IRAQI DINAR

I have received numerous requests to post our thoughts on the Iraqi Dinar. I explained that we had not been following the Iraqi Dinar since our first review of the push for people to buy the Dinar back in 2008.  Just as I was about to post this, I received word that the Iraqi Dinar was going to redenominate by the end of July.  Of course it was said that the Dinar would be redenominated on Martin Luther King Day last January, then it was going to be February 12, then it was going to be March 15, then it was going to be Memorial Day, then the end of June, and now the end of July.  So I decided to hold off posting this to see if this deadline would also come and go without anything being done.  And of course nothing was done.  Three years ago, we provided our thoughts on the Iraqi Dinar and the redenomination process, and our position has not changed since then.

As we mentioned back then, we felt it would be a redenomination of the Iraqi Dinar, not a revaluation.  We said that the only way any redenomination of the Iraqi Dinar would take place would be for them to rebuild their infrastructure, get their oil wells up to at least 90% production levels, maintain a stable government, repay its debt to other nations, and then and only then did we believe any change would take place in the Iraqi Dinar.  That was back in late 2008.
Now let’s fast forward to 2010.  In 2010, the Central Bank of Iraq announced their plans for the redenomination the Iraqi Dinar to ease cash transactions. The intention would be to drop three zeros from the nominal value of bank notes; but the actual value of the dinar would remain unchanged. That would mean that 1,000 IQD (pre-redenomination) and 1 dinar (post-redenomination) would both be worth the same amount in US Dollars. Although the announcement stated that the change would take place by the end of 2010, there has been no redenomination as of this writing and no further announcements have been made since as to when this would take place.  As stated by the Central Bank of Iraq, their mandate is to “ensure domestic price stability and foster a stable competitive market based financial system.”  If you want more information about the redenomination, read “Iraq Planning Currency Redenomination.”
You also have to take into consideration the inflationary condition of the world’s economies.  Back in 2008, Iraqi inflation was around 3%, and today it is around 5.7%.  Iraq also has an unemployment rate of 22-27%.  Their electrical power is only operating at about 65% nationwide.  All of these factors will play an important role in the valuation made when Iraq does their redenomination of their currency.

It has been said that many nations hold Iraqi Dinars in their Central Banks.  From a cursory reading of the 10K and the Annual Reports of these banks, they are not showing any holdings of Iraqi Dinar in the significant quantities claimed by those pushing you to buy Iraqi Dinars from them.  All Central Banks, hold currencies in many different countries; but not at the levels we have seen claimed by those pushing the purchase of the Iraqi Dinar.

You have no guarantee that Iraq could just announce that all the old Iraqi Dinars, meaning the ones you hold, are no longer of value, and you can trade them in at 100 of your dinars for 1 of the new dinars. For that matter they could say 500,000 old dinars are now worth only 50 new dinars.  The Iraqi Central Bank will make the determination that will be sure to stabilize their currency to other currencies.  Can it go up?  Of course, but past history has shown that when a currency is redenominated it goes down, not up. 

Now throw into the equation that all US forces will be out of Iraq        by the end of the year, and you add even more instability to the area. This in turn will also delay the redenomination of the currency.  Meaning it could add even more years before the currency will redenomiate.

The favorite story line is anyone who buys now will soon become wealthy beyond their wildest imagination.  Those who are selling the dinars have been claiming for 3 years now the redenomination is going to take place very soon.  You would think that after 3 years, people would catch on that they don’t know anything more than anyone else.  My favorite story that was told to me was by a dear friend of mine.  He was contacted by one of his friends who claimed he knew the Iraqi Minister of Finance, and he told my friend that the Iraqi Dinar was going to be redenominated within a month at a 10-30% increase in exchange rate.  That was 2+ years ago. So much for his friend knowing the Iraqi Minister of Finance and his assurance it was going to happen within a month back in 2009.  The favorite line of a scammer is always they have access to ‘inside information” so you will part with your money.  As you can see, there are a lot of “stories” out there touting the purchase of the Iraqi Dinar. 

The only ones we see making any significant money from the Iraqi Dinar are those pushing buying and selling you their Iraqi Dinars. Are we calling this a scam?  No we are not, as the Iraqi Dinar is a real currency and is traded on the market exchanges.  What we are saying is that those telling you this can only go up are just giving you their “hopeful opinion” it will.  They have no clue what the Iraqi Dinar is going to do when the time comes for the redenomination of the currency; for that matter neither do we. 

We are not buying the line if you buy now you will be rich soon.  You will be lucky to get a 1-1 exchange.  Remember, there is a chance the Iraqi Government could issue all new dinars, and only give you a 100-1 exchange; 100 of your dinar for 1 of the new.  It could be even 500-1, or 1,000-1.  This is the risk you are taking.  As long as you have not invested more than you can afford to lose, and are willing to take that kind of risk, then by all means speculate.  But that is what you are doing is speculating, and be prepared to hold them for at least another 3-4 years, if not longer, before any redenomination is done.

If you are planning on becoming rich quick before the end of this year from owning Iraqi Dinars, think again. We really do believe it will be at least 3 years before this redenomination takes place, and it could very well be 4-5 years away.    But this is just our best guess estimate.  We have no crystal ball, and will admit the redenomination could take place prior to our 3-year earliest estimate.

I am sure there are many of you reading this opinion who will totally disagree with our assessment. That is your right, but all of you have been wrong every time you have predicted this redenomination would take place in the past three years.  As I said before, we are not calling this a scam, but we are saying it is a sham.  It is your money, and you can do with it as you like.  At least you have another viewpoint from which to make your decision as to whether or not you purchase the Iraqi Dinar.  We wish you all the best with your decision.