Removing Zeros from the Iraqi Currency: Talk Returns and Possibility of Implementation
Removing Zeros from the Iraqi Currency: Talk Returns and Possibility of Implementation
2024-07-19 05:32
Removing zeros from a currency is a procedure undertaken by some countries in order to revalue the national currency and simplify financial transactions. This is done by removing a specific number of zeros from the nominal value of the currency, making it appear less inflationary and more stable.
For example, if the currency is the “dinar” and its value is equal to 1,000 dinars, after removing three zeros, its value will become one new dinar.
One of the possible reasons for deleting zeros is to combat inflation. When a currency suffers from high inflation, the nominal values can become very high and impractical to be offered in large quantities in daily transactions. Deleting zeros can contribute to enhancing confidence in the national currency, facilitating accounting operations and financial transactions; this may contribute to improving the country’s image before investors and the international community.
Potential challenges of deleting zeros include printing new currency, modifying accounting systems, and training on how to use the new currency. It may initially cause some confusion among residents and consumers, and if the deletion process is not implemented well, it may lead to economic disruptions. As a result, deleting zeros is not a solution to all economic problems, but rather a procedure that requires good planning and careful implementation to ensure that the desired goals are achieved, according to experts.
Examples of countries that have taken this action include Turkey in 2005 when it removed six zeros from its currency, Brazil on several occasions in the 1980s and 1990s, Zimbabwe, which removed twelve zeros from its currency in 2009, and Venezuela, which removed five zeros in 2018. The number of cases in the world in which currency zeros were removed is estimated at 70 cases witnessed by the world since 1960.
In a renewed statement by the Governor of the Central Bank of Iraq, Ali Al-Alaq, he said that “the project to remove zeros from the currency is still ongoing,” meaning removing three zeros from the Iraqi dinar. For example, the value of a 1,000-dinar banknote will be replaced with a one-dinar note from the new currency, five thousand with five dinars, ten thousand with ten dinars, and so on.
According to experts, the actual value of the money people own does not change after deleting the zeros, but this step contributes to simplifying the buying and selling processes for individuals and companies, and makes the financial amounts simpler and more understandable. Instead of dealing with huge numbers such as a trillion or a million (1,000,000 Iraqi dinars), they can be converted to just one thousand 1,000 dinars after deleting three zeros.
Removing zeros helps in issuing small currencies such as coins, enables the re-pricing of small goods at lower prices, facilitates their circulation and their survival in the markets, and gives a positive psychological boost to the population with the fact that the Iraqi dinar can now buy more goods and services.
Therefore, countries aim to remove zeros to restore confidence in the local currency among the population and investors, to increase demand for it, and for the local currency to become more competitive with foreign currencies and to be replaced by other currencies less.
The policy of deleting zeros is often linked to broader economic reforms, such as raising interest rates on bank deposits, to encourage people to save in banks and benefit from high interest rates on their bank deposits, in an attempt to withdraw liquidity from the market, reduce consumption and lower prices.
This also entails exploiting this liquidity to expand productive projects, attract local and foreign investments within the country and create many job opportunities so that the local economy can ultimately recover.
But on the other hand, deleting zeros may cost Iraq money to print new banknotes. For example, after deleting 3 zeros from the Iraqi dinar, when we talk about a 200-dinar banknote, it is actually equivalent to 200,000 dinars. As a result, it may be necessary to print 4 more 50-dinar banknotes instead of the 50,000-dinar banknote.
However, according to the available results, this may not have a clear impact on improving the local economy if it is not part of a package of economic reforms that help reduce the amount of money circulating among people and stimulate the economy, especially since Iraq’s economy is an oil economy that needs to stimulate other productive sectors to drive the local economy.
Could removing zeros from the Iraqi dinar be a real start to stimulating the Iraqi economy, after it became clear that all plans were unable to rescue the dinar from its declining value?
In a statement by the financial advisor to the Iraqi government, Mazhar Muhammad Salih, he said that “the phenomenon of multiplying zeros in the monetary unit or adding zeros usually comes as a result of economies being exposed to rampant waves of inflation or sharp increases in the price level that continue for years due to wars, blockades and conflicts that lead to financing the deficit of government budgets through the issuance of money,” noting that the continuous rise in prices without stopping leads to the erosion of the value of the monetary unit, which necessitates the issuance of larger denominations of money due to the lack of value of smaller denominations of money and the disappearance of their ability to cover high-value transactions and exchanges in the market, according to his description.
Former member of the Parliamentary Finance Committee, Ahmed Hama Rashid, believes that “Iraq is not prepared for the project of deleting zeros,” and explains, “We always hear the Central Bank’s statements about implementing a project, only to then back down from implementation for undisclosed reasons.”
Regarding the implementation of the project to remove zeros from the Iraqi currency, banking consultant Abdul Rahman Al-Shaikhli recalls that the printing of the Iraqi dinar in the nineties of the last century was done by poor printing presses and that “the first factor that stood in the way of the project was the discrepancy between the official exchange rate (now 1332 dinars per dollar) and the parallel market exchange rate (now rising above 1500 dinars) and it constituted an obstacle to the implementation of the project.”
He points out that “the project will be successful if an exchange rate of one thousand dinars for every one dollar is reached. At that time, deleting the three zeros will achieve its economic feasibility, as the exchange rate will be transformed into one dinar for every one dollar, and this is what the late former governor of the Central Bank, Sinan Al-Shabibi, aspired to,” he said.
Al-Shaikhli added that the other factor that affected the project to remove zeros from the Iraqi currency was the call made by the government of former Prime Minister Nouri al-Maliki for the years 2006-2014, to legislate the infrastructure law, which was opposed by a number of political blocs in parliament at the time, as it leads to an increase in investments in Iraq through deferred payment, which limits the value of the monetary project, he said.
shafaq.com
