Kurds hoard dinars in anticipation of war

The so-called "Swiss dinar" in northern Iraq has rapidly been gaining strength against the U.S. dollar as misguided Kurdish families hoard the out-of-print currency in anticipation of a regime change in Baghdad.

These families believe that once Saddam Hussein is removed from power, the old dinar, which is now used only in Kurdish-ruled areas of northern Iraq, will automatically regain the value it once enjoyed at three times the U.S. dollar, according to Sami AbdurRahman, Deputy Prime Minister of the Kurdistan Regional Government (KRG).

"This is an illusion, and it is one of the many causes of this problem," he told Gulf News.

"In assessing the value of a currency, perception plays an important role, but at the same time, the currency reflects the state of a country's economy. Does the Iraqi government have such a great economy? Can the dinar be expected to gain so much strength immediately after a war?"

There is also no assurance that the "Swiss" dinar will replace Baghdad's "photocopy dinar" after a regime change, he pointed out, when Kurdish-ruled areas conform to a unified currency under Iraq's Central Bank.

Another illusion, according to AbdurRahman, is the term "Swiss dinar".

"They call it the Swiss dinar to differentiate it from Baghdad's 'photocopy dinar', but they were actually printed in the UK," he said.

There are only about two billion worth of Swiss dinars in circulation as they went out of print in 1990, after the blockade was imposed on Iraq. Most people receive their salaries in dinars, and since it gained strength, the local market has been put off balance.

Three months ago, the rate was 14 Swiss dinars to the U.S. dollar. Today, the exchange is eight dinars to the dollar - and rising.

"Foreign remittances come in dollars. UN workers spend dollars, as well as Kurds visiting from abroad," he said.

"But there is a limited amount of dinars here, and we cannot print new ones. With the threat of war, local families are looking for security and they are saving their dinars. This has drastically reduced the already limited number of notes in circulation, and as a result, the value of the currency has jumped."

AbdurRahman, a former Minister of Northern Affairs under the Baghdad regime, said there is no "miracle solution" to the quagmire, and it stands to worsen.

He added that the economy in Kurdish-ruled areas has come to a virtual standstill in view of the tensions in the region.

"The regional government's revenues have considerably diminished," he said. "Contracts are not followed through, and trade has slowed down."

Nazim Mohammed, who has been running a money exchange office since 1992, said he lost a lot of money when the dollar lost its value here.

"Two weeks ago, $100 was equal to 1,200 dinars. Now it is equal to 800 dinars. Everyone lost money. So less and less people are exchanging dollars," he said.

"Some say it is better to keep dinars because the value of the dollar is always falling; others say it is better to keep dollars because there is a danger that the dinar may be cancelled soon," he said. "There are still others who say it is better not to keep great quantities of either currency, and to buy a car or a plot of land instead."

According to Dr Roush Nouri Shaways, KRG Parliament Speaker, the "Swiss" dinar has been growing stronger over the past five years.

"It has complicated the affairs of merchants who find it difficult to set the price for their goods," he said.

The parliament has discussed the problem and solutions have been proposed, but regional tensions must subside before anything can be done about it, he explained.

It is natural for people to want to secure their financial situation in uncertain times, said the deputy prime minister, but hoarding dinars in the hope that the currency will regain its onetime value after Saddam is toppled is a "bad investment".

"It is much better to save money in an international currency that does not lose its value, and remains steady like the euro or the dollar," he said. Asked which currency AbdurRahman prefers, he laughed: "I don't keep any dinars!"