Demand for the Iraqi dinar, which was exceptionally high early last month, has slackened in the UAE currency market despite availability of higher denominations, traders said.

The wide acceptance and usage of the US dollar as legal tender in Iraq has diminished the dinar's value, forcing currency traders here to adopt a wait and watch attitude.

"Demand is very low at the moment for Iraqi dinars and it is not an active currency. The surge in demand for Iraqi dinars last month here was a flash in the pan. It was driven by speculators who wanted to make a quick buck," said Mohammed Al Ansari, managing director of Al Ansari Exchange Centre.

"Most transactions with Iraq from here are in US dollars. Transfers or remittances to Iraq, which represent 90 per cent of transactions, are undertaken in dollars."

Physical buying of dinars has also stopped. "There are hardly any cash transactions as far as the dinar is concerned."

Last month, demand for Iraqi dinars surged in the markets here as speculators expected the dinar to strengthen. Traders said the demand for dinars increased by some 40 per cent suddenly. "I think it was some brokers who created the high demand in the market. Even dealers from Egypt, Pakistan and Lebanon were asking for Iraqi dinars. But that demand went down soon," said Al Ansari.

Currently, one US dollar equals 1,300 Iraqi dinars whereas some two decades ago, an Iraqi dinar could fetch almost $3.

The new, higher denominations of Iraqi dinars that hit the market here also created a high demand, albeit briefly.

The new denominations of 5,000, 10,000 and 25,000 dinars were easier to deal in compared with the earlier smaller denominations of 25 and 250 dinars.

"Due to lack of experience, some speculators thought that with the war over, the Iraqi dinar would strengthen like the Kuwaiti dinar after the 1990-1991 Gulf War. But the Kuwaiti dinar was always a strong currency and the invasion there was short-lived, unlike Iraq," said another currency dealer in Abu Dhabi. Although there are no official figures, traders said Iraqi dinars worth Dh80-Dh100 million were bought in the UAE last month by some dealers from outside.

Some exchange houses are not dealing with the Iraqi dinar yet.

"It is not legal, it is not stable and it could be risky to deal with such a currency," said Sudhir Shetty, general manager, UAE Exchange Centre, adding that they are waiting and watching the developments in Iraq.