A note similar to the ones the US has been forced to reprint

Officials say they have been forced to begin printing 250 dinar notes - which carry a picture of a young Saddam in jacket and tie - in an effort to stem a growing cash crisis.

Many Iraqis have lost confidence in the only other bank note in wide circulation, the 10,000 dinar bill, which was issued last year by Saddam's regime.

They claim the 10,000 dinar is too easily counterfeited and there are persistent rumours they will be declared worthless after thousands of them were looted.

Angry crowds

The bill, which is worth about $10, is being redeemed by merchants for about 70% of its face value.

People are trying to make a profit by saying the notes will become worthless, then buying them for less than face value Faleh Salman, acting central bank governor

US and British officials have said it is better to lose face by printing 250 dinar notes with Saddam on them for a short period than risk further inflaming public anger.

They say new banknotes will be designed once an interim Iraqi administration is in place.

Earlier this week, angry crowds gathered outside Iraq's central bank brandishing 10,000 dinar notes.

"I came to change these notes because nobody will take them," said Zainab Mohammed, an elderly woman veiled in black.

"But nobody will let us in. What am I supposed to do?" she told Reuters news agency.

Faleh Salman, acting central bank governor, told the crowd truckloads of 250 dinar bills were being sent to banks across Iraq in the next few days.

Fuelling hysteria

But he insisted the 10,000-dinar notes are still legal tender and should be redeemed at full face value by banks and merchants.

He blamed speculators for fuelling the hysteria.

"People are trying to make a profit by saying the notes will become worthless, then buying them for less than face value," he said.

Asked how many 250 dinar notes - sackfuls of which are needed for larger transactions - were being printed, he replied: "That's my secret."

Maintaining confidence

The head of the interim US administration, Paul Bremer, admitted he was embarrassed by the decision to begin printing notes bearing Saddam's image.

"Since I issued the instrument telling people to do away with images of Saddam Hussein, I guess you could say it's not a joy anyway," Mr Bremer told a news conference.

But he said there was no alternative to help maintain confidence in the money supply.

Tattered notes

The Iraqi exchange rate has fluctuated wildly on speculation about a new currency and a postwar influx of US dollars.

Some Iraqis have been hoarding the so-called "Swiss dinar", Iraq's pre-1991 currency that does not carry Saddam's face, believing it will be revived.

The old and tattered notes are still in use in the north of the country, where Kurds ran an autonomous enclave after the 1991 Gulf War.

The "Swiss dinars", which got their name because they were printed in Europe and are considered harder to counterfeit, are worth far more than the Saddam dinars.

They reached a high of 3.8 to the dollar this month, while it takes more than 1,000 Saddam dinars to buy a dollar.

Meanwhile, Paul Bremer has unveiled a $100m fund for public works projects. He said contracts would be awarded to local Iraqi firms.

He also announced the setting up of a new business centre in Baghdad, to help "get the private sector going" and attract foreign investment.