When Iraq was part of the Ottoman Empire, a number of European currencies circulated alongside the Turkish pound. With the establishment of the British mandate after World War I, Iraq was incorporated into the Indian monetary system, which was operated by the British, and the rupee became the principal currency in circulation. In 1931, the Iraq Currency Board was established in London for note issue and maintenance of reserves for the new Iraqi dinar. The currency board pursued a conservative monetary policy, maintaining very high reserves behind the dinar. The dinar was further strengthened by its link to the British pound. In 1947 the government-owned National Bank of Iraq was founded, and in 1949 the London-based currency board was abolished as the new bank assumed responsibility for the issuing of notes and the maintenance of reserves.
In the 1940s, a series of government-owned banks was established: the Agricultural Bank and the Industrial Bank, the Rafidayn Bank, the Real Estate Bank, the Mortgage Bank, and the Cooperative Bank. In 1956 the National Bank of Iraq became the Central Bank of Iraq. In 1964, banking was fully nationalized. The banking system comprises the Central Bank of Iraq, the Rafidain Bank, the main commercial bank, and three others: the Agricultural Cooperative Bank, the Industrial Bank, and the Real Estate Bank. In 1991 the government decided to end its monopoly on banking. Data on the financial situation in Iraq are not generally available as the main source of official statistics, the Central Bank of Iraq, has not released figures since 1977. However, data from external authorities are available. After 1991, six new banks were established-the Socialist Bank, Iraqi Commercial Bank, Baghdad Bank, Dijla Bank, Al-Itimad Bank, and the Private Bank-as a result of liberalizing legislation and the opportunity for large-scale profits from currency speculation.
Preference for investing savings in rural or urban real estate is common. Major private investments in industrial enterprises can be secured only by assurance of financial assistance from the government. The establishment of a stock exchange in Baghdad was delayed by practical considerations such as a lack of computers, but it was eventually inaugurated in March 1992. Trading has not been heavy, and no exact statistics are available.
During the US-led war and subsequent occupation of Iraq, the financial sector essentially disappeared. The banking district of Baghdad was wrecked by the bombing campaign, and until a provisional government is set up, it appears that financial activity remains at a standstill. Of course, occupation officials saw rejuvenation of Iraq's banking system as a high priority, and have been taking steps toward the establishment of a new central bank that will have the power to issue new currency and set interest rates, in the hopes of managing the country's massive debts. USAID gave loans of up to $250,000 to small businesses and entrepreneurs in order to jumpstart the economy. Fortunately, Iraq's banking system had been one of the region's most advanced prior to the war, so the foundations have alreay been laid for a sound financial sector.