The first official currency of Iraq was the Ottoman pound that was introduced in the late 19th century. At that time, Iraq was occupied by the Ottoman Empire and the country adopted, among other things, the Empire’s currency. The Ottoman pound was issued by the Imperial Ottoman Bank (Osmanli Bankas) in Constantinople (present-day Istanbul, Turkey). The Imperial Bank of Persia was the first bank established in Iraq, and opened in May 1890 in Baghdad. The Ottoman Bank opened its Iraqi branch in 1892 and began issuing banknotes whose circulation was previously restricted to Constantinople. The currency was a decimal currency and was replaced by the Indian rupee after British occupation in Iraq during the World War I.
The Indian rupee is the official currency used in India and was also adopted in numerous British colonies, including Iraq. The British Empire introduced the Indian rupee in Iraq in 1915, immediately after its occupation of the Middle-East nation. Instead of the British introducing the sterling pound, as was the case with its colonies in the western hemisphere, the colonial power decided to use the Indian rupee, which had proven effective in its circulation in numerous other colonies in Asia and Africa and was also used in local and international trade. The Indian rupee was issued by the government of India, headquartered in New Delhi, India, and its local circulation was regulated by the London-based Iraq Currency Board.
The Iraqi dinar is the current official currency in Iraq and is abbreviated in the international money markets as IQD. The Iraqi dinar is made up of subunits known as fils, with 1 Iraqi dinar being equivalent to 1000 fils, and therefore is decimalized unlike its predecessor, the Indian rupee. The Iraqi dinar was introduced on April 1, 1932, replacing the colonial Indian rupee and was pegged at par with the British sterling pound. The Central Bank of Iraq was established in 1947 and became the primary regulatory body controlling the circulation and inflation of the Iraqi dinar which also meant that the currency’s fixed peg was converted into a hard peg. In 1949, the UK devalued the sterling pound, a development which led to the Central Bank of Iraq switching to the US dollar as the anchor currency, with the sterling pound’s prevailing cross rate. The devaluation of the US dollar in the 1970s caused the dinar to experience a dramatic increase in value where 1 USD was equivalent to 3.21 IQD.
The Gulf War of the late 20th century had a detrimental effect on the value of the Iraqi dinar, with international sanction imposed on Iraq causing the existing Swiss printing method of the dinar to be replaced by an inferior local method. The Iraqi dinar faced such high inflation after the war that in 1995 one Iraqi dinar was valued at 0.003 US dollars on the local black market. The high inflation also led to the dinar subunit, the fils to become obsolete while the banknotes were issued in large denominations (there is a 25,000 dinar banknote).