The dinar was introduced into circulation in 1932, by replacing the Indian rupee, which had been the official currency since the British occupation of the country in World War I, at a rate of 1 dinar = 13⅓ rupees. The dinar was pegged at par with the British pound until 1959 when, without changing its value, the peg was switched to the United States dollar at the rate of 1 dinar = 2.8 dollars. By not following the devaluations of the U.S. currency in 1971 and 1973, the dinar rose to a value of US$3.3778, before a 5 percent devaluation reduced the value of the dinar to US$3.2169, a rate which remained until the Gulf War, although in late 1989, the black market rate was reported at five to six times higher (3 dinars for US$1) than the official rate.
After the Gulf War in 1991, due to UN sanctions, the previously used Swiss printing was no longer available. A new, inferior quality notes issue was produced. The previous issue became known as the Swiss dinar and continued to circulate in the Kurdish region of Iraq. Due to sanctions placed on Iraq by the United States and the international community and excessive government printing of the new notes issue, the dinar devalued quickly, and in late 1995, US$1 was valued at 3,000 dinars.