Iraqi dinar defies spiraling violence

 

By Intisar Maki

 

Azzaman, June 3, 2005

 

The upsurge in violence has worsened conditions for almost everyone and everything in Iraq, but the new currency.

 

The Iraqi dinar is the winner as it has so far weathered the impact of mounting violence and car bombs that would have sent any other country’s currency tumbling.

 

Since its launch in October, 2003, the new dinar has preserved its value vis-à-vis the U.S. dollar and other major countries.

 

It is probably the only symbol of stability in a car torn by wars, civil strife and violence.

 

However, Iraqi economists are not surprised to see the currency fending off the political turmoil and the descent into violence, a major characteristic of the past two years.

 

Thanks, they say, are mainly due to the Central Bank, which is one of the few government branches of the post-war era untainted by corruption.

 

“The (central) bank has pursued sound monetary policies,” says Thuraya Khazraji, Baghdad University’s professors of economics.

 

Other factors leading to the currency’s stability, in her opinion, include “the slight improvement in oil exports and the writing off of 90% of Iraq’s foreign debts.”

 

In the 1970s one Iraqi dinar was worth more than three U.S. dollars as Central Bank coffers were then stashed with hard cash, gold and other assets to support the currency.

 

But the dinar started losing its shine in early 1980s mainly due to the 1980-1988 Iraq-Iran war.

 

And the currency began to decline drastically after the 1990 invasion of Kuwait and plunged to nearly 3,000 to one U.S. dollar in mid 1990s.

 

A new currency was launched shortly after the fall of the former regime.

 

While Iraqis had no trust in the former currency, confidence is growing in the new dinar which is currently changing hands at about 1,400 for one U.S. dollar.

 

“The adoption of new monetary policies by the Central Bank … has led to higher confidence locally, regionally and internationally in the new currency,” said Khazraji.

 

Imad Ali, professor of fiscal economics at Baghdad University, said many Iraqis were even turning to have their savings in the new dinar instead of foreign currencies.

 

“The issuing of the new currency has been very important for the Iraqi economy … it has offered Iraqis their first chance in nearly two decades to have their savings in the dinar rather than other hard currencies,” he said.

 

Ali also praised Central Bank policies and its attempts to stabilize the currency.

 

“Today demand for the dinar is higher than foreign currencies inside Iraq. The (central) bank’s polices have given a big boost to the dinar,” he said.

 

Yahya Najar, of Baghdad University’s College of Economics and Administration, said the new currency “is backed by foreign cash and gold and has earned the trust of the public.”

 

The currency’s stability has been good news to public sector employees who have seen substantial hikes in both wages and purchasing power.

 

The civil service is the largest employer in the country with some five million Iraqis receiving monthly salaries from the government.

 

Under Saddam Hussein the average monthly salary of a civil servant was 7,500 dinars (about three U.S. dollars).

 

Today it has ballooned to nearly 300,000 (about $200).