Iraq plans to redenominate its dinar currency by knocking three zeros off the nominal value of bank notes to simplify financial transactions, a senior central bank official said on Saturday.

Central Bank Deputy Governor Mudher Kasim said he expected the new currency to be used in the market in three years and it would have no impact on inflation.

'This will facilitate the payments system ... instead of carrying a lot of money, we will carry less. This is an important reform,' Kasim told Reuters.

Iraq is recovering after years of war and sanctions and oil still dominates the economy, accounting for 95 per cent of government revenues. Investors complain Iraq's still heavily centralized economy is mired in red tape and bureaucracy, and transactions are still often carried out in cash.

Kasim said planning and the preparation for reform was complete and the proposal would be handed to the government in the next month. It would also need parliamentary approval.

Iraq's central bank began discussing the redenomination of the dinar last year aiming to help ease financial transactions.

In Iraq many payments are still carried out in cash because of the underdeveloped banking system.

The Iraqi dinar is traded in auction at a fixed rate of 1.170 per dollar.

Iraq has 30 trillion dinars in circulation, Kasim said, and the project would bring liquidity to 30 billion.

He said the restructuring would include issuing higher categories of currency and the use of coins for the first time.

Iraq's higher denomination currently is a 25,000 Iraqi dinar bill worth around $21. – Reuters