Iraq Dinar Speculation

From Army Times author Kris Osborne (no link provided):

U.S. slows cash flow into Iraq, Afghanistan
By Kris Osborn

The U.S. government is slowing the flow of dollars into Iraq and Afghanistan as part of a push to build up the local currencies, banking systems and economies.
In the effort by the State and Treasury departments and the Army, all U.S. payments to local vendors in Iraq and Afghanistan will be made by electronic transfer starting Oct. 1, said Brig. Gen. Phillip McGhee, director of resource management, Third Army.
In recent years, billions of U.S. dollars has flowed into the coun­tries.
“There was no banking struc­ture, there were no financial insti­tutions. They either didn’t exist to begin with or they col­lapsed after the start of Opera­tion Iraqi Free­dom,” McGhee said. “We went for years revert­ing back to what we know and can do very well, and that is put a lot of cash out there.” But that approach invited corruption and theft, tied up U.S. troops as security guards and gave insur­gents a key financial tool.
“Insurgents and al-Qaida prefer to use U.S. currency,” McGhee said. “They can use that anywhere in the world, so the sooner you get that out of there, they will have to find another currency.” But the primary reason for the switch, the general said, was to give Iraqis and Afghans more con­trol of their recovering economies. Using local currency boosts con­fidence in local governments, one analyst said.
“For the long term, this is good for the country to the extent that people see the Afghan and Iraqi governments as providing stable institutions. It does build some confidence,” said Keith Crane, who directs environment, energy and economic development pro­grams at Rand Corp., a California­ based think tank.
The flow of U.S. cash is already drying up. U.S. payments will move through a web-based Defense Department service called “Wide Area Work Flow.” That allows the government to “write contracts to the vendors in U.S. currency that are paid in local currency,” McGhee said. “If you are a contractor and your con­tract was written through [elec­tronic funds transfers] — you can see where your payment is in the system.” The funds will be sent to local banks that have been certified ready to handle e-transfers, where they will be available for the ven­dors to withdraw in local currency. Reducing cash payments saves the Army money. Each transac­tion costs about $32 a payment, according to an Army news release.

(Hat tip to one of the readers of DS, please claim your credit in the comments if you wish it.)

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1. Iraqi Dinar vs USD for US military in Iraq
2. Change is coming for Iraq, oil price is rising
3. Update: Future of the Dollar in Iraq
4. Obama extends Iraq Development Fund protection
5. Monetary Policy in Iraq set to change?

This entry was posted on Thursday, September 17th, 2009 at 7:44 am and is filed under General Iraq Discussion, Iraq Finance, Iraqi Banking related. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.