U.S. to operate Iraq on dollars until new currency, bank set up

War In Iraq


WASHINGTON - 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 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.

Yesterday, a senior 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 Afghan currency and contracted with printers in Germany and Sweden to produce the bills.

"We will pay in dollars initially," said John B. Taylor, assistant secretary of the treasury in charge of international affairs, in an interview yesterday. "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 Iraqi dinars that were used before the first gulf war decimated Iraq's economy.

Iraq replaced the old Swiss dinars with Saddam dinars and then printed large quantities to make up for the government's chronic budget shortfalls.

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