IRAQ'S Exchange Rate History

Iraq Monetary History
Monetary authorities: Iraq
Dates Type Name Legal basis Remarks

May 1890 -9 July 1915 central bank (with commercial banking functions and mainly private ownership) (as part of currency union) Ottoman pound (lira) (issued by central bank Banque Ottomane Impériale [also called Imperial Ottoman Bank or Osmanl Bankas, nicknamed Ottoman Bank] [headquarters Constantinople (now Istanbul), Turkey]) United Kingdom, royal charter of the Imperial Bank of Persia, 2 September 1889; Ottoman Empire, Act of Concession of the Imperial Ottoman Bank, 4 February 1863 Iraq was part of the Ottoman Empire. The first bank was the Imperial Bank of Persia (headquarters London, England), in Baghdad, in May 1890. The second bank was the Ottoman Bank, which opened a Baghdad branch in 1892; its notes do not seem to have circulated widely until it established the branch. The Ottoman government had issued notes on occasion, but they do not seem to have circulated outside of Constantinople (now Istanbul). The first coins were issued in the 300s BC.

10 July 1915 -March 1917 government issue alongside central bank (with commercial banking functions and mainly private ownership) (as part of currency union) Ottoman government alongside Banque Ottomane Impériale (also called Imperial Ottoman Bank or Osmanl Bankas, nicknamed Ottoman Bank) (headquarters for both Constantinople [now Istanbul], Turkey) Ottoman Empire, Act No. 207, 12 April 1915 The Ottoman government issued notes (evrak- nakdiye) following the Ottoman Empire's entry into the First World War.

March 1917 -31 March 1932 dollarization Indian rupee (issued by Government of India [headquarters New Delhi, India])   The British introduced the colonial Indian rupee almost immediately upon beginning their conquest of Iraq in early 1915. I date dollarization for the country as a whole as starting with the British capture of Baghdad.

1 April 1932 -30 June 1949 currency board, Iraq Currency Board (headquarters London, England) Iraq, Iraq Currency Law, No. 44, 19 April 1931; Law No. 101, 12 December 1931; royal iradah (decree) of 1 March 1932 Established a currency board upon British advice despite some local sentiment for a central bank. Originally the board was to have opened

1 July 1931, but it was delayed.  1 July 1949 -present

The central bank Masrif al-Watan al-'Irq (National Bank of Iraq) / Bank al-Markaz al-'Irq (Central Bank of Iraq) from 1 July 1956 (headquarters Baghdad, Iraq for both) Iraq, National Bank of Iraq Law, No. 43, July 1947; Law No. 42 of 1947; royal decree of 31 March 1949; Central Bank of Iraq Law, No. 72 of 1956 Established a central bank to signal the country's political autonomy. Iraq joined the IMF on 27 December 1945, as an original member. Iraq nationalized banks and insurance companies on 14 July 1964.

Exchange rate arrangements:Iraq
Dates Arrangement Legal basis Remarks

1500s  -March 1917  fixed; officially used Ottoman currency, but in practice Indian rupee was more widely used from mid or late 1800s   Iraq was part of the Ottoman Empire. The Indian rupee, which did not suffer the debasement that beset Ottoman coins, was widely used. Officially, all foreign coins were banned in 1883 (Ottoman Empire, circular of 25 January 1883), though they were later accepted for some payments (Ottoman Empire, circular of June 1894). The Ottoman lira was a decimal currency from 1881.

March 1917 -31 March 1932 fixed; used Indian rupee   The British introduced Indian rupee, one of their colonial currencies, upon conquering Iraq during First World War. The rupee was already familiar because it was widely used in trade. It was not a decimal currency.

1 April 1932 -17 December 1946  fixed; 1 Iraqi dinar = UK£1 Iraq, Iraq Currency Law, No. 44, 19 April 1931; Law No. 101, 12 December 1931 Iraq established its own currency, which unlike the Indian rupee was decimalized; it was divided into 1,000 fils. "Dinar" derives from the Latin denarius, a silver coin of ancient Rome. Through the April 1931 law, the Iraqi dinar was to have had a gold value equal to the pound sterling, but the pound sterling was floated against gold on 21 September 1931, so the December 1931 law removed the planned gold parity. Indian rupees were exchanged at 1 Indian rupee = 0.075 Iraqi dinars from 1-28 April 1932, 1 Indian rupee = 0.074 Iraqi dinars from 29 April-5 May 1932, and 1 Indian rupee = 0.0745 Iraqi dinars from 6 May-30 June 1932. These were equal to the prevailing rates in London of the Indian rupee against the pound sterling.

