Fortunes in Iraqi Bills Gone Overnight
In an effort to fight runaway inflation, Iraq decided last week to invalidate its 25-dinar note. Mr. Abu Bakir, a black-market currency trader, has been wiped out, along with tens of thousands of other Jordanians. "The Jordanian people supported Iraq during the gulf war," Mr. Abu Bakir said, "and this is how we are repaid."
To many outside the Arab world a pile of banknotes, each with an engraving of Saddam Hussein in a military uniform, might not seem like a sound investment. But many Jordanians, sure that the United Nations embargo against Iraq would one day be lifted, believed that the hard currency of their neighbor would regain its old value once Baghdad resumes oil sales.
Jordanian businessmen accepted Iraqi currency for payment, often in deals with the Iraqi Government, and squirreled it away. Shepherds sold their flocks, people traded in their gold jewelry and families mortgaged their homes, or withdrew their savings, to buy the Iraqi bills. "I didn't have anything else so I sold my taxi to buy Iraqi dinars," said 23-year-old Ahmed Said.
Each morning dozens of men carrying bundles of Jordanian dinars descended on the tiny offices in the Shabsoug building in downtown Amman. They bought Iraqi dinars from black marketeers like Mr. Abu Bakir, filling shopping bags with the bills. Government officials estimate the value of hoarded Iraqi currency in Jordan at $100 million. And Jordanians were not alone. Investors from Saudi Arabia, the United Arab Emirates and even Kuwait bought up millions of the banknotes, sometimes shipping them out of Jordan by the truckload.
Iraqi officials say the Governments of Kuwait and the United Arab Emirates alone are hoarding 10 billion prewar Iraqi dinars as part of an effort to hasten the country's economic collapse and force it to print money with no monetary backing.
"Gulf Arab speculators would call up and place orders for a million dinars or more," Bashir Mostapha Nobani, a currency trader, said. "They always wanted the prewar 25-dinar notes because they are easier to ship in bulk than smaller denominations and because they did not have faith in the new Iraqi currency."
Iraq kept churning out new money, but the bills were of shoddy quality. The paper was thin and easily torn. The ink ran. The flimsy bills, often indistinguishable from the fake photocopied Iraqi notes that began to circulate, became known as "military notes." Few people, least of all speculators, wanted much to do with them, and the prewar 25-dinar bill became the preferred note.
Before Iraq invaded Kuwait in August 1990 the dinar was worth about $3.00. But after the imposition of sanctions and Iraq's defeat in the Persian Gulf war, its value plummeted. Two weeks ago, the new dinars were being sold for a penny, while the prewar bills brought 3 cents. The new bills, after the invalidation of old ones, have risen in value on the black market to 3 cents.
"We thought this high-grade currency would never be canceled, while the cheap post-war currency might," said Mr. Abu Bakir. "So, of course, we held on to the old stuff and got rid of the new stuff as fast as we could."
But there were other, unseen players in the speculating game, some say. Iraqi officials, along with some Western diplomats, contend that Saudi Arabia, Kuwait, Israel and Iran flooded the market with forged Iraqi bills as part of an effort to destabilize Mr. Hussein's Government.
As the old 25-dinar notes began to disappear from the market, inflation soared, and Iraqi monetary officials, in what Western diplomats describe as a desperate effort to stifle it, invalidated the old notes. The move abruptly removed an estimated 25 billion dinars from circulation.
"This decision, in the short term, helps Iraq," one Western diplomat said. "But in the long term it could prove devastating. Few people outside Iraq will now trust the currency, making imports harder to get and bleeding the hard currency reserves. Eventually this could fuel hyperinflation, as there will be lots of money and little left to buy."
Baghdad permitted Iraqis to exchange the 25-dinar notes for the new currency, but they closed the borders for six days to keep speculators outside the country. The border was reopened Tuesday, after the Monday deadline to turn in the old notes passed.
In an effort to cut down on smuggling, Baghdad also imposed a stiff exit tax of 15,000 dinars, the equivalent of $250 on the black market and $48,000 at the official exchange rate. The tax has slowed cross-border traffic from Iraq to a trickle.
Iraqi officials say they have no intention of compensating anyone else, even the Jordanian businessmen they traded with. "It was their mistake to speculate in Iraqi currency," Shawki Kubaisi, the chairman of the Iraqi Trade Bank, said in Amman. "This is a matter of our national sovereignty, taken to improve our economy."
But Jordanian businessmen, who have lost tens of millions of dollars, say the move was akin to theft.
"I sold flour to Iraqi farms and they paid me in money they now say is worthless," said Nabil Ahmed al-Kaid. "This isn't business. It's robbery. The next time the Iraqis want something they'd better show up with dollars."