As the focus in Iraq shifts from waging war to paying wages, the Bush administration plans to run Iraq on dollars until it fosters a replacement for today's nearly worthless "Saddam dinars."

American military officials are already paying Iraqi civil servants in dollars, and they expect to continue doing so for at least the next several months.

But a team of experts from the Treasury Department is commuting to Baghdad from Kuwait City, trying to determine the fastest and smoothest way for Iraqis to have a new currency and a central bank to control it.

A senior Bush administration official said discussions were under way with Peter McPherson, who was a deputy Treasury secretary under President Ronald Reagan, to serve in Iraq as a coordinator on financial issues during reconstruction. A Treasury Department spokesman declined to comment.

Their model is Afghanistan, which had several competing currencies and a financial system in shambles. Working with Afghan leaders, Treasury officials laid the groundwork for a unified currency and contracted with printers in Germany and Sweden to produce it.

"We will pay in dollars initially," John Taylor, assistant secretary of the Treasury in charge of international affairs, said in an interview Thursday. "It's an interim measure, and we're not going to do it any longer than we have to. But the dollar has value, and it's a stable currency."

The most likely strategy, Taylor said, would be to expand the use of old Iraqi dinars that were used before the 1991 Gulf war decimated the Iraqi economy.

Iraq replaced the old "Swiss dinars," as they are known, with "Saddam dinars" and then printed ever-larger quantities to make up for the government's chronic budget shortfalls.

But the older dinars continue to circulate in the Kurdish autonomous regions of northern Iraq, and they have kept most of their value. The old dinars are now ragged, sometimes held together with tape, and there is no central bank that controls their supply.

U.S. dollars have circulated widely in Iraq for years. By some estimates, Treasury officials say, as much as $500 million in U.S. currency may be in Iraq.

Establishing a new currency is only a step in rebuilding Iraq's financial system. Iraqi prices have become almost entirely divorced from normal market forces. Inflation roared at 60 percent a year, and perhaps much more, but the government also kept prices for many staples and for electricity and water far below their actual cost.

[EuroTracer's Comment: The companies that printed the Afghan currency are probably Giesecke & Devrient in Munich and Leipzig, Germany, and AB Tumba Bruk in Tumba, Sweden, which was bought by the US company Crane & Co. in January 2002. It would be interesting to know, who many euros are circulating in Iraq. A good Review of the International Role of the Euro, though not covering Iraq, is found in this 488 KB pdf document of the ECB. The International Herald Tribune reports on 2003-05-06 that about 100 million US$ in euro notes and 900 million US$ in 100$-notes were "stolen" from the Central Bank of Iraq just a few hours before the war started. We will probably never know, whether these were X- or U-notes - or even V-notes, although some of the money has been recovered recently, as was reported on 2003-05-16.]

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