on overseas markets, and seen in that context, it is not surprising that Iraqis are making the same decisions that so many others have already made: dump your dollars.
Iraq's central bank in December 2020 devalued the dinar, setting the exchange rate at 1,460 dinars per dollar amid an economic crisis caused by low oil prices and the Covid-19 crisis. Previously, the dollar was traded at 1,182 Iraqi dinars.
"The finance committee is not for such a move, but there are efforts for collecting signatures by the MPs so that the parliament can change the dinar-dollar exchange rate," Jamal Kochar, a Kurdish MP from the Kurdistan Islamic Union (KIU) and a member of the parliament's finance committee told The New Arab.
Following demonstrations in Iraq over the recent slide of the Iraqi dinar against the dollar, a delegation of Iraqi officials will travel to Washington to resolve issues related to US banking restrictions.
As hundreds of people demonstrated near the central bank headquarters in Baghdad on Wednesday to protest the devaluation of the Iraqi dinar against the dollar, which has triggered a rise in prices of imported consumer goods, an informed source told Iran International that representatives from the Iraqi government are scheduled to go to US next month to investigate the smuggling of dollars from Iraq to Iran.
The dinar went into a tailspin against the dollar after the New York Federal Reserve imposed tighter controls on international dollar transactions by commercial Iraqi banks in November to halt the illegal siphoning of dollars to neighboring Iran, which is under tough US sanctions.
The move blocked more than 80 percent of Iraqi bank transfers. Under the curbs that took effect this month, Iraqi banks must use an online platform to reveal their transaction details. But most private banks have not registered on the platform and resorted to informal black markets in Baghdad to buy dollars.
This has created dollar shortages as demand has outstripped supply and accelerated the dinar's descent against the greenback. The Wall Street Journal recently reported that the intensification of pressure on the Islamic Republic has caused the value of Iraq's currency to drop.
Late in December, an informed source in Baghdad told Iran International that Washington has received reports on Iraq conducting trade with Iran using US dollars despite US sanctions. This source added that the names and bank account numbers that have secretly interacted with Iran have not yet been revealed, but the Biden administration has found out that a large amount of US dollars has been transferred from Iraq to some countries, including Iran.
For years, the clerical establishment has used front companies from Iraq to Turkey to obtain the dollars it needs for international transactions and funding its proxy militia forces across the Middle East.
Yes, Kuwait's currency is more valuable than the U.S. dollar because the demand for the KWD is high due to Kuwait being a large producer of oil. That being said, the U.S. dollar is the world's reserve currency and is accepted more widely.
The Iraqi dinar (.mw-parser-output .IPA-label-smallfont-size:85%.mw-parser-output .references .IPA-label-small,.mw-parser-output .infobox .IPA-label-small,.mw-parser-output .navbox .IPA-label-smallfont-size:100%Arabic pronunciation: [diːˈnɑːr]) (Arabic: دينار; sign: ID[1] in Latin, د.ع in Arabic; code: IQD) is the currency of Iraq. It is issued by the Central Bank of Iraq and is subdivided into 1,000 fils (فلس), although inflation has rendered the fils obsolete since 1990.[2] On 7 February 2023, the exchange rate with the US Dollar was US$1 = 1300 dinars.[3]
The Iraqi dinar entered circulation on 1 April 1932,[4][5][6][7][8] replacing the Indian rupee, which had been the official currency since the British occupation of the country in World War I, at a rate of 1 dinar = 11 rupees. The dinar was pegged at par with sterling until 1959 when, without changing its value, the peg was switched to the United States dollar at the rate of ID 1 = US$2.80. By not following the US devaluations in 1971 and 1973, the official rate rose to US$3.3778, before a 5% devaluation reduced its rate to US$3.2169, a rate which remained until the Gulf War in 1990, although in late 1989 the black market rate was reported at five to six times higher than the official rate.[9]
Swiss dinars notes continued to circulate in the politically isolated Kurdish regions of Iraq. The Kurdish government refused to accept the low quality Saddam dinar notes (which were issued in huge amounts). Since the supply of Saddam dinar notes increased while the supply of Swiss dinar notes remained stable (even decreased because of notes taken out of circulation), the Swiss dinar notes appreciated against the Saddam dinar note. By having its own stable currency, the northern part of Iraq effectively evaded inflation, which ran rampant throughout the rest of the country.[10]
After Saddam Hussein was deposed in the 2003 invasion of Iraq, the Iraqi Governing Council and the Office for Reconstruction and Humanitarian Assistance printed more Saddam dinar notes as a stopgap measure to maintain the money supply until a new currency could be introduced.
Between 15 October 2003 and 15 January 2004, the Coalition Provisional Authority issued new Iraqi dinar notes and coins, with the notes printed by the British security printing firm De La Rue using modern anti-forgery techniques to "create a single unified currency that is used throughout all of Iraq and will also make money more convenient to use in people's everyday lives". Multiple trillions of dinars were shipped to Iraq and secured in the Central Bank[clarification needed] to exchange for Saddam dinar notes.[11] Saddam dinar notes were exchanged for the new dinars at par, while Swiss dinar notes were exchanged at a rate of one Swiss dinar = 150 new dinars.
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