Removing zeros from the Iraqi dinar is back in the spotlight..Strengthening the currency or just changing its form?
Talk has returned again about the process of removing zeros from the local Iraqi currency, as the Central Bank of Iraq confirmed that the project to remove zeros from the dinar is subject to continuous review and study.
Countries remove zeros from their currency to revalue their 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.
The central banks of these countries usually issue a new currency, equal in value to one hundred thousand or one million of the old currency, with the old currency gradually being withdrawn from the markets, after a period in which the two currencies are allowed to be used side by side. The most famous countries that have implemented this process, more than once, successfully were Turkey and the former Yugoslavia.
In his statements, Ali Mohsen Al-Alaq, Governor of the Central Bank of Iraq, considered that the bank responded to global economic challenges such as rising energy and raw material prices by amending some monetary policies in line with the international situation and to enhance confidence in the Iraqi dinar and prevent a sharp decline in its value.
Al-Alaq pointed out that the Central Bank of Iraq increased its holdings of foreign exchange and gold reserves to strengthen the country's financial position and stability, in order to enhance its ability to confront potential economic crises.
Commenting on this, economic researcher Ali Daadoush said in an interview with Al-Mada, “The process of deleting zeros is linked to the Central Bank of Iraq,” indicating that “the issue is not new and was previously discussed about 14 years ago. “
Daadoush pointed out that "the process of deleting prices is psychological, as the commodity worth a thousand dinars will be worth one dinar and remain at the same value."
The economic researcher pointed out that "removing zeros leads to flexible dealing with the local currency and strengthens it, and may lead to increased production and diversification of the economy, and thus enhance the value of the Iraqi dinar."
For his part, economic affairs expert Mustafa Hantoush said in an interview with Al-Mada, “The issue of removing zeros from the Iraqi currency is only arithmetic and keeps the currency at the same value. That is, when you sell a house for 100 million, it will be sold for 100 thousand.”
Hantoush added that "countries resort to deleting zeros when there is an expansion in the value of the printed currency and problems occur in the book value and accounting entries, for the purpose of restoring accounting balances."
The economic researcher went on to say, “Iraq is currently suffering from problems with the exchange rate,” indicating that “the value of printing and replacing the currency costs Iraq time, effort and millions of dollars.”
Hantoush said, “The situation now requires focusing on how to maintain the value of the Iraqi currency against foreign currencies.”
According to the latest data, the Central Bank of Iraq's foreign reserves cover 83.62% of the broad money supply, which covers the cost of importing 15 months, while the global standard rate is 20%, covering 6 months of importing.
Foreign exchange reserves are a tool used by all central banks to maintain the stability of the local currency exchange rate against foreign currencies, as well as to reduce exposure to external crises by maintaining liquidity in foreign currency to absorb shocks in times of crisis.
The Iraqi currency is under great pressure, which has caused its price to decline against the dollar during the past period, including the increase in the Iraqi budget deficit. Two weeks ago, Mazhar Salih, financial advisor to Iraqi Prime Minister Mohammed Shia al-Sudani, said that Iraq will face a budget crisis in 2025 due to the decline in oil prices, the country's main source of revenue. Salih said in an interview with Reuters: “We do not expect major problems in 2024, but we need stricter financial discipline in 2025.” link