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Views are mixed on reasons for new Iraqi dinar's vigor

BAGHDAD -- As the euro, yen, and other major currencies surge in value against the wilting dollar, even Iraq's bantamweight upstart -- the "Saddam-free" dinar -- is showing unexpected muscle.

The new Iraqi dinar, introduced last fall to replace notes bearing Saddam Hussein's image, has strengthened by about 25 percent in dollar terms.

The older notes had to be turned in by yesterday -- they had no value after that. Coalition authorities see the dinar's ascent as a vote of confidence in Iraq's economy.

Currency traders, however, blame speculators in neighboring countries for hoarding the dinar and driving up its value in the hope of later dumping it to earn a quick profit.

Much of the dinar's recent gain has come in just the last week.

"This indicates that people are demanding the Iraqi currency, which is really flattering for us. . . . This is now a currency that people want to hold," the deputy governor of the Central Bank of Iraq, Ahmed Salman Jaburi, said yesterday.

One dinar was worth close to 2,000 per dollar when the new notes -- which depict Iraq's important scientific contributions, history, landscape, and economic life -- entered circulation. After trading early Wednesday at 1,400 to the dollar, the dinar spiked that afternoon to 1,100 -- an increase of 21 percent.

Some Iraqis said this was the biggest same-day change in their currency's value since late 1995, when the dinar strengthened as the United Nations prepared to relax the economic embargo then in effect against Iraq.

The dinar retreated to 1,300 by late Wednesday and slipped further yesterday to 1,350. Traders and economists alike foresee volatile changes in the dinar's worth in the weeks and months ahead.

Simon Gray, an adviser to the Central Bank of Iraq, said the dinar's rise in recent weeks might not have been justified by improvements in Iraq's economy and political stability. He attributed some of the new dinar's strength to high-tech features such as watermarks and embossed lettering that make it harder to counterfeit compared to Iraq's older currency.

As the dinar has grown stronger, more people have shifted their savings from dollars into dinars in expectations of a further increase in value.

These currency exchanges have added to the dinar's momentum, Gray said.

Currency traders in Baghdad blame speculators in Kuwait, Jordan, and other Arab countries for manipulating the dinar. Adnan Pachachi, the president of Iraq's Governing Council, said he had received reports that large sums of dinars were being sold to buyers in neighboring countries.

"They are making a fortune off Iraq," said Amir Al-Mandalawy, co-owner of a currency exchange shop on Karada Street, one of Baghdad's commercial thoroughfares.

The Central Bank plans to incinerate all the remaining "Saddam" dinars over the next two months.

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