Iraqi Dinar and the Large Category Notes
The CBI, Central Bank of Iraq conducts daily currency auctions where private banks along with several currency exchange money stores convert Iraqi dinar to US dollars. The private Iraqi banks have clients that have a need for US dollars to pay for goods and services because payment in Iraqi dinar is far too cumbersome for Iraq business owners. Imagine having to pay for materials for a prime power station in Iraqi dinar currency. That’s lot of paper! Iraqi business people like to use the US dollars for the simple fact that it is far easier to use and less notes to handle when conducting business. It is an example of why the CBI will in the future create a large category Iraq dinar banknote of 50k and 100k. When this happens, Iraq business will start to use the Iraqi dinar in business transactions. In Iraq, the Iraqi dinar can be converted to any of the major world currencies at any state or private banks. After the conversion from Iraqi dinar to US dollar an Iraqi based company is allowed to repatriate company profits to any financial institution in the world. This has been happening since 2004, after a handful of Iraqi banks had been approved for SWIFT transactions.
The CBI has stated in articles published that the new Iraq banknotes with the new security enhanced features will co-exist with the current Iraqi currency in Iraq. The delete the zeros project is the creation of new Iraq dinar currency in a variety of categories and denominations. The Iraqi parliament finance committee has recently stated that the plan will start in 2016 and will last five years. Five years was given as the time period allowed to the Central Bank to complete the implementation of the new Iraqi currency security enhanced banknotes and coins.
The delete the zeros is not an exchange like the dinar gurus would have you believe. This is going to be the introduction of the new Iraqi currency that has improved security features and different categories for easier transactions. This will be a multi-year process and will allow time to improve the banking infrastructure in Iraq. The National Bank of Iraq (NBI) is making great gains in mobile and Internet banking and will be installing 20 ATMs by the end of 2014.
The Iraqi Ministry of Finance does not allow any government involvement with the private banks in Iraq. We hope this will change in the future. However, as of now the two state-owned banks control most of the transactions. The International Monetary Fund (IMF) has advised the Iraqi government to allow the private banks to accept government checks to fund projects and government transactions. We will have to wait and see if this will change in the future.
There are a few issues that will still need to be addressed before any private bank in Iraq begins to go to a full fledge banking operation. The collateral for loans is often real estate. When the government has a project to fund the real estate it is often in the governments name. There are many times when the bank cannot complete these projects and they remain dormant or uncompleted.
The second problem is that the large projects are on average over 50 million dollars and private Iraqi banks do not want to be exposed to the risk of that large amount of money. The private banks do not accept these large projects.
The private banks rely on the currency auction at the CBI buying US dollars at the CBI discounted rate of 1166. It is then marked up to 1220-1230 IQD and offered to the public. The public is NOT offered the discounted rate. This is a much safer way for the private banks to make a daily profit. Until the CBI removes the auctions this will always be the case for the private banks as there is no incentive to offer additional services to the Iraqi people.
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