Paper Tiger?

Is the U.S. leading a second invasion of Iraq? Some Iraqis think so. But this time, they say, the invading force is a flood of counterfeit bank notes -- Iraqi dinars, as well as bogus American $100 bills. In a letter last month to United Nations Secretary-General Boutros Boutros-Ghali, Baghdad accused the U.S. of making a bid to undermine Iraq's economy by directing efforts to smuggle in counterfeit money from several neighboring countries, including Iran, Jordan, Saudi Arabia and Turkey. At home, Iraqis also joke about being able to pick out "Israeli" and "Kurdish" dinars, according to where the notes are presumed to have been printed. For its part, the cia denies having anything to do with the funny money.

Iraq's government has ordered its citizens to exchange all 100 dinar notes at local banks and instructed courts to hand down heavy sentences for circulating or importing fake currency. The plague of counterfeits is worsening the nation's already severe inflation, which has put food and other basic necessities beyond the reach of many Iraqis. Though the official exchange rate is U.S.$3 to the dinar, black-market money changers offer a more realistic 19 dinars to the dollar.

Rising prices are also being fueled by Baghdad's own overheated production of bank notes. To cover government salaries and the cost of postwar reconstruction, Iraq has been printing money at a rapid clip, on cheaper paper, which makes counterfeiting easier. Currency dealers in New York City say that some genuine Iraqi dinars are now so sloppily printed that on first inspection they appear to be inept forgeries.

What gold Iraq possesses is being sold to obtain hard currency needed to pay for essential imports. Gold Fields Minerals Services, a London-based consulting firm, reported last week that in the past six months Iraq may have secretly sold off up to 50 tons of its bullion reserve, which was last reported, in 1977, to stand at 129 tons. That could explain how Saddam came up with enough hard cash to thumb his nose at a United Nations offer to let him sell $1.6 billion in oil to buy much needed food and medical products abroad.