Iraqi Dinar Redenomination
This is a report on the Republic of Iraqi dinar redenomination.
The Iraq Parliament economic committee and the Central Bank of Iraq (CBI) are planning a change to the Iraqi dinar currency. The proposed change will be to knock off the three zeros of the banknotes to simplify financial transactions. The timeline to complete the delete the zeros project has not been determined. The CBI would like three years to change out the currency and the parliament economic committee would like five. The former CBI Deputy Governor, Mudher Kasim said “This will facilitate the payment system instead of carrying a lot of money, we will carry less.”
How much Iraqi dinar outside of banks?
The new Iraqi dinar banknotes will have no impact on inflation. The CBI will continue to stabilize the Iraqi dinar at the fixed rate of 1166 per dollar. The CBI currently has 38 trillion dinars outside of banks according to the October 2014 statistics on the CBI web site. The first printing of the Iraqi dinar was 4.36 trillion banknotes in 2003. The CBI would like to bring the liquidity of the countries currency to 30 billion. The CBI has yet to remove any of the banknotes from circulation since introducing the new Iraqi dinar banknotes in October 2003. This can be confirmed by the data from the CBI web site. Since 2003, the Iraqi dinar banknotes have only increased. This can be confirmed by a government document in this YouTube video (Below). The dinar currency then again increased to 38 trillion in October 2014, proving that no currency has been actively removed from circulation by the CBI.
Larger category banknotes needed for Iraqi dinar Redenomination
The restructuring of the currency will include adding higher denominations like a 50,000 and 100,000 dinar bank note. This will make transactions easier when purchasing large ticket items in dinar and not dollars. The Iraqi government would like to transition from using the dollar to the countries currency. This would increase the value of the Iraqi dinar. The CBI and Parliament Economic committee would like an Iraq banknote that is comparable to a $100 dollar bill. To achieve this the CBI would need to create a 100,000 IQD banknote. The 25,000 IQD banknote is valued at $21.89.
On June 24, 2011, the RFERL news reported that the CBI would be conducting a two prong plan to restructure the national currency. The new currency would facilitate large transactions and make public accounts more efficient.
The Former CBI economic advisor Mudher Salih stated in the short term, larger banknote denominations of the dinar would be issued to simplify large transactions.
Remove dollars from the country
The government wants to end the wide use of the dollars in their country. This is a difficult task when Iraqi’s are exchanging their dinar for dollars at banks and currency exchange stores. The security situation is unstable in Iraq and that is very concerning to the citizens. The economy in Iraq is slowing down and companies are drawing down staff until the security situation improves. This can especially be seen in the city of Erbil, where oil companies are operating below normal operations.
The Iraqi dinar currency Banknotes and coins
Iraq has a growing economy and it is expected to change out the currency within the next few years. The zeros from the banknote would eventually be dropped so that a 25,000 dinar would become a 25-dinar banknote. This is the largest banknote in the country. The dropping of the zeros would eventually be applied to all the notes with three zeros. The new currency and the old would co-exist for several years. The CBI will gradually start to remove banknotes from circulation when the delete the zero’s project has been implemented and completed. This would increase the value of the Iraqi dinar.
Economic advisor Saleh, stated in a news report to RFERL that there is 29 trillion dinars in circulation (2010) figures, and 6 trillion banknotes of various denominations, most are small. The following information below is from the Central Bank of Iraq website ending in 2013.
25,000 IQD banknote 25 trillion currencies issued
10,000 IQD banknote 5 trillion currencies issued
5,000 IQD banknote 5 trillion currencies issued
1,000 IQD banknote 1.5 trillion currencies issued
500 IQD banknote 1 trillion currencies issued
250 IQD banknote 1 trillion currencies issued
50 IQD banknote 1 trillion currencies issued
You can see that the banknotes in circulation have risen since 2010. It’s clear that the CBI has issued an enormous amount of the 25,000 notes. These are NOT electronic banknotes these are issued and outside of banks by denomination.
The purchasing power of the new currency will be exactly has the old currency for the Iraqi dinar redenomination. This is common when countries conduct delete the zeros from their currency. After a period of time (set by the Iraqi government) the old banknotes are withdrawn. The time for withdrawing can be anywhere from three to ten years.
The Parliament Economic committee has stated that delete the zeros will lead to an increase in the value of the Iraqi dinar.
There will be coins issued and circulated when the delete the zeros project kicks off. They will be used for small transactions.
