Iraq's economy and the Iraqi Dinar have a long, colorful history. And there's plenty more excitement to come, since this oil-rich young nation is growing quickly based on its ownership of the world's second-largest high quality petroleum reserves.
In order to better understand what may lie ahead for Iraq and the Iraqi Dinar, it's worthwhile to take a closer look at the history of the country, its economy and currency.
Ancient history of a modern nation
Iraq, known as Mesopotamia in ancient times, is home to the world's oldest civilization, hence its nickname "the Cradle of Civilization."
The land now called Iraq has a documented cultural history of more than ten thousand years, and it has been host to many successive empires - Sumerian, Babylonian, Assyrian, Sassanian - as well as foreign invaders including Muslims, Turks and Mongols.
By the 16th Century, Iraq was firmly under Ottoman control. The Ottoman Empire was a Turkey-centered area of influence with Muslim rulers. The Ottomans forfeited Iraq after World War I because they sided with Germany, which lost.
Ultimately, British forces captured Baghdad in 1917. When Germany lost the war in 1918, victorious Britain and France carved Iraq out of the Ottoman Empire and it quickly became part of the British Empire.
In 1920 Iraq was designed by the League of Nations (forerunner to the UN) as a "mandate" or protectorate under British administration.
The Brits remained in control until the Kingdom of Iraq was established in 1933.
The first Iraqi Dinar
The Iraqi Dinar currency was first introduced in 1932 in preparation for the British plan to relinquish control of Iraq. Oil had been discovered several years earlier, and banking authorities were already confident in the new nation's long-term economic prospects.
The dinar is the unit of national currency used in several Middle Eastern countries, each with its own foreign exchange value. Other than the Iraqi Dinar, there is also a Kuwaiti Dinar which is recent years has been one of the world's highest-valued currencies.
The word "dinar" itself is derived from the Latin word denarius, which means 'money.' And, descendants of the word are still found today in some modern languages, such as the Spanish word dinero.
Dinar coins were also introduced alongside the paper Dinar banknotes in 1932, and some of the higher denominations were made of silver. Yet, Iraqi consumers have always shunned coins in favor of banknotes, even for small denominations.
The Dinar replaced the Indian Rupee as Iraq's official currency, which the British had been using throughout their holdings in the Middle East.
Historical value of the Iraqi Dinar
During the early years of the Iraqi kingdom the value of the Dinar was worth as much as several U.S. Dollars.
The original exchange rate was set at 1 Iraqi Dinar per 11 Indian Rupees. Later, the Dinar was pegged to the value of the British Pound.
In 1959 the Dinar was re-pegged from the British Pound to the U.S. Dollar, with an exchange rate of 1 Iraqi Dinar per USD $2.80
Oil changes Iraq's future
In 1927, British geologists first discovered a huge oil field near Kirkuk in northern Iraq. Full exploration rights were given to the Iraqi Petroleum Company, which was owned by British business interests.
Development proceeded quickly in a small number of oilfields throughout Iraq. Although the British built roads, the remoteness of the sites slowed progress.
During this period, Iraq was ruled by a series of kings - Faisal, Ghazi, and Faisal II - who generally continued the policies of the previous British administrators.
In 1945 Iraq was admitted into the United Nations, and it also became a founding member of the Arab League.
In 1948 Iraqi leaders entered into the Arab-Israeli War alongside fellow members of the Arab League with the goal of defending the Palestinian right of sovereignty.
During 1958 the Iraqi monarch engaged in discussions with the Kuwaiti ruler regarding the possibility of uniting Iraq and Kuwait together as a single nation.
The discussions didn't bear fruit, yet they did bring the Iraqi government into conflict with the British government, which opposed any union between Iraq and Kuwait.
From monarchy to military dictatorship
In July of 1958 the King was toppled, and the Republic of Iraq was established. Over the next few years, Iraq was ruled by a succession of military leaders. In 1963 Iraq's Ba'ath Party seized power and managed to retain control during several years of political turmoil.
Saddam Hussein first stepped into the limelight in 1969. As Secretary-General of the Ba'ath Party, he was tasked with finding a solution to the ongoing Kurdish rebellion in northern Iraq. He brokered a political agreement which ended the hostilities, at least for awhile.
For several years the Ba'ath leadership helped the country grow. Unlike the previous military regimes, during its early years the Ba'ath government focused on agriculture and economic growth.
The monopoly of the British-owned Iraq Petroleum Company was broken in the late 1960s, and Iraq's economy and oil industry grew rapidly. Even during this turbulent time, the value of the Iraqi Dinar remained fairly stable. Based on the nation's early oil production, the historical value of its currency rose modestly during this period.
In many ways, the 1970s were a golden era in Iraq - Young, technocratic leadership oversaw a fast-growing, stable economy. Yet, Iraq's heyday didn't last long.
Saddam's ambition created conflict
Saddam's political and territorial ambition led Iraq into a series of conflicts which were disastrous for Iraq's economy and the Dinar. His first major conflict was the Iran-Iraq War, which lasted eight years. Although its outcome was ultimately inconclusive, the war left Iraq with huge debts as well as the largest army in the Gulf region - nearly one million strong.
During the Iran-Iraq War, restive Kurds in northern Iraq took advantage of the central government's preoccupation to launch their own rebellion. Saddam was able to quell the Kurdish uprising, but at a terrible cost - An estimated 200,000 Kurdish civilians were killed along with an unknown number of soldiers from both sides.
He was said to have ordered large-scale attacks using chemical weapons which killed thousands more. These atrocities drew the attention of governments worldwide, although Saddam continued to receive support from most Western governments, as well as China and the Soviet Union.
Stepping over the line
Saddam's 1990 invasion of Kuwait was the beginning of the end for his regime. Iraq invaded Kuwait based on a fabricated charge that Kuwaiti oil companies near the border had been horizontally drilling for oil beneath Iraqi territory. Four days after Iraqi troops overran Kuwait, the UN's National Security Council imposed economic sanctions including a strict trade embargo against Iraq. Saddam responded by annexing Kuwait and announcing that it was historically Iraq's "19th Province."
Concerned about the possibility of Iraqi aggression toward Saudi Arabia, America's main ally in the region, President George H.W. Bush launched Operation Desert Shield beginning in August of 1990.
Following Saddam's failure to comply with international sanctions, Operation Desert Storm began in January of 1991. The U.S.-led coalition included 28 countries more-or-less committed to stopping Saddam's aggression against Kuwait. The ferocious aerial bombardment campaign was successful in convincing Iraqi troops to leave Kuwait, yet it also unfortunately destroyed much of Iraq's infrastructure, including its roads, factories, bridges. And, electricity, water and telephone services were also cut nationwide.
The bombing also caused the closing of Iraq's national oil refining and distribution facilities. Faced with the damage from the coalition's attacks, Saddam quickly decided to comply with the UN sanctions and withdraw Iraqi forces from Kuwait.
In April of 1991 Iraq agreed to the UN's terms for a permanent cease-fire and the end of Iraqi hostilities against Kuwait. The UN also imposed strict conditions regarding the disclosure and monitored destruction of weapon stockpiles.
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