Iraq is again considering a longstanding and controversial plan to delete two zeros from the dinar as the country struggles with a deepening budget squeeze.
Member of the Parliamentary finance committee Ahmed Rasheed said on Monday that the project is now being debated in the Central Bank of Iraq, although it has not yet reached parliament.
"These are just discussions so far. They have not risen to the level of a legal proposal. No draft law has reached parliament and it has not even had a first reading," Mr Rasheed told The National.
"However, the current discussions are serious. Right now there is a rationale behind this issue, and therefore they are considered serious discussions and a serious attempt."
The latest discussions revive an issue debated in Iraq for more than two decades. The proposal was first floated during the tenure of former US civil administrator Paul Bremer in 2003 and has repeatedly resurfaced without being implemented.
This time, the debate comes as Baghdad's budget squeeze is worsened by the closure of the Strait of Hormuz, disrupting Iraq’s main oil export route.
With global oil prices volatile and shipments down, government revenues have plummeted at a time when public spending pressures remain high.
Almost all of Iraq’s oil exports, which stood at about 3.4 million barrels a day - collapsed when the war began on February 28. Since early August, exports have risen again to average about 2 million bpd, Iraqi Oil Minister Basim Khudair said on Saturday.
That has knocked down oil revenues, which make up at least 90 per cent of the federal budget, from $6.8 billion in February to about $2.3 billion in May and June. Iraq spends about $6.5 billion a month on salaries, pensions and social welfare, according to the Ministry of Finance.
Hoarded cash
The core objective, Mr Rasheed said, is to restore the dinar’s real value and address a structural problem that has plagued Iraq’s economy for years: huge amounts of cash sitting outside the banking system.
Deleting the zeros will “return the value of the currency to its natural place", he said. The second target, he added, is to bring back the money from outside the banking system.
“This cash has led to a huge amount of paper money being hoarded in homes. It is considered idle money that generates no income for the government or anyone else," he said.
According to Mr Rasheed, the scale is massive. "Currently about 70 trillion Iraqi dinars are outside monetary authority control, out of a total of 125 trillion dinars [in circulation]".
He cautioned that no timetable has been set for the project. "There are no other details such as a start date. The discussions are still preliminary and have not risen to the point of submitting a law to the Council of Representatives."
In another interview on Saturday with a local TV channel, Minister of Communications Mustafa Sanad struck a more definitive tone, saying the government has decided to proceed with the move.
"The decision to delete the zeros and change the currency has been made," Mr Sanad said, linking the move to both the economic crisis and the government’s anti-corruption drive.
He described how the process would force old notes out of circulation, including cash that has long been hoarded outside banks.
"The old money hidden in the haystack will stay in the haystack, and the one hidden in the oven will stay in the oven, and the one hidden in the ground will stay in the ground, and the one in the sewers will stay in the sewers," Mr Sanad said, referring to the methods the corrupt officials used to hide money that is recovered in the continuing anti-corruption campaign.
"All money will have to be handed in."
He put the amount of "missing" undeclared cash at 8 trillion dinars. "If this 8 trillion is not handed in, it’s as if the government is printing a new 8 trillion of the new currency and taking it for itself," he said.
Mr Sanad suggested a gradual introduction to it. "It could be implemented in 2027, for example, and it could take three years or more to complete all the currency," he said.
He added that the new notes would probably be printed abroad. "I think the printing will be in Britain."
There has been no immediate comment from the Central Bank of Iraq and the government.
Cash is king
Iraq remains a heavily cash-based society. Years of war, imposed sanctions and banking scandals have left deep public distrust in financial institutions.
Millions of Iraqis keep savings at home, in safes, or buried, rather than depositing them in banks. The Central Bank has repeatedly estimated that more than half of all dinars in circulation never enter the formal banking system.
Officials argue this "idle cash" limits the government’s ability to conduct monetary policy and fuels the black market for dollars. The process that requires people to exchange old notes for new ones is seen by officials as a way to force that money into the open.
Currency reform has been discussed by every Iraqi government over the past years. The Central Bank first proposed deleting three zeros from the dinar in 2011 to simplify transactions and combat inflation. The idea was shelved amid political instability, the war against ISIS, and falling oil prices.
Proponents say removing zeros would make accounting and payments easier, and psychologically strengthen the dinar. Critics warn it could cause confusion, be costly to implement, and do little if underlying problems – corruption, dollarisation and weak banks – are not addressed.
If approved, Iraq would join a list of countries including Turkey, Brazil, and Zimbabwe that have redenominated their currencies by removing zeros. The process typically involves a transition period where old and new notes circulate together.
