The Iraqi Dinar — A Sanctioned Currency Split in Two, Then Reunified by Decree

Summary

The Iraqi dinar that the Coalition Provisional Authority retired in 2003 was a currency that a decade of sanctions and a captured printing press had destroyed — and one of the strangest cases in this archive, because for those years Iraq had effectively two dinars at once. Between 15 October 2003 and 15 January 2004 the occupation authority issued a new, unified dinar and exchanged the population out of the old notes, ending a monetary split that had run since the 1991 Gulf War. The verdict on the record is replacement: the old "print" dinar was withdrawn and superseded by a freshly designed, professionally produced currency.

The split was the heart of the story. Before 1990 Iraq used a dinar printed in Britain by De La Rue and known, for reasons no one has ever firmly established, as the "Swiss dinar." It was a hard, stable currency — worth more than three US dollars in 1990. When sanctions cut Iraq off after the invasion of Kuwait, Saddam Hussein's government, unable to import quality banknotes, disowned the old money and printed its own crude replacement domestically: the "Saddam dinar" or "print dinar." The government then ran the presses to finance deficits an oil economy under embargo could no longer cover, and the print dinar collapsed — from roughly parity with several dollars to about 3,000 to the dollar by late 1995, amid annual inflation estimated near 250 percent in the south.

The Swiss dinar, meanwhile, did something remarkable: it survived. In the Kurdish north, beyond Baghdad's control, the old De La Rue notes kept circulating — and because no one could print any more of them, their supply was fixed and their value held. While the southern print dinar inflated into the thousands, the northern Swiss dinar traded at a vast premium, around 100 print dinars to one Swiss dinar through the late 1990s. A single country had two national currencies, one worthless and multiplying, the other scarce and prized, separated by a political frontier.

After the 2003 invasion the Coalition Provisional Authority unified them. De La Rue — the same firm that had printed the original Swiss dinar — produced a new series in six denominations, and Iraqis exchanged their old notes over three months: Saddam print dinars at one-to-one, the cherished Swiss dinars at 150 new dinars to one. The new currency, an oil state's money no longer printed to plug a sanctions-era deficit, actually appreciated about 25 percent in the months after its launch as prices stabilized. It is the closed, dated act on which this file rests.

Timeline

The Fuse: Sanctions on a One-Commodity State

Iraq is the petrostate distilled: an economy whose foreign exchange, government revenue, and very solvency rest on a single export sold in a foreign currency. As the saying among traders went, there was little international demand for dinars because Iraq had few exports other than oil, and oil is priced and paid for in US dollars. In normal times that concentration is manageable; under a comprehensive embargo it is a noose. When the United Nations imposed sanctions after the August 1990 invasion of Kuwait, it did not merely restrict Iraqi trade — it cut off the dollar oil revenue on which the entire fiscal structure depended.

Before all this the dinar had been one of the more respectable currencies in the region. The notes in circulation were printed in Britain by De La Rue and are remembered as the "Swiss dinar" — a nickname whose origin remains genuinely uncertain, attributed variously to printing plates supposedly sourced from Switzerland or simply to the currency's Swiss-like stability. In 1990 a dinar was worth more than three dollars. It was the money of an oil state that, for all its faults, had kept inflation low.

Sanctions broke that. With its oil revenue choked off and its access to foreign banknote printers severed, the government faced a widening deficit it could not finance through trade or borrowing. Saddam Hussein's regime took the only path left to a cornered treasury: it disowned the old hard currency, printed a crude domestic replacement, and ran the presses to cover its bills. The resource curse here operated through deprivation — an economy built entirely on one commodity, abruptly denied the ability to sell it, and a government that responded by debasing the money rather than cutting its cloth.

The Spiral: One Country, Two Dinars

What happened next has no close parallel in monetary history: Iraq split into two currency zones, each with its own dinar, divided by a political frontier the central bank could not cross. After the 1991 Gulf War the government in Baghdad repudiated the old Swiss notes and issued the new, locally printed Saddam dinar across the territory it controlled. The southern and central regions ran on this print dinar — and it was a wretched object, produced with primitive techniques on poor paper, in such a riot of inconsistent colors and details that counterfeits frequently looked better than the genuine article, with some real notes lacking serial numbers altogether.

The government then printed this money to finance its deficits, and the inevitable followed. Inflation in the Saddam-dinar south ran an estimated 250 percent a year, and the exchange rate told the same story: from near parity with several dollars before the war, the print dinar fell to roughly 3,000 to the US dollar by late 1995 and continued to depreciate thereafter. This was deficit monetization under sanctions — the inflation tax substituting for the oil revenue the embargo had taken away, and falling hardest on ordinary Iraqis whose wages were paid in the multiplying notes.

The north told the opposite story. The Kurdish autonomous region, outside Baghdad's control after 1991, refused to accept the inferior Saddam notes and kept using the old Swiss dinar. Crucially, it could not print any — the plates and the presses were elsewhere — so the Swiss dinar's supply was frozen. A currency whose quantity cannot grow does not inflate, and the Swiss dinar accordingly held its value while the southern dinar dissolved. Through the late 1990s the two traded at roughly 100 print dinars to one Swiss dinar, the premium widening during the 2003 invasion to as much as 300 to one. It was a real-time, unintended experiment in monetary economics: the same nominal currency, in two halves of one country, with the printable half made worthless and the unprintable half made precious — the clearest demonstration imaginable that it is the printing, not the name on the note, that destroys a currency.

The Five Factors

Aftermath

The 2003–04 replacement achieved exactly what it set out to do: it unified a split currency, retired two failed dinars, and gave Iraq a single, professionally produced money that gained value in its first months. In the narrow monetary sense the reform held — the new dinar remained the country's currency, and the bizarre two-dinar regime of the sanctions decade was permanently closed. For Iraqis exchanging worthless print dinars at par for a stable new note, and northern Kurds redeeming their hard-won Swiss dinars at 150 to one, it was a genuine reset.

The human cost had already been paid before the reform arrived. A decade of sanctions-era inflation had hollowed out the savings and wages of ordinary Iraqis in the south, who had watched their money fall from near-parity with the dollar to thousands per dollar while the regime printed to sustain itself. The 2003 exchange could redeem the paper they still held; it could not give back the value that years of debasement had already taken. And the new dinar's early appreciation unfolded against the backdrop of an occupation and an insurgency, a reminder that monetary stability is necessary but never sufficient. Still, of all the resolutions in this archive, Iraq's is among the more instructive: a controlled experiment, written across a real country, in why money dies — and a demonstration that a credible currency is one whose supply its issuer cannot simply expand to cover its debts.

Lessons

References

• Iraqi dinar Wikipedia
• Iraqi Swiss dinar Wikipedia
• CPA Order Number 43: New Iraqi Dinar Banknotes Coalition Provisional Authority (official decree)
• New Iraqi Currency / New Iraqi Dinar GlobalSecurity.org
• Iraq Undergoes Currency Conversion Voice of America