Modernizing banks and shifting from cash could hamper insurgency and boost rebuilding, officials say.
Shoppers in Baghdad no longer need to carry plastic bags full of cash, as they did after years of international sanctions reduced the value of a 10,000-dinar note with Saddam Hussein's likeness to less than $5.
A year-and-a-half ago, the Central Bank of Iraq (CBI) began issuing higher-value currency notes. And it is now trying to help stimulate business around the country by reintroducing coins.
But finance officials eager to move Iraq away from a heavily cash-based society have set their sights on a more ambitious goal: developing banking networks that will allow a shift to an electronic, largely credit-based economy.
Doing away with cash as the main form of payment would reduce the threat of highway robbery, which hinders fund transfers within the country, some bankers say. And in turn, a reliable network for electronic transactions would undercut an insurgency eager to deal in cash and spur reconstruction, finance officials say.
"Your money can't really be stolen when you carry it as a credit card," says CBI governor Sinan al-Shabibi.
Credit cards, like electronic fund transfers, are still a largely theoretical concept here. But with the CBI's help, many of Iraq's banks are buying computers for the first time, while staff members are being trained in Dubai and Jordan in global banking practices.
Revamped financial services will be essential for kicking reconstruction into a higher gear at ground level, says Bill Taylor, director of the Iraq Reconstruction Management Office (IRMO).
"The banking system is going to be the key to private-sector investment in this country, after security," Mr. Taylor says.
Contractors on US-funded reconstruction projects - including some US companies - are already turning to the local banking system as an alternative to carrying large amounts of cash on planes, bank executive Munther al-Fettal says.