Unexpectedly, the unregulated market has helped the dinar rise in value. Two weeks ago a dollar could buy nearly 2,000 dinars; now it will bring 750 to 1,100, exchange rates not seen since 1996. ...I'm not sure that I buy this explanation. When Saddam was still there, the dinar was subject to his whims. But now there are no new dinars coming into circulation. The dollar should retain the value it has in the world, unless there is some big disconnect in the ability to get it out (which there may well be).
Baghdad's Central Bank is flooded, surrounded by razor wire and guarded by American soldiers. There is no government, no monetary policy and no one at the helm. ...
The money traders give the same reason for the dinar's rapid rise: U.S. authorities have flooded Iraq with dollars, and the dollar is thus less rare and less valuable and gives the dinar its unaccustomed strength.
As I said, it is apparent that the Iraqi people expect the dinar to continue to be worth something. Presumably they expect that when a new government appears, it will honor the (old) dinar.