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Iraq's dinar gives greenback a run for
its money
By Charles Recknagel
PRAGUE - Like any speculative fever, the run on
the new Iraqi dinar is generating stories that are the
stuff of legend. Many of these come from Baghdad's
currency exchange shops, where the rush to buy the new
currency has been going on for weeks.
The owner
of one shop on Karada Street, a main Baghdad
thoroughfare, told the Associated Press that one
customer recently came in and bought 40 million dinars -
roughly US$30,000 - then stuffed it all into a large
duffel bag. The plan was to drive to Jordan, eight hours
across the desert, and sell the notes there to other
speculators desperate to join the frenzy.
But
the stories are by no means limited to Baghdad. In
neighboring states and across the immediate region, the
new Iraqi currency is being traded vigorously, and often
clandestinely, as people scramble to invest.
The
Egyptian media have widely reported that large amounts
of smuggled Iraqi bank notes now have become the most
frequently confiscated item at the country's airports.
Reporters note this has happened despite the usual heavy
competition from smuggled Viagra pills, mobile phones
and computers.
And in Lebanon, one of the
biggest news items last week was the impounding of about
$20 million in new Iraqi dinars that arrived at Beirut
airport aboard a private plane. Lebanese police arrested
four people on suspicion of smuggling, only to receive
an urgent complaint from the Iraqi interior ministry,
which said it had sent the money as payment to a British
company for security equipment. Beirut is now demanding
the Iraqi officials send proof before they decide
whether to return the money.
Analysts say the
new dinar - sometimes called the "Bremer" dinar - has
fluctuated in value since it was introduced by Coalition
Provisional Authority head L Paul Bremer in October. But
the currency climbed to record highs immediately before
it became the sole Iraqi legal tender one week ago. That
was after a three-month period during which Iraqis could
turn in their Saddam Hussein-era bills for the new notes
at banks.
Walid Khadduri, editor in chief of the
Cyprus-based Middle East Economic Survey, returned from
Baghdad early this week. He says the new dinar's rate
against the dollar has been about 40 percent stronger in
recent days than it was when it was first introduced.
"In October, when they introduced the new dinar,
it was 2,000 dinars to the dollar. And [the exchange
rate] went down to almost 1,100 dinars to the dollar."
But he says that top economists he spoke to in Baghdad
expect the new currency to stabilize within a few weeks
to a rate of about 1,500 to $1. That is because the jump
in the new dinar's value is driven only by hopes of
future gains, not by actual changes in the country's
economy.
"What you saw last week, that was
merely speculation. It does not reflect any changes in
the economy, any laws, any significant thing. As we go
on, as oil production increases, as more money goes in,
more aid, and US-funded projects start taking off, then
you would see the dinar gradually improving," he said.
Iraqi banking officials have had a range of
reactions regarding the new dinar's rise. Some have
expressed satisfaction that Iraqis and foreigners again
appear interested in holding the local currency. During
the previous decade, under United Nations sanctions,
Iraqis saw inflation make their money virtually
worthless against the dollar, and most tried to keep
their savings in dollars or other hard currencies.
Ahmad Salman Jaburi, the deputy governor of the
Central Bank of Iraq, said last week that "this
indicates that people are demanding the Iraqi currency,
which is really flattering for us ... This is now a
currency that people want to hold."
But Iraqi
Central Bank Governor Sinan Shibibi called the rise "not
justified" and said he would have preferred smoother
growth for the new money. He said "there's probably some
kind of speculation, people have bright prospects for
the Iraqi economy ... It is now a trustworthy currency,
but [the rise] is not justified because it's a big jump.
You really want something smooth."
The big jump
has caused financial difficulties for Iraqi businessmen
who have their capital in dollars, as well as for Iraqis
receiving their salaries in dollars from foreign
employers. They have seen their spending power undercut
in the marketplace where, despite the influx of dollars
under the US occupation, the money of choice is the
dinar.
"Many people were hurt. I saw several
Iraqis, expatriate Iraqis, who have brought in money and
invested in small services, small hotels, laundries, and
they were really not happy because they brought in the
dollars to open these small ventures, but they were
paying employees and buying their goods in dinars. And
they were not banking on the dinar being so high,"
Khadduri said.
Despite the spike in the new
dinar's value, the real tests for Iraq's economy and its
new money still lie ahead. Unemployment in the country
currently remains at an estimated 50 percent - about
where it was before the US toppled Saddam Hussein's
regime in April - and most major reconstruction projects
have yet to begin.
US and foreign companies are
currently competing for a first wave of contracts to be
awarded in March as part of Washington's stated plan to
spend some $13 billion on Iraq's reconstruction during
this fiscal year.
Copyright (c) 2004, RFE/RL
Inc. Reprinted with the permission of Radio Free
Europe/Radio Liberty,
1201 Connecticut Ave NW, Washington DC 20036
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