Iraq's Currency Making a Comeback
Iraq's Currency Making a Comeback
May. 13, 2003
BAGHDAD, Iraq (AP) _ In a city fraught with anger and despair, at least one thing is looking up: Iraq's currency, the dinar, is making a dramatic comeback against the U.S. dollar.
After more than a decade in short supply, dollars are suddenly flooding the market, whether handed out by U.S. administrators or stolen from banks. As a result, the dinar is up more than 60 percent against the dollar since March with more gains expected.
Still, its rise in value _ to about 1,500 dinars to the dollar, compared with as high as 4,000 during the war _ has made little or no difference to the millions struggling to make ends meet.
That's because food prices have yet to climb down from the steep highs reached during the war that toppled Saddam Hussein. Fresh fruits and vegetables are up as high as 50 percent above their prewar prices. Some storeowners, like retailers of domestic appliances, say they have no intention of marking down prices to account for the dinar's newfound strength, since their merchandise was purchased with dollars.
The dinar did not collapse as a currency with Saddam's fall because there was a broad variety of goods, especially food, that could be purchased with the local currency even as the exchange rate made dollars more expensive.
Haidar Ibrahim, who runs a money-changing store in the al-Karadah commercial area in Baghdad, linked the dollar's decline with politics.
``We are all free now and the dollar is no longer the monopoly of Saddam, his family and officials,'' he said, wiping his gray marble counter with a wet cloth.
U.N. trade and weapons sanctions imposed after Iraq's 1990 invasion of Kuwait severely limited the supply of dollars. Saddam's regime hoarded much of the rest, prompting ordinary Iraqis to try to do the same in a bid to protect the value of their savings.
But now, there's a glut of greenbacks, currency traders say.
Baghdad's estimated 1 million government employees are collecting a one-time payment of $20 decreed by Iraq's interim U.S. administrators as a stopgap measure until new payrolls are in place. It was the employees' first paycheck since mid-March.
Also, some $400 million was looted from banks in the days after the city fell on April 9, and now that cash is finding its way into the market.
And the dinar's supply is limited, at least for the moment. Banks have been closed since before the war began March 20.
``No new dinars are coming out from banks,'' said Amar Ghazi, another currency trader. ``You must also factor in that there are no imports now, no travel abroad and no projects for which dollars are needed.''
Almost all food is sold in dinars, while many imported or electronic goods are priced in dollars. Satellite dishes _ now in great demand after years of being banned by Saddam _ sell for dollars.
The rising dinar benefits those who built up savings in the local currency. Like other traders in Baghdad on Monday, Ghazi was offering 1,500 dinars for each dollar _ 400 fewer than last week and 2,500 down from what was offered during the war.
Another Baghdad trader, Sameer Suleiman Feisal, said he expected the dollar to continue to fall against the dinar as more government employees collect their $20 payment.
``I think 1,000 dinars to the dollar or less is not far-fetched,'' he said.
U.S. officials in Baghdad say the current dinar _ still bearing an image of Saddam _ it will be supplanted and replaced, but have yet to say when. A new interim government is likely to issue a new currency.
The dinar's troubles began nearly 13 years ago. On the eve of the 1990 invasion of Kuwait, a single Iraqi dinar was worth three dollars.
The U.N. sanctions that followed banned oil exports and reduced foreign trade to a trickle, sending the dinar's value to depths unthinkable at the time _ around 2,000 to the dollar. It remained there until a wave of optimism swept the nation when Iraq was allowed, in late 1996, to resume oil exports to buy food and other basic items under U.N. supervision. The dinar rose to 600 to the dollar.
Iraqis were barred from having dollars until the mid-1990s, and were not allowed to open bank accounts in dollars until more recently. In the months leading up to the war, the dinar's value rapidly fell.
For Ibrahim, the newfound attention to the dinar reflects a change in Baghdad's psyche now that the dollar-focused regime is gone.
``They were hoarding dollars, and many Iraqis were converting their savings to dollars too,'' he said. ``Not anymore.''