Currency reform in Iraq has increased the confidence of the people in the management. The metamorphosis from two currencies in to a single one proved to be beneficial for the country. The factors, which trigerred currency reform in Iraq are given in the article. Features of the new currency, the incorporation of the Central Bank of Iraq or the CBI has also been included in the same.
The economy of Iraq in the year 2004 post “Baathist domination” was marked by monetary system being fragmented, money was usually not managed in a proper manner as such. It led to inflation. The Central Bank functioned under the jurisdiction of the Finance Minister.
Iraq had two currencies during that period-
Swiss dinars (concentrated in Kurdish areas)
Causes leading to the currency reform in Iraq:
Saddam dinars had increased tremendously in number or the stock of these dinars increased as Saddam’s regime had issued currency for the purpose of funding the activities of the budget. On the other hand, the Swiss dinars did not increase much after the 1990s embargo. Since Saddam dinars were printed in excess, the currency suffered a depreciation as compared to the Swiss dinar.
During that period the different denominations of the Swiss dinar were:
One Dinar banknotes
Five Dinar banknotes
Ten Dinar banknotes
The Saddam Dinars had the following denominations:
250 Saddam Dinar
10,000 Saddam Dinar
The Saddam Dinar banknotes had many lacunae, were of poor quality and had security lapses. These drawbacks were made use of by the counterfeiters and they started counterfeiting Saddam Dinar banknotes.
Owing to these negative features, the necessity of a uniform as well as a stable currency was felt by the authorities. This was contemplated in the year 2002. This led to the currency reform in Iraq. Post regime downfall, restructuring the economy of the country was a troublesome task. During that period the authority governing the Iraq economy was CPA or Coalition Provisional Authority (CPA). After conducting extensive analysis prior to the implementation of currency reform in Iraq in the year 2003, it was declared by the CPA or Coalition Provisional Authority that currency reform in Iraq would encompass the introduction of a new currency in the country.
Features of the new currency:
It was decided that the new currency would be available in six denominations. The new currency would have the historical image of the “old Iraqi dinar”. The CPA declared that the time allotted to get acclimatized to the new currency would be for a period of three months, that would be between middle of October 2003 to middle of January 2004.
Independence of Central Bank of Iraq or CBI:
The same period witnessed the independence of CBI or the Central Bank of Iraq. The CBI was previously under the jurisdiction of the Finance Ministry. The CBI had been long isolated from the global community. The Bank was not equipped with a stable monetary policy. It did not have the essential features, which could regulate the monetary policies in a proper manner.
Objectives of currency reform in Iraq:
The Task Force, which was entrusted with the work of implementing the currency reform in Iraq aimed at the following:
Formulation of a monetary model, which would assist in the monetary base growth.
A model, which helped in the production of monetary data.
Designing new monetary tools.
The CPI or the Consumer price index was selected by the Ministry of Planning for using it as a tool to assess movement of prices. Simultaneously, a new banking law was established. This law envisaged that price stability would be the prime aim of monetary policies in the country. Instruments pertaining to the achievement of the aim was also framed.
After the currency reform in Iraq, which led to the introduction of a new currency, a marked stability has been observed in the exchange value of the new currency. The CBI, was required to be better equipped with tools for bringing about price stability in the country. It also looked towards the proper execution of the monetary policies in the country.
Last Updated on : 26th June 2013