New banknotes to be introduced in September
The Kurdish Globe
Views differ on financial and socioeconomic impacts
Despite fears of a negative economic impact, the Central Bank of Iraq will remove three zeros from Iraqi dinar notes and print new banknotes in 2013.
The Central Bank of Iraq has agreed with the Economic Committee of the Iraqi Parliament to introduce the new banknotes in September 2012, which will be used in parallel with the current banknotes for a year. The CBI will completely withdraw the old banknotes by September 2013.
Abdul-Hussein Abtan, Economic Committee Member of Parliament in Baghdad stated in a press conference that there is an initial agreement between Parliament and the central bank to start the process of removing three zeros in September, and it will take a year to complete. The new banknotes will be printed in Arabic, English and Kurdish.
The CBI will introduce three new banknotes: 50 dinars, 100 dinars and 200 dinars. For smaller transactions, the CBI will also issue 1-dinar and 2-dinar coins which Iraq currently does not use.
MP Abtan says “The grant agreement is to ensure that during the one year process, the old banknotes are traded in the market and replaced by the new one.”
The CBI expects this move to positively impact the country’s economy; however, some parties say the negative consequences will be more serious.
The Security Commission says deleting the zeros will have a negative impact on financial trade in the stock market. Other opponents of the move argue it would pave the way for money laundering and want the government to reconsider its decision.
Supporters of the idea believe the introduction of the new banknotes will help reduce inflation, strengthen the Iraqi dinar in the international market, facilitate trade with international banks and other financial institutions, as well as reduce the social gap between classes.
“The process of removing zeros from the currency will contribute to dealing better with inflation, facilitate economic cooperation with international banks and reduce the differences in [standards of] living in society,” Abtan explained. Mahma Khalil, another Member of the Iraqi Parliament and official spokesperson of the Economic Committee says an agreement has been reached about the mechanisms of introducing the new banknotes after a series of meetings and discussions with the CBI Governor Dr. Sinan Al Shibibi.
“According to the agreements, the new bill will be printed by a European company and introduced to the market gradually and in a well-planned schedule to ensure it will not result in shocks and would not have a negative impact on the market,” explained MP Khalil. He added the exchange rate between the new banknotes and the old ones would be 1:1,000.
The objective behind this move is to appreciate the value of the Iraqi dinar against the U.S. dollar, which would in turn increase the balance of the Iraqi dinar and there would be sufficient reserves of that currency,” explained MP Khalil. “Additionally, the economy of Iraq would grow and oil sales would also increase.” Khalil added that Iraq has a reserve of $60 billion in the CBI.
The CBI previously stated it would consult with Parliament and representatives to see whether there would be a need for a law to be passed for this shift. The Economic Committee announced on 19 February it was introducing new legislation for the purpose and would also address the inflation issue in the country.
The introduction of new banknotes and withdrawing the current ones from the market is generally expected to reduce and control the number of dinars in circulation and would also help facilitate payment systems and control the banking transactions in the country.