Army aims to stop flow of paper money to Iraq, Afghanistan

By C. Todd LopezAugust 25, 2009

Army aims to stop flow of paper money to Iraq, Afghanistan
In this file photo, Ziyad Kareem, whose restaurant was destroyed by a car bomb explosion in Baghdad's Adhamiyah district, thanks Capt. Patrick Soule, commander of Company D, 2nd Battalion, 4th Infantry Regiment, 4th Brigade Combat Team, 10th Mountain... (Photo Credit: U.S. Army) VIEW ORIGINAL

WASHINGTON (Army News Service, Aug. 25, 2009) -- The United States hasn't gone cashless quite yet, but in Afghanistan and Iraq, that's the goal -- at least when it comes to the way the Army plans to conduct business there.

Brig. Gen. Phillip E. McGhee, director of Resource Management for U.S. Army Forces, U.S. Central Command, said by the beginning of the fiscal year, Oct. 1, the Army will go cashless in theater when writing up contracts with local vendors.

Instead of paying those it does business with in U.S. currency, the Army will pay the vendors via electronic funds transfer through the banks of Afghanistan or Iraq.

"What we are going to do effective Oct. 1, is we will write the contracts in U.S. dollars and they will be paid through the Iraqi and Afghan banking system in local currency -- that's huge," McGhee said, adding that by mid-August, the contracts will be written in local currency.

Today, the Army brings about $42 million in cash into theater each month. That's down from about $192 million in cash each month last year. Back in 2003, the Army brought in as much as $400 million a month in American currency.

"The reason you did it was because Iraq and Afghanistan didn't have banking systems that you could get money out of it, or do transfers," McGhee said. "So there was a necessity to have cash on the battlefield."

McGhee said the Army loaded those millions of dollars in currency onto pallets in the United States and flew it to Kuwait, where it was broken down for distribution into theater. At the lowest levels, money was handed out the back of mine resistant ambush protected vehicles to the contractors the Department of Defense did business with.

"We actually outfitted MRAPs as Wells Fargo/Brinks trucks and moved cash around the battlefield like that, because it is dangerous out there," McGhee said.

But as banking systems in Iraq and Afghanistan have matured, due to the efforts of the U.S. State Department, the U.S. Treasury and other nations, some banks in theater are now approved for business with the Army. And that means instead of bringing cash into theater, the Army can now deposit money into banks electronically and pay contractors via electronic funds transfer. And contractors can pay their own workers via funds transfer as well.

Less U.S. currency floating around, and more money moving through the banking systems to fill accounts, means less cost for the Army to do business in theater, reduced risk of providing cash to facilitate insurgent operations, and increased confidence in the local currency and banking system, McGhee said.

"When you're using U.S. dollars on the battlefield, there's George Washington, Hamilton, and Lincoln. That's not an Afghan face, that's a U.S. face on it," McGhee said. "Instead you have an Afghani and Dinar -- and now you start to build confidence in their currency and in their systems. That is what we are attempting to do."

Conducting business electronically also saves the Army money, McGhee said. Bringing cash into theater is expensive, due to the security risks involved and the cost of transportation. Spread out over the number of payments the Army currently makes, the cost of dealing in cash is about $32 dollars a payment.

"An electronic funds transfer costs us about $2.50," McGhee said, saying the move to EFT will save the Army about $20 million a year.

Electronic payments are also about safety. Insurgents like to work with paper money, McGhee said, especially American currency.

"You see on the news where they kick down doors, they pull weapons out, pull explosives out, and they pull U.S. currency out," McGhee said. "U.S. currency is the currency of choice for Al-Qaeda and insurgents because you can use those U.S. dollars anywhere in the world. We are reducing that source of funds for Al-Qaeda."