There have been several instances where the government was going to reprint the Iraqi dinar. In September 2012, the CBI and the Iraqi parliament agreed to introduce the new Iraq banknotes. The CBI had planned to withdraw the old currency by September 2013. The CBI believed it would be able to remove trillions of dinar currency in one year. The CBI was going to introduce three new banknotes, the 50, 100, and 200 dinar banknotes. They were also going to distribute 1 dinar and 2 dinar coins. The exchange rate would have been 1:1,000, however, the CBI failed to follow through with this plan. It was delayed with no cause or no reason given.
There are several groups who are supportive and opposed to the delete the zeros. The opposing groups to the delete the zeros project think that there is a lack of reforms in the banking sector. They believe that the Iraqi banks are not set up to handle the new currency.
In April 2014, the CBI made an announcement that it was going to reprint paper currencies of small denominations 250, 500 and 1000. In addition they were going to reprint 5,000, 10,000, 25,000 of the larger notes. The CBI has so far only reprinted the 10,000 notes in a limited quantity. The purpose of the reprint was to integrate new design and enhanced security features of the currency. The CBI wanted to give the Iraqi dinar more anti-counterfeit security features. This however, has not bided well for the CBI as the criminal counterfeit gangs are still actively printing bogus Iraqi dinar banknotes. The CBI will continue to reprint the new currency until the delete the zeros Iraqi dinar redenomination project starts in 2016.
Delete the Zeros Bill to Parliament
The International Monetary Fund (IMF) has been assisting and giving technical advise to the Iraqi government on the delete the zero’s project. When the plan has been finalized the bill will be sent to the Iraqi parliament to be voted on. There are funds that will be needed to implement the delete the zeros project.
A Reuters article published April 12, 2012, stated that Iraq had decided to hold off in knocking the zeros of its currency because the economic climate was not suitable. It is the same reason the government gave in 2013. The plan has been waiting parliamentary approval according to the Reuters article.
On January 2, 2015, the Parliament Economic Committee leader, Najiba Najib said, “The current currency is not commensurate with the economic crisis that hit the country.” The CBI alone cannot implement this project but need to unite all banks.” Najib mentions all banks must be united in Iraq. This is very important to the stability of the Iraq currency. It includes the banks and the CBI Mosul branch to be under Iraqi government control. If the Iraqi army and security forces can manage to remove the Islamic State militants from Iraq by summer and be successful then you may possibly see movement with the Iraqi dinar currency. The CBI is going to maintain the stability of the dinar for the year 2015.
On January 2014, Najib stated there is no draft law in parliament in regards to removing zeros from the Iraqi currency.” She continued with The CBI made a request to remove the zeros, but our committee refuses such requests because they are not in the interest of Iraq’s market and also, it is hard to control currency exchange. As you can see, parliamentary member Najib is the driving force behind the delete the zeros project. I guarantee you will hear more from her in 2015.
Fears from the Central Bank of Iraq on the Iraqi dinar redenomination
The Central Bank of Iraq was established on March 6, 2004, by the Central Bank of Iraq Law. The CBI primary function is to maintain price stability, implement monetary policy and exchange rate policies; manage foreign reserves; issue and manage the Iraqi currency; and regulate the banking sector. The CBI has a main office in Baghdad and four branches , located in Basrah, Mosul, Sulamaniyah and Erbil. There are no restrictions on current and capital transactions involving the Iraqi dinar as long as the transactions are valid by documentation.
There are lots of moving parts when a country decides to change its currency. It is not an easy task and the CBI is concerned for the security of the country. In addition, the corruption and criminal gangs that are always trying to counterfeit the Iraqi dinar banknotes. The Iraqi police have arrested gangs responsible for creating 10,000 IQD counterfeit notes in the country. The Iraqi police are unable, or may be ill equipped, to completely rid the country of these gangs. The corruption involving government officials is also prevalent. Prime Minister, Haider al-Abadi, is desperately trying to get judicial courts more involved in the prosecution of corruption in government. The CBI has postponed the delete the zeros several times since 2008. The Iraqi parliament economic committee has even demanded that former Dr. Sinan Al-Shabibi speed up the process.
The current Prime Minister, al-Abadi is very pro delete the zero’s from the Iraq currency. In October 2013, the Prime Minister was the head of the Iraqi parliamentary Finance Committee. The Prime Minister has a degree in economics. Al-Abadi would like to see counterfeiting limited and not have the citizens go back to using the old dinar currency. PM al-Abadi would like to see the counterfeiters arrested and prosecuted so that he can have his delete the zeros project under his sole watch.
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