The Iraqi dinar (IQD) revaluation rumor has been around for a number of years and continues to attract a substantial number of believers. Scores of people have purchased Iraqi dinars from fast-talking promoters and online dinar currency dealers based on the firm belief that they will make windfall profits – reportedly as much as 1,000 times their original “investment” – when the currency is revalued.
This belief in a dinar revaluation is based primarily on the fact that Iraq has the world’s second-largest oil reserves. Proponents of dinar revaluation also point to the surge in value after the first Gulf War of the Kuwaiti dinar, which is now one of the world’s most expensive currencies. (Check out Investopedia's primer on the Forex Market.)
The Iraqi dinar was trading in July 2014 at a rate of about 1,200 per United States dollar, so a 1,000-fold revaluation would see the exchange rate at 1.2 per U.S. dollar. So what are the odds of that revaluation actually happening? Probably about the same as winning the Powerball lottery, which is to say virtually nil. Before you plunk down your hard-earned dollars for the currency equivalent of moose pasture, here are our top 10 reasons why you should not invest in the Iraqi dinar.
- Iraq is falling apart: In mid-2014, Iraq was facing its most severe crisis in years, as a swift offensive by Sunni Muslim militants threatened to break up the country. As of July 2014, these militants control much of northern Iraq, while Kurdish forces have seized Kirkuk and nearby oilfields; this has left the Iraqi government only in control of the capital Baghdad and the south. When the country’s very survival is at stake, currency revaluation is very unlikely to be on the agenda.
- The economy is struggling: The Iraq economy had been on the upswing until the assault by the Islamic State of Iraq and Syria (ISIS) in 2014 threatened to set it back by years. In 2012, Iraq became the second-biggest oil producer in OPEC; in spring 2014, oil production in the nation reached a 35-year high of 3.2 million barrels per day. While most of Iraq’s oil production and export facilities are in the south, and thus quite distant from the conflict between ISIS and Iraqi forces, it also has significant resources in areas controlled by ISIS and Kurdish forces, which may be impossible to develop. With the economy already struggling, the last thing it needs is the challenge posed by a massive revaluation.
- Iraqi dinars do not trade on global forex markets: The value of the dinar is currently set through an auction process by the Central Bank of Iraq. As the dinar does not trade on global forex markets, its value is set by government edict rather than by supply and demand as it is for freely traded currencies. This also means that so-called dinar dealers can charge any rate they desire to unsuspecting investors.
- Iraqi dinars can be redeemed only in Iraq: Since Iraqi dinars do not trade on global forex markets, they cannot be redeemed anywhere except in Iraq.
- Several U.S. states have warned about Iraqi dinar scams: A number of U.S. states have been warning their residents for a few years now about scams involving the Iraqi dinar.
- Dinar currency brokers may not be legitimate: The Washington State Department of Financial Institutions (DFI), in a warning about potential dinar scams, notes that a number of online dealers who offer Iraqi dinars register with the U.S. Treasury as a Money Services Business (MSB) to make their scam seem legitimate. However, the MSB registration only requires a form to be filled out and does not reflect any currency trading experience or any special qualifications on the part of the dealer. It also warns that most of these websites are operating illegally in Washington State, without a currency exchange or money transmission license issued by the DFI.
- Great deal of currency already in circulation: At a rate of about 1200 Iraqi dinars to one U.S. dollar, it is apparent that there is a great deal of Iraqi currency already in circulation. While it is possible that the Central Bank of Iraq may one day lop off three zeros to create a new currency – as has been done over the decades by a number of nations – there is a world of difference between such a redenomination (which does not change the fundamental value of a currency) and a revaluation (which does).
- Inflation differentials: Iraq’s inflation rate has decreased from an annual rate of 4% in early 2014 to just above 2% by mid-year. This may not seem like an unduly high rate, but is higher than the inflation rate in most advanced economies that were more concerned with the prospect of deflation than inflation in the period before 2014. The Iraqi economy could also face higher inflation if the country is wracked by civil war. An adverse inflation differential vis-à-vis the U.S. dollar is scarcely a recipe for currency revaluation.
- Devaluation more likely than revaluation: As a result of some of the above factors, it is likely that devaluation rather than revaluation may be the most likely outcome for the Iraqi dinar in the years ahead.
- If it’s such a great idea, why the high-pressure sales tactics? The Oklahoma Securities Commission warns that high-pressure sales tactics are being used to flog Iraqi dinars, including claims that buying dinars is a time-sensitive investment that requires immediate action. Such boiler-room tactics seldom if ever work out well for the investor.
The Bottom Line
There are simply too many warning signs to warrant investing in this currency. When it comes to the Iraqi dinar, caveat emptor or buyer beware should be the watchword.