18 December 1946 -30 June 1949  fixed; 1 Iraqi dinar = UK£1 = US$4.03 = 3.58134g gold
   Iraq registered a gold parity with the IMF.

1 July 1949 -19 September 1949  hard peg; 1 Iraqi dinar = UK£1 = US$4.03 = 3.58134g gold Iraq
, National Bank of Iraq Law, No. 43, July 1947; Law No. 42 of 1947 Iraq replaced its currency board with a central bank, so the exchange rate changed from fixed to a hard peg.

20 September 1949 -22 June 1959  hard peg; 1 Iraqi dinar = UK£1 = US$2.80 = 2.48828g gold Iraq, Law No. 42 of 1947 Followed the United Kingdom's devaluation of the pound sterling on 18 September 1949.

23 June 1959 -4 July 1964  hard peg; 1 Iraqi dinar = US$2.80 = UK£1 = 2.48828g gold 
  Switched to the US dollar as the anchor currency, at the prevailing cross rate with pound sterling.

RR: De facto peg to pound sterling / dual market.
5 July 1964 -17 November 1967  hard peg, multiple rates; official rate 1 Iraqi dinar = US$2.80 = UK£1 = 2.48828g gold Iraq, Law No. 87 of 1964 Introduced excise taxes on transfers of foreign exchange for Iraqis leaving the country.
RR: De facto peg to pound sterling / dual market.
18 November 1967 -22 August 1971 hard peg, multiple rates; official rate 1 Iraqi dinar = US$2.80 = UK£1.166 = 2.48828g gold   Did not follow the devaluation of the pound sterling on 18 November 1967. The central bank suspended foreign-exchange dealings on 16 August 1971 and resumed on 23 August 1971, but licensed dealers were authorized to continue certain transactions.
RR: De facto peg to pound sterling / dual market.
23 August 1971 -20 December 1971  hard peg, multiple rates; official rate 1 Iraqi dinar = UK£1.166 = 2.48828g gold (nominally)   Gold convertibility for all countries ended in practice when the United States abandoned the gold standard on 15 August 1971. Iraq remained pegged to the pound sterling and in effect unpegged from the US dollar.

RR: De facto peg to pound sterling / dual market.
21 December 1971 -31 March 1972 hard peg, multiple rates; official rate 1 Iraqi dinar = UK£1.166 = US$3.04 = 2.48828g gold (nominally
)   Repegged to the US dollar after the United States devalued the dollar against gold on 18 December 1971. Iraq adopted wider margins. The central bank suspended foreign-exchange quotations from 24 June-2 July 1972 after the United Kingdom floated the pound sterling on 23 June 1972.
RR: De facto peg to pound sterling / dual market.
1 April 1972 -2 July 1972  hard peg, 1 Iraqi dinar = UK£1.166 = US$3.04 = 2.48828g gold (nominally)
   Unified the exchange rate by abolishing the exchange tax on people leaving Iraq. After the United Kingdom floated the pound sterling on 23 June 1972, Iraq's central bank suspended foreign-exchange quotations on 24 June 1972, resuming on 3 July 1972.

RR: De facto peg to pound sterling / dual market.
3 July 1972 -12 February 1973 hard peg, 1 Iraqi dinar = US$3.04 = 2.48828g gold (nominally)
   Switched to the US dollar as the anchor currency.

13 February 1973 -31 March 1978 hard peg, 1 Iraqi dinar = US$3.3778 = 2.48828g gold (nominally)
   Did not follow the devaluation of the US dollar on 13 February 1973.

