Economic expert says removing zeros will not change the purchasing power of Iraqi dinar

BAGHDAD — Challenging misconceptions, economic expert Mahmoud Dagher pointed out that removing zeros will not change inflation rates or the purchasing power of the Iraqi dinar, emphasizing that the importance of the process lies in its “psychological impact” and “facilitating accounting transactions.” He also noted that it could help identify the sources of capital if opening a bank account is required for exchanging old currency with new.

Excerpts from Dagher’s interview with Iraq24 TV:

The idea of removing zeros has been in the mind of the Central Bank of Iraq for a long time. It is currently under study, and we will not be the first country to take this step. For example, Turkey preceded us by removing six zeros from its national currency many years ago.

However, let’s start by dispelling the misconception: removing the zeros will not change the purchasing power of the dinar, and it will not affect inflation rates at all because the amount of legal tender issued by the Central Bank will not change. Instead of carrying a bundle of 50,000 dinar notes, it will be possible to compress it into fewer notes after removing the zeros, but this will not alter its purchasing power.

According to my observations, the volume of currency in circulation is 105 trillion dinars, and after removing the zeros, the amount will be 105 billion dinars. This is exactly the same volume, and the exchange rate will shift from 1,320 dinars per dollar to 132 dinars per dollar.

The most important benefit of removing the zeros is the psychological impact on citizens and the symbolic value of the Iraqi dinar’s history, which is significant. However, more importantly, it will facilitate accounting processes, as companies and individuals face many obstacles in accounting due to the large figures involved in economic transactions.

Removing the zeros, or changing the currency in general, may help in identifying the sources of money in the market, as it is assumed that a condition will be set for opening a bank account for anyone who wants to exchange their currency. This way, the Central Bank will be able to identify the sources of individuals’ capital, and there should be a set time limit for the exchange process to pressure capital holders.

It would be best to accompany the currency exchange process with an intensive promotion of electronic payments. The process could also include changing the type of currency to polymer, which has a plastic texture, increasing the lifespan of the currency and reducing its physical wear and tear, as Egypt and the UAE have done with some of their national currency denominations.

The strength of the currency is not measured by the number of foreign currency units it is pegged to, but by the stability of exchange rates. This is the indicator investors rely on to assess the level of risk in any economy.