The torn currency: between the failure of paper circulation and the delay of digital transformation
The torn currency reveals a deeper flaw than the tearing of the paper, as it shows a cash management crisis, a delay in automation, and a weakness in replacement mechanisms, which makes the citizen the weakest link between banks that refuse, a market that punishes, and digital solutions that are not yet complete.
“No one will take it from me,” Zainab al-Khafaji, a government employee, whispered to herself, her voice thick with despair, as she strolled through the shops of Baghdad’s upscale Mansour district.
She clutched a five-thousand-dinar note that looked as if it had been through a war; it was tattered, its edges torn, and held together with a makeshift piece of tape.
Zainab says bitterly, “I don’t know who gave it to me while I was shopping in the crowded market, and when I tried to buy with it again, everyone refused it. Legally it is a national currency, but in the market’s view it is just a damaged piece of paper.”
Crisis of confidence in "small groups"
Zainab’s story is not an isolated case, but rather a reflection of the daily suffering experienced by millions of Iraqis, as worn-out paper currency, especially the small denominations (250, 500, 1000, 5000 dinars), has become a financial and psychological burden.
While worn-out currency is easy to trade in the Kurdistan Region or neighboring countries, citizens in central and southern Iraq face a popular and commercial “veto” on these papers.
Paper currency is subject to rapid deterioration, especially the smaller denominations, due to its frequent circulation and use by children in direct transactions between different shops and markets.
This is compounded by the lack of education from the Central Bank regarding the replacement of damaged currency at the bank, which has created an opening for unscrupulous individuals to take a percentage of the money in exchange for replacing damaged currency with new currency, sometimes reaching 50% of its value.
Black market for replacing damaged parts... commissions reaching 50%
This social “unacceptability” of the official currency opened the door for the emergence of a class of “weak-willed” people who exploited people’s needs and administrative complexities.
Due to poor education about central bank procedures, an illegal trade has emerged to exchange damaged currency for exorbitant commissions, sometimes reaching half the value of the amount.
Ali Al-Bahadli, a market owner, says: “Sometimes I have to leave my young son to manage the shop, and some people take advantage of his innocence and pass him quantities of small damaged denominations. At the end of the day, I find myself facing a financial loss for which I am not responsible. The only way out is for someone to come by from time to time and collect this (cash debris) in exchange for deducting a large percentage of its value, sometimes reaching 50%, so that he can later exchange it through his own means at the banks.”
As for Sobhi Hussein, a bus driver, he confirms that the banks themselves are contributing to the worsening of the crisis: “I have accumulated large amounts of 500 and 1000 denominations that are written on or torn. When I tried to deposit or exchange them in the banks, they were rejected outright, which forced me to sell them to exchange offices for a much lower value.”
Economic vision: The solution lies in "automation" and plastic currencies
Forex trading platform
Economic expert Dr. Hussein Al-Khaqani believes the crisis begins in the banks and ends in the streets. He says, “The central bank is the sole authority for issuing currency, but the refusal of some banks to accept damaged banknotes from merchants generates a defensive reaction from the public, causing them to stop using the currency for fear of losing its value.”
Al-Khaqani proposes a radical solution, which is to impose the use of electronic cards (Visa & MasterCard) on shops and gas stations, stressing that “the real application of automating transactions will reduce the amount of cash circulating manually, and protect the citizen from financial losses in small units.”
Other experts believe that solving this problem does not require additional resources, but rather a clear decision, strict implementation, and genuine coordination between the central bank, banks, and markets.
According to international reports, 15% of the money in circulation globally up to 2024 was printed using polymer material, which clearly contributed to reducing the percentage of torn money in the world.
Central Bank Guide: When to Accept Currency and When to Confiscate It?
Despite the public controversy, the Central Bank of Iraq has clear instructions aimed at protecting the value of the currency, which are as follows:
If the banknote is worn out or damaged even though it is not torn and no parts of it are missing, or if the banknote is made up of two parts (different numbers) and its area is close to the area of the original banknote and it is attached with adhesive tape, or if the banknote is attached with one or more transparent adhesive tapes along its length or width, or if the banknote has a cut in more than one corner.
Or if the banknote is defective in printing (in terms of design, size, color, or other security features that a genuine banknote has), or contains stamps or writings that do not affect its external appearance, or if the banknote has lost less than 50% of its area.
However, the Central Bank confirmed the confiscation of damaged banknotes that are not fit for circulation if changes have been made to the external appearance of the banknote as a result of writing, drawing, printing, stamps, or if it contains an adhesive substance, or if the banknote has lost 50% or more of its area, or if it is made up of two parts on one side.
If there is evidence that convinces the central bank that the missing parts of the papers have been completely destroyed, they will be partially or fully compensated. link