1 April 1978 -16 October 1982 hard peg, 1 Iraqi dinar = US$3.3778
International Monetary Fund, Board of Governors, Resolution No. 31-4, 30 April 1976 ("Second Amendment") The system of gold par values officially ended by agreement of IMF members.
RR: Managed float / parallel market from January 1982.
17 October 1982 -1994? hard peg, 1 Iraqi dinar = US$3.2169 
  Devalued by 5%. A currency confiscation occurred on 5 May 1993 as Iraq withdrew 25-dinar "Swiss print" notes from circulation (Iraq, decision of cabinet and Revolutionary Command Council, 2 May 1993). Notes were exchanged at 25 new dinars = 25 old dinars until 10 May 1993, but Iraq closed its borders to prevent foreign holders from repatriating the notes during the redemption period. After the period was over, the notes became worthless in areas controlled by the government of Saddam Hussein. The 25-dinar Swiss-print notes continued to be valid in Kurdish areas, which since the Persian Gulf War of 1991 had become de facto independent.
RR: Managed float / parallel market. Multiple rates in 1982 and 1983.
1994? -29 June 2001 hard peg; 1,750 Iraqi dinars = US$1   The IMF source shows this exchange rate as of 1994 but does not say when it began. Iraq released little information to the IMF after the 1991 Persian Gulf War.
RR: Managed float / parallel market to December 1997, when data end.
30 June 2001 -19 March 2003 managed float
   The IMF reclassified the exchange rate arrangement in light of information that state banks could buy and sell foreign currency at prevailing market rates. The actual change of arrangements was probably earlier.

20 March 2003 -3 October 2003 clean float
   With the US invasion of Iraq on 20 March 2003, the exchange rate arrangement became in effect a clean float for a time.

4 October 2003 -14 October 2003 managed float   Returned to a managed float, with the central bank determining the exchange rate using rates resulting from foreign-exchange auctions.

15 October 2003 -present (new) Iraqi dinar, managed float   Introduced a new design of currency across the whole country, including Kurdish areas that had used the "Swiss print" dinar printed from 1979-1989. Currency was exchanged at 1 new Iraqi dinar = 1 old Iraqi dinar, or 150 new Iraqi dinars = 1 Swiss print dinar. Approximately 4 trillion old dinars are expected to be exchanged. Old dinars ceased being legal tender on 15 January 2004


Iraq Economic Data (1989-2003)

Regime Finance and Procurement - Annex D

Under the rule of Saddam, economic data were considered state secrets; thus, reliable data for the era was limited. According to the Economist Intelligence Unit data (see Figure 6), Iraq’s GDP stood at roughly $38 billion in 1989, measured in constant 2003 dollars. From 1990 until Saddam accepted the terms and conditions of UN Resolution 986 in 1996 the GDP in Iraq remained at less than 30 percent of the 1989 value. In the 1996 to 2002 period, the data shows a gradual recovery as GDP increased from $10.6 billion in 1996 to $33 billion in 2000 before dropping back to $29 billion in 2001.


Per capita GDP during the period followed the downward trend seen in overall GDP. GDP per capita went from approximately $2304 in 1989 to $938 in 1990. From 1991 until 1996 per capita GDP never rose above $507. During this period income inequality was a problem as the wealth was concentrated in the hands of Regime loyalists and traders while most Iraqis subsisted on much less income.

In comparison to the estimates in Figure 6, the CBI published a statistical bulletin with GDP data in current prices (Figure 7). The data used in figure 7 were acquired in 2004 at the CBI. It should be noted that the validity or reliability of the data is unknown.

Because of the lack of specific economic data, it is difficult to disaggregate the Iraq GDP into sectors. It is estimated that in 1989 (Figure 8) oil comprised approximately 61 percent of the economy. However, following the invasion of Kuwait and sanctions on the oil exports, this steadily declined until 1996 when the UN OFF program allowed Iraq to resume controlled export of oil using UN approved contracts. The Agricultural sector of the GDP, although larger than some neighboring states, was quite small when compared to oil and services. Iraq’s fertile agricultural land covers about one-fifth of its territory and has allowed Iraq to sustain a noteworthy agricultural system that is based mostly on barley and dates. 


Sources of Revenue
Iraq’s oil development began in 1901. The Iraq National Oil Company (INOC) was formed in 1964, and with Iraqi oil nationalization between 1972 and 1975, INOC took over from the international oil companies previously running the country’s oil industry. In 1987, INOC was dissolved and merged with the MoO. Before the Gulf War, oil accounted for more than 60 percent of the country’s GDP and 95 percent of foreign currency earnings. Following Iraq’s invasion of Kuwait in 1990 and the embargo on Iraqi oil exports, Iraqi oil production fell to 10 percent of its prewar level from 3.5 million barrels per day in July 1990 (Figure 9) to around 350,000 barrels per day in July 1991. UN-approved oil exports began in December 1996 after Iraq finally accepted UNSCR 986 (passed in April 1995). However, Iraq’s oil sector continued to suffer from years of poor oil reservoir management; corrosion problems at various oil facilities; deterioration of water injection facilities; lack of spare parts, materials, equipment, and damage to oil storage and pumping facilities.

