In Iraq it is not unusual to see locals carrying around large bundles of cash. The way the Iraqi dinar has devalued over the years means that people regularly receive envelopes full of paper money; when very large sales are made, the US dollar is used rather than the dinar.
Recently the Iraqi Central Bank released a new banknote, the IQD50,000 note (worth around US$46). The announcement about the bank note had been made in November last year and the new note was released in small amounts in early January. More bank notes will be released over the next few months. Previous to this the IQD25,000 note was the highest denomination.
For people like Mohammed Mahmoud, the new bank note is a boon. He is a well paid employee of the Iraqi government and the new bank note makes it easier for him to carry his salary around.
“Previously I used to hide my salary in black bags because I used to get a lot of paper money,” Mahmoud told NIQASH. “Carrying five and ten thousand dinar notes was dangerous because any passerby could see me carrying a lot of money around, every time I got paid and went from my office to my car.”
However others, who are not so well paid, fear that the new bank note is going to have a detrimental impact.
Ali Abdul-Sattar earns a daily wage of around IQD10,000 (around US$9.30) and of this, he puts around IQD1,000 (around US$0.93) aside for transportation from his home to his workplace at the Baghdad municipal council. Now he believes the costs of his daily trip to work will rise.
“I will end up paying double,” he argues. “And at the same time the Baghdad council is paying all of its employees less.”
Other Iraqis earning less money have similar concerns, fearing that in this case “economic justice belongs to the strongest”.
In practical terms, Abdul-Sattar actually has no reason for concern. There's no economic reason why this should happen. But he has had this experience before, he says. When the 25,000 dinar bank note was printed, his fares rose from 250 dinars to 500 dinars.
“After the smaller bank notes disappeared from the market – like the 25 and 100 dinars – prices rose too,” he complains.
The disappearance of these bank notes from daily transactions has meant a rise in the prices of less expensive goods; as a result, the rises mainly impact lower and middle-income earners.
But local economists don't believe there is any direct correlation between the higher bank notes and the decrease in value of smaller bank notes. But they believe it will happen anyway because of what they describe as the “moody behaviour” of the Iraqi market and the Iraqi consumers – in other words, an interesting case of behavioural economics.
“The Iraqi market doesn't follow the same models as other countries,” argues local economist, Bassem Jamil Antoine. “The aim behind issuing higher denomination bank notes is partially to decrease the size of money being transacted, especially in corporate and business areas.”
“And in the market there is a mood that sees consumers wanting to undermine the value of smaller banknotes when larger ones are introduced,” Antoine suggests. “It's hard to explain why.”
Antoine believes the best thing to do would be to continue to issue smaller value bank notes at the same time. If small bank notes are still around, cheap goods can remain that way and low earners won't be so badly affected.