Is the Iraqi Dinar a Wise Investment?

What does it mean to “invest” in the Iraqi dinar? In simple terms, it’s the same as investing in any other currency. You purchase a certain amount of Iraqi dinar (IQD) by paying the equivalent amount of U.S. dollars (USD).

As with buying stocks, bonds, or other currency, when investing, you purchase dinar at a given price and then expect the price to rise. The real question, though, is not just can you invest in this particular currency, but should you? While Iraqi dinars could be useful to those living in or near Iraq, there are many reasons not to invest in this currency.

Understanding the Iraqi Dinar

Following the 1991 Persian Gulf War, the economy of Iraq languished due to United Nations sanctions and official corruption. As the government of Saddam Hussein struggled to contain inflation and speculation, the Iraqi dinar fell from its prewar value of $3 to less than a penny in 1993. By 1994, the inflation rate reached more than 448%.

When the U.S.-led coalition overthrew the Iraqi government in 2003, the old dinars continued to circulate until the interim government launched a new currency the following year. New dinar notes were printed in the United Kingdom and exchanged at par value for Saddam dinars.

The fact that the new government was supported by several global powers raised hopes that the Iraqi economy would soon turn for the better, especially after the economic isolation that the country suffered through the 1990s. By 2007, the International Monetary Fund (IMF) wrote approvingly of the Iraqi government’s anti-inflation measures, noting that “the Central Bank of Iraq raised its policy interest rates sharply and allowed a gradual appreciation of the dinar.”

As the Iraqi economy began to recover, many speculators began to buy large amounts of Iraqi dinars, expecting the currency to continue to rise. Some pointed to the rise of the Kuwaiti dinar after the Gulf War as evidence that the Iraqi dinar could experience similar success. At the same time, several U.S. regulators warned of scammers selling dinar “investments” for inflated rates and fees.

In late 2020, the Iraqi government announced a devaluation of more than 20% of the Iraqi dinar, to make up for a shortfall in liquidity. The act resulted in public protests in a country that was already struggling due to the worldwide coronavirus pandemic.

Advantages and Disadvantages of Investing in the Iraqi Dinar

There are some reasons to be optimistic about the future of the Iraqi economy. With Iraq having 11.7% of the world’s oil reserve, it has the potential to spring back and establish itself as a stable economy. That will require a peaceful, promising business atmosphere to establish investor confidence and revive its economy.

But that does not necessarily mean that buying dinars is the best way to bet on the Iraqi economy. For one thing, the Iraqi dinar does not float freely: The exchange rate is fixed by the central bank, meaning that the currency is unlikely to experience any rapid changes in value. In contrast, a more traditional investment vehicle—like Iraqi stocks—could offer returns even if the value of the dinar remains unchanged.

Moreover, legitimate trading volume is extremely low; the IQD is not traded on the global forex market, and only a handful of Middle Eastern banks are willing to trade in it. If you have to buy Iraqi dinars, you can buy them only at select money exchangers, who may or may not be legally registered. These brokers may charge up to 20%, for such transactions, eroding the profit potential even for short-term trading.

But perhaps the largest concern is the number of scams and frauds concerning the Iraqi dinar. Several U.S. state regulators, as far back as 2011, have warned about currency “brokers” promising high returns, while charging hefty fees for hard-to-sell dinars. This scam proved particularly popular after the 2016 elections, amid rumors that then-President Donald Trump would somehow cause the Iraqi currency to soar. (The Iraqi dinar reached its highest value against the U.S. dollar in January 2016. At that time, the dinar was trading at about 1,090 dinars per US$1.)

The Bottom Line

How Iraq, its economy, and hence the forex rate, develop over the long term is a continuing, uncertain bet. If you hold Iraqi dinars and do not live in or near the Middle East, the currency is difficult to trade and cannot earn interest. Although it is possible that the dinar could rise in the distant future, there are many other investments with lower risks and higher rewards. When Iraq’s very survival is at stake, currency revaluation is unlikely to be on the agenda.

In addition, trading forex currencies is always risky, as external factors at international levels are difficult to control or predict. Unless they are trading on regulated markets or through regulated agents, traders and investors should use extreme caution when trading the Iraqi dinar or similar currencies.