Unlike most Gulf States, Iraq has considerable agricultural potential. About 12 percent of its land is arable, of which 4 percent is irrigated. Another 9 percent is suitable for grazing and 3 percent is forested. However, during Saddam’s reign, Iraq did not effectively use its agricultural potential. Under the Ba’ath party, activity in the food and agriculture sectors of the economy continued to decline. Government expenditures on agriculture dropped from 18 percent of total government expenditures in 1976 to less than 10 percent in 1980 and continued to decline during the Iran-Iraq war. Under Saddam, as a result of drought, lack of inputs, poor methods and weak administration, Iraq was unable to achieve agricultural production levels near its potential. Following the first Gulf war, the irrigation systems fell into disrepair and much of the irrigated cropland in central and southern Iraq was badly damaged by salinization. Rapid population growth during the past three decades, coupled with limited arable land and an overall stagnation in agricultural production has steadily increased Iraq’s dependence on imports to meet domestic food needs. By 2002, under the UN OFF program, between 80 percent and 100 percent of Iraq’s food staples were imported. However, Iraq remained self-sufficient in fruits and vegetables.


Industrial Diversification and Manufacturing
Industrial development, diversification and manufacturing have gone through numerous phases in Iraq. In the mid-1970s a strong emphasis was placed on import substitution and the government established food-processing industries in smaller towns throughout the country. However, the main focus of development was on the petroleum sector, and refining, natural gas processing and some part of supplies for the industry developed in Basra and Kirkuk. The cement and building supplies industry also expanded rapidly. By the late 1970s the emphasis in development planning shifted toward heavy industry and diversification away from oil. Iron and steel production was set up with French assistance at Khor al-Zubair and the defense industrial sector received a high priority. However, objectives were ill defined and the economy’s concentration on oil was never challenged. Inevitably, as with all other segments of the economy, manufacturing and industrial diversification was scaled down when the Iran-Iraq war began and never recovered.


Foreign Debt
Iraq’s indebtedness has been the result primarily of the war with Iran. Iraq traditionally had been free of foreign debt and had accumulated foreign reserves that reached $35 billion by 1980. These reserves were exhausted in the early stages of the war with Iran. It is estimated that from 1980 to 1989 Iraq’s arms purchases alone totaled $54.7 billion. Following the war, Iraq was faced with the dilemma of paying off short-term debts to western creditors estimated between $35 to 45 billion at high interest rates. However, the Regime resisted western attempts through the International Monetary Fund (IMF) and World Bank to reschedule the debt primarily because Baghdad believed it could negotiate more favorable terms dealing with countries bilaterally.

Iraq’s foreign debt was comprised of western credit provided for military assistance, development finance and export guarantees. This assistance has been estimated at $35 billion in principal. The former Soviet Union and Russia also provided loans to Iraq via the Paris Club during the 1980s and 1990s for the development and production of military programs (Figure 10). Gulf States such as Saudi Arabia, Kuwait and the United Arab Emirates provided an additional $30 to 40 billion in financing to fight Iran (Figure 11). Although the Gulf States considered the financial support provided to Iraq to be a loan, Iraq believed that the Gulf States were required to provide help to Iraq in its fight to prevent the spread of radical Iranian fundamentalism.

In addition to the money borrowed by Iraq during the 1980s, Iraq has had compensation claims made for reparations of damage inflicted during the invasion and occupation of Kuwait during 1990 and 1991. The United Nations Compensation Commission (UNCC) was responsible for processing and collecting such claims as authorized by UNSCR 692. The OFF program provided that 30 percent of Iraq’s oil sales would be used to settle compensation claims authorized by the UNCC. This figure was reduced to 25 percent in December 2000 and was set at 5 percent when oil exports resumed after OIF. As of 7 May 2004, claims totaling $266 billion have been adjudicated and claims worth $48 billion have been awarded by the UNCC. Additional claims worth $83 billion need to be resolved.

