McGhee, director of resource management at Centcom, said the army has begun to write contracts in local currency rather than in dollars. He said the army would pay vendors via electronic funds transfer through the banks in Afghanistan and Iraq.

Officials said the army had been bringing in up to $400 million in cash per month — flown into Kuwait and stuffed into armored personnel carriers — to pay private contractors in Afghanistan and Iraq. In 2009, the amount of cash dropped to $42 million per month.

"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, director of resource management at Centcom, said. "So there was a necessity to have cash on the battlefield. We actually outfitted MRAPs [mine-resistant ambush-protected] as Wells Fargo/Brinks trucks and moved cash around the battlefield like that, because it is dangerous out there."

Congress has criticized the military's use of cash deals, saying they encouraged corruption and fraud. Centcom has now determined that sufficient numbers of banks were established in Afghanistan and Iraq to enable electronic fund transfers, a method expected to save $20 million a year in fees.

Officials have not ruled out that U.S. dollars paid by the military ended up in the hands of Al Qaida and other insurgents. They said U.S. forces have often found Al Qaida safe houses stuffed with American dollars.

"U.S. currency is the currency of choice for Al Qaida and insurgents because you can use those U.S. dollars anywhere in the world," McGhee said. "We are reducing that source of funds for Al Qaida."  

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