IQD (Iraqi Dinar)

IQD (Iraqi Dinar)

By Cory Mitchell
Updated Oct 17, 2019

 What Is the IQD (Iraqi Dinar)?  

IQD is the currency code for the Iraqi dinar, the currency of Iraq. The Central Bank of Iraq circulates the Iraqi dinar, which is made up of 1,000 fils. Due to inflation, fils are no longer used and dinars are the smallest unit of currency in circulation.

Key Takeaways

• IQD is the currency code for the Iraqi dinar, the currency of Iraq.
  
• The currency has been used to promote numerous scams, and investors are sometimes enticed to pay large premiums for the currency in the hopes it will one day be revalued higher.
  
• Iraq's main export, oil, is priced in US dollars, which means there is little demand for the dinar globally.
  

Understanding the IQD (Iraqi Dinar)  

The dinar, first introduced in 1932 to replace the Indian rupee, had a conversion rate of one dinar for 11 rupees. The dinar was pegged to the British pound (GBP) until 1959, when it was pegged to the U.S. dollar (USD). The exchange rate remained relatively stable until the Gulf War in the early 1990s.

The dinar was worth over $3 in U.S. currency prior to the 1990 to 1991 Gulf War. Currency printed before the Gulf War became known as the Swiss dinar. After the war, the government printed new currency that was inferior in quality, due to the lack of printing technology as a result of war-related sanctions. This rapidly devalued the currency to about 3,000 dinars per USD. The old Swiss notes still circulated in some regions of the country.

Starting in 2003, new notes were once again issued, this time better quality, so that the entire country could use one currency. Old notes were exchanged for new ones on a one-to-one basis, while Swiss notes were exchanged at a rate of one Swiss note for 150 new notes.
The exchange rate for the USD/IQD is set at 1,190, which means it costs 1,190 dinars to buy one USD. The International Monetary Fund (IMF) uses a rate of 1,170 for its programs; this is not a tradable rate.

The dinar has little use outside of Iraq because the country's main export, oil, is priced in US dollars. Despite this, there are numerous scams that try to entice people to buy dinars in the hopes of eventual price appreciation. Many agencies and publications warn investors against investing in IQD scams. 

Typically, brokers selling IQD cash will charge a 25% to 30% premium over the official exchange rate. Those that buy it thus face large losses immediately upon purchasing it. Selling it is also difficult since there is virtually no market for it outside of Iraq. The brokers typically offer 30% under the official exchange rate if someone wishes to sell them dinars. These transaction costs could erode 40% to 60% of capital invested if the official exchange rate doesn't change.

According to World Bank data, Iraq experienced annual inflation of 15.6% in 2017 and 16.1% in 2018. Gross domestic product (GDP) popped by 13.6% in 2016, was down -1.7% in 2017, and up 0.6% in 2018.

Scams of Investing in the Iraqi Dinar (IQD)  

Legitimate forex trading in the USD/IQD currency pair is virtually nonexistent. Major banks don't offer Iraqi dinars for trade. Iraqui dinars are only available for purchase or sale through select money exchangers, who may or may not be legally registered. As discussed, these exchangers or brokers typically charge fees of 30% or more, which is factored into the exchange rate offered. Thus buying and selling IQD could result in losses of 50% without the exchange rate moving.
In 2012, Iraq did plan to redenominate its currency, but not revalue. In the absence of revaluation, the Iraqi dinar is unlikely to surge in value.
Redenomination happens in cases of high inflation, where old high-value notes convert to new smaller value notes by removing zeros to increase the buying power of the currency. Redenomination would not increase the value of the IQD. Those holding old notes would likely just have to swap for new ones, likely incurring additional fees if outside Iraq.
The calculated adjustment made to a country's official exchange rate relative to a chosen baseline, such as gold or the USD, is known as a revaluation.

Example of Buying and Selling Iraqi Dinar (IQD) Outside of Iraq  

There is no use for dinar outside of Iraq, thus buying it typically means buying cash from a broker and storing it with them or taking physical delivery.
The official exchange rate is 1,190 dinars per USD. It would cost about $840 to buy one million dinars at this rate (1 million/1,190).
If buying from an online broker, they may offer one million dinars for $1039. That's about a 24% premium over the official rate. Tack on shipping fees and the premium could be 25% or more.
Assume the rate of the USD/IQD doesn't change. If our investor decides to sell their one million dinar, there is likely nowhere to sell except for back to a broker, since there is little demand for the currency outside Iraq.
A broker may offer $700 to buy back the dinars. This is 17% less than the official exchange rate value, and 32.6% less than the $1039 paid for the dinars. All this without the actual exchange rate moving. An investor could lose more than 30% just from buying and selling the currency through brokers who work a premium into every transaction.


https://www.investopedia.com/terms/forex/i/iqd-iraqi-dinar.asp