What would happen to the Iraqi dinar if the zeros were removed? Comment by Dr. Mahmoud Dagher
9/29/2024
Economist Mahmoud Dagher pointed out that deleting zeros will not change inflation rates or the purchasing power of the dinar, stressing that the importance of the process is summarized in the “psychological impact” and “facilitating accounting transactions,” in addition to knowing the sources of capital in the event that opening a bank account is required to replace the old currency with the new one.
Mahmoud Dagher, financial and banking expert, in an interview with media figure Muhammad Qais, followed by 964 Network :
The idea of deleting zeros has been on the mind of the Central Bank of Iraq for a long time, and it is under consideration. We will not be the first country to move towards this option, as Turkey, for example, preceded us by deleting six zeros from its national currency many years ago.
But let us start by removing the illusion. Removing the zeros will not change the purchasing power of the dinar, and it does not affect inflation rates at all, because the amount of legal tender issued by the Central Bank will never change. Instead of carrying a bundle of 50,000 dinar notes, it will be possible to compress them into a smaller number of notes after removing the zeros, and this will not change their purchasing power.
The amount of money on offer, according to my observations, is equal to 105 trillion dinars, and after removing the zeros, the amount will be 105 billion dinars, which is exactly the same amount, and the exchange rate will change from 1320 dinars per dollar to 132 dinars per dollar.
The Iraqi dinar is linked to the dollar, as Iraq adopts a fixed exchange rate system, or a soft peg system, according to the classifications of the International Monetary Fund, and this system has been adopted by us since 2004 until now.
The most important benefits of deleting zeros are the psychological impact on the citizen and the symbolic value of the history of the Iraqi dinar, and this is important, but more important than this is facilitating the accounting processes, as companies and individuals face many obstacles in accounting due to the huge numbers circulated in economic transactions.
Removing zeros, or changing the currency in general, may help in identifying the sources of money in the market, as it is assumed that a condition should be set for opening a bank account for every person who wants to change the type of currency in his possession, and in this way the central bank will know the sources of capital for individuals, and the door to replacement must be with a specific time limit to pressure the owners of capital.
It is better for the currency replacement process to be accompanied by intensive electronic payment activity. The process may also include changing the type of currency to “polymer” with a plastic material that increases the life of the currency and reduces the factors of physical damage to it, as Egypt and the Emirates have done with some categories of their national currencies.
The strength of a currency is not measured by the number of foreign currency units linked to it, but rather by the stability of exchange rates. This is the indicator relied upon by investors to assess the extent of risks in any economy.