Another source of potential financial obligations accrued by Iraq since 1990 were contracts signed with countries such as Russia, UAE, Egypt, China, France, and the Netherlands mainly in the energy and telecommunications sectors. Because of UN Sanctions during the period, the contracts were not executed. It is uncertain if these contracts will be honored in the future.

Iraq’s total foreign debt compared to GDP from 1989 until 2003 was not sustainable (Figure 12). Iraq was borrowing much faster than it was producing for over a decade (see Figure 13).


Balance of Payments/Exchange Rates
The Balance of Payments (BoP) is an account of all transactions between one country and all other countries—transactions that are measured in terms of receipts and payments. From the US perspective, a receipt represents any dollars flowing into the country or any transaction that require the exchange of foreign currency into dollars. A payment represents dollars flowing out of the country or any transaction that requires the conversion of dollars into some other currency. The CBI Department of Research and Statistics provided statistics on Iraq’s Balance of Payments, which are summarized (Figures 14 and 15).

Exchange rates are important during these transactions because they represent the linkage between one country and its partners in the global economy. Exchange rates affect the relative price of goods being traded (exports and imports), the valuation of assets, and the yield on those assets. The CBI pegged its official rate between $3 to 3.38 per dinar in the 1970s. The last official exchange rate of $3.11 per dinar was set in 1982. During the 1970s the official and market rates generally corresponded and by 1980 the country had $35 billion in foreign exchange reserves. Because of the war with Iran that figure had fallen to $2 billion by 1987. The currency depreciated rapidly in the unofficial market during the Iraq-Iran war and after the first Gulf War the pace of depreciation increased further. During 1997 to 2003, the exchange rate fluctuated between 1500 -2000ID per $1 and was fairly steady at about 1950 ID to $1 in recent years. Although the Regime did not alter the official exchange rate after 1983, it acknowledged the rate differential in 1999 by allowing state run banks to exchange hard currency at the rate of 2000 ID to $1.According to the statistical bulletin published by CBI (Figure 16) the numbers projected by sources in the US are consistent, with numbers reported internally. It is important to note that the validity and reliability of the data provided by CBI has not yet been evaluated. 


Iraq’s economy suffered from under-employment, an economic affliction that was typical of oil-based economies. Iraq’s oil sector historically generated about 60 percent of Iraq’s GDP, but only employed two to three percent of Iraq’s labor force. Unemployment has risen significantly during the period of 1988-2003. Unemployment in Iraq during 2003 was estimated to be around 28 percent of the labor force. Some 40 percent of the employed are estimated to work in the public sector, many in marginalized economic activities, in difficult conditions, and for minimal pay. Women represent about 52 percent of Iraq’s population, but constitute only 23 percent of the formal workforce, mostly as middle level professionals in the public and service sectors and in rural areas as seasonal agricultural workers.

Over the long run, labor markets are affected by demographics, changes in productivity and the rate of growth in potential output. In the short run, these markets will reflect volatility in the level of economic activity. The unemployment rate in Iraq represents the ratio of those actively seeking work and the total number of people in the labor force. Iraq’s economy was powered mainly by state run centrally controlled government entities. Although Saddam did encourage privatization during the 1980s, this was not successful because of the continuing conflicts and lack of financing and support for private business owners in Iraq. 


Social Conditions and Indicators
Following the war with Iran in 1988, Iraq was ranked 50th out of 130 countries on the 1990 UNDP Human Development Index (HDI). This index measures national achievements in health, education, and per capita GDP. Iraq was close to the top of the “medium human development” category, a reflection of the Government’s continued investment in basic social services. By 1995, Iraq had declined to 106th out of 174 countries and by 2000 it had plummeted to 126th, falling behind Bolivia, Egypt, Mongolia and Gabon and close to the bottom of the “medium human development” category. 

According to the HDI, an Iraqi born in 1987 could expect to live 65 years while citizens in bordering Jordan had a life expectancy of 67 years. By 1998 an Iraqi was expected to live only 63.8 years while a Jordanian saw an increase in life expectancy 70.4 years in 1998. Compared to Jordan, where the literacy rate rose from 75 percent in 1985 to 88.6 percent in 1998, Iraq’s had dropped from 89 percent to 73.5 percent. In 1990, Iraq ranked three places above Jordan on the HDI. In 2000, Iraq placed 34 below Jordan.

Posted: Apr 23, 2007 07:29