More than 10,000 tonnes of now worthless notes bearing the image of the ousted dictator are now being destroyed, according to a joint statement by the Central Bank of Iraq and the Coalition Provisional Authority.
"Rebuilding Iraq's ruined economy is a key priority for the coalition - a new currency to replace the discredited old one was a necessary early move," L Paul Bremer, the top US civilian official in Iraq, said in the statement.
The new notes, illustrating scenes depicting Iraq's important scientific contributions, history, landscape and economic life, have been printed in the denominations of 50, 250, 1000, 5000, 10,000 and 25,000 dinars.
One US dollar is now worth between 1200 and 1300 dinars, compared to about 2000 before the US invasion in March last year.
The new currency replaces both the old dinar and the "Swiss" dinar, used in the north of Iraq. One old dinar is exchanged for one new dinar, and one "Swiss" dinar is exchanged for 150 new dinar.
"Its (new dinar) many visible and invisible security features make it very hard to fake. A secure currency will provide a firm foundation for Iraq's future economic growth"
Ahmad Salman Jaburi,
Central Bank of Iraq
The statement said the dinar has appreciated by 25 % since 15 October when the new currency was started with a three-months period for exchanging the old dinar.
Central Bank of Iraq Deputy Governor Ahmad Salman Jaburi has said the new dinar is secure unlike the easy-to-counterfeit Saddam dinar.
"Its many visible and invisible security features make it very hard to fake," he said. "A secure currency will provide a firm foundation for Iraq's future economic growth."
Bremer said the new currency system was in place less than a year into reconstruction of Iraq, a task that he said took three years to begin in post-World War II Germany.
Printed by UK firm
The first shipment of the new currency - printed by British company De La Rue - arrived in Baghdad on 17 September, 2003 in 28 jumbo jet loads of 90 tonnes each. Four smaller aircraft distributed the cash in bulk to regional centres.
Printing the new currency cost US$130 million.
It is expected that bank vaults around the country, many completely filled with sacks of old Saddam dinars, will be cleared by the end of January, the statement said.
To date about 4.5 trillion new Iraqi dinars ($3 billion) were estimated to be in circulation. The statement did not say how much of that has been exchanged.
Nearly one-third of the 10,000 tonnes of old currency in about 300,000 sacks gathered in the course of the exchange has already been verified and burned, it said.