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Post by RamblerNash Mon Jan 15, 2024 6:09 pm


Why Investing in the Iraqi Dinar Is a Bad Idea — What's Happening with IQD to USD

Dec 15, 2023 | Jon Nielsen

Why Investing in the Iraqi Dinar Is a Bad Idea — What's Happening with IQD to USD Iraqi-dinar
Some people are buying the Iraqi Dinar (IQD), the national currency of Iraq, in the hopes of striking it rich. But is the Iraqi Dinar a viable investment or are these investors simply throwing their money away?
Overall, it’s a very bad idea to buy the Iraqi Dinar if your goal is to make a profit. The process is extremely inefficient, and cashing out the “investment” will be difficult due to the illiquid market for the Iraqi Dinar. 
The only sensible reason for anyone in the United States or the West at large to purchase the Iraqi Dinar would be for numismatic (i.e. collectible) purposes or if you’re travelling to Iraq.

KEY HIGHLIGHTS:


  • Some people, especially in the United States, are buying the Iraqi dinar as an investment. 
  • Most people who invest in the Iraqi dinar do so because of theories that the dinar will become worth much more than it is today through a revaluation or "RV".
  • However, buying the Iraqi dinar is very unlikely to result in a profit. We explain why the Iraqi dinar is a bad investment. 


The Iraqi Dinar is not a free floating currency


When it comes to the Iraqi Dinar, it’s important to understand that IQD is not a free floating currency. In other words, its value is not determined by the foreign exchange market. Instead, the Central Bank of Iraq controls the exchange rate. At the moment, the official Iraqi Dinar to USD exchange rate is 1,320 IQD per 1 USD, but the actual prices at which people are buying and selling IQD can vary significantly.
So, unlike a currency pair such as USD/EUR, where there is a highly liquid and efficient foreign exchange market, exchanging other currencies for IQD is very inefficient, especially outside of Iraq itself. In practice, this means that anyone who wants to buy IQD from a dealer will receive physical bank notes by mail in exchange for a payment. 
There’s also quite a lot of variation in the quoted buy and sell rates for USD/IQD, and there’s a difference in how circulated and uncirculated banknotes are valued. 

A (very) brief history of the Iraqi Dinar


The Iraqi dinar was first introduced in 1932, the same year in which Britain granted Kingdom of Iraq its independence. However, the value of the Iraqi dinar remained tied to the British pound until 1959, when it was tied to the US dollar instead. The initial exchange rate was 1 IQD to 2.8 USD. 
The Gulf War, which lasted between 1990 and 1991, tanked the value of the Iraqi dinar. By the mid 90s, the exchange rate was 3,000 IQD for 1 USD. Interestingly enough, Iraqi dinar notes that were printed before the gulf known were known as the Swiss dinar, and continued to be used in the Kurdistan region. Meanwhile, the government of Iraq began issuing lower quality notes in large amounts. These notes were known as Saddam dinars. Swiss dinars banknotes were consideradbly more valuable than Saddam dinars. 
Previously, the Iraqi dinar consisted of 1,000 fils, which is similar to how the US dollar consists of 100 cents. However, due to high inflation, fils are not used anymore and the dinar is the smallest unit of currency used in Iraq.
One of the reasons why the Iraqi dinar is not very valuable is that oil, which is Iraq's largest export by far, is priced in the US dollar. As of 2017, petroleum accounted for a whopping 94% of Iraq's total exports.

Why are some people buying the Iraqi Dinar?




Some people are buying the Iraqi Dinar with the expectation that there will be a revaluation or “RV” that would significantly increase the value of the Iraqi Dinar. People who have invested into the Iraqi Dinar are active in online communities where they discuss the latest Iraqi Dinar news and speculate how they could impact the currency’s exchange rate in the future.
To be clear, Iraqi Dinar revaluations happen occasionally when the Central Bank of Iraq decides to change the official exchange rate. In February of 2023, for example, the central bank set the official exchange rate to 1,320 IQD per 1 USD. Before this revaluation, the rate was set at 1,460 IQD per USD.
Most people who are buying the Iraqi Dinar are doing so with the expectation of massive profits. The narratives about a significant revaluation of the Iraqi Dinar seem to mostly originate from conspiracy theories or unfounded speculation based on relatively mundane news events connected to Iraq. 
One of the main justifications used by those who are buying the Iraqi Dinar is that the Iraqi currency was valued significantly higher in the past. Before the 1990 Iraqi invasion of Kuwait, the Iraqi Dinar exchange rate against the US Dollar was 1 IQD to more than 3 USD. It’s important to understand that his exchange rate was set by Saddam Hussein’s autocratic regime and didn’t reflect the actual market demand for the Iraqi Dinar. Some Iraqi Dinar investors are expecting that IQD will be “revalued” to the pre-war exchange rate, which is an extremely unrealistic scenario.

Why investing in the Iraqi Dinar is a bad idea


Why Investing in the Iraqi Dinar Is a Bad Idea — What's Happening with IQD to USD Iqd-2

Besides the low chances of the Iraqi Dinar increasing in value and the uncertain future of Iraq, the biggest issue with investing in this currency is that it has extremely poor liquidity. In addition Iraqi Dinar dealers are buying IQD at much lower rates than they’re selling it for.

Poor liquidity


For example, we have found an online platform where customers can buy and sell the Iraqi Dinar. Buying 1 million Iraqi Dinars (packaged as 25,000 IQD notes) would cost you $1,075. 
Meanwhile, if you wanted to sell 1 million Iraqi Dinars on the same website, you would only get $625 in return. In other words, if you used this website to buy the Iraqi Dinar, the value of the Iraqi Dinar against the US Dollar would need to increase by 72% just so you would be able to break even. It goes without saying that this a horrible deal from an investment standpoint.
This is not an isolated example, as all platforms we have been able to find online that buy and sell the Iraqi Dinar are offering similarly bad deals.

Possibility of redenomination


Another risk you’ll take on if you’re buying the Iraqi Dinar is that currencies that have a very low value are often redenominated. When this happens, the government issues a new currency, and owners of the old currency have to exchange it for the new currency at a predetermined exchange rate.
It’s certainly possible that Iraq will at some point decide to redenominate their currency. If this happens, there’s a chance that the only way to exchange the old currency to the new will be locally in Iraq. In such a scenario, it could be very expensive for foreign Iraqi Dinar owners to exchange their Iraqi Dinars to the new currency.

Iraqi Dinar scams


In addition, people who are interested in buying the Iraqi Dinar are often targeted by various scams. In fact, the Washington State Department of Financial Institutions has published an alert warning US residents of Iraqi Dinar scams:

“Several websites have recently begun advertising investment opportunities in Iraqi Dinars, the currency of Iraq. These websites are asking the consumers to send a check, wire, money order, or pay cash upon delivery of the Dinars. What consumers are not told is that the Dinars can be redeemed only in Iraq, as most of the established currency exchange houses and banking institutions cannot convert the Dinar to US dollars. Since no exchange exists for the Iraqi Dinar, dealers can charge whatever they want to sell and buy back the Dinars.”

The bottom line


Buying the Iraqi Dinar as an investment is extremely risky and should be avoided. There is a high degree of uncertainty when it comes to the future development of Iraq, and the Iraqi Dinar has very poor liquidity. Dealers who sell IQD will only buy it back at drastically lower rates, which means that the value of the Iraqi Dinar would need to increase dramatically just for investors to break even, let alone make a profit.
Instead of trying to speculate on low-value foreign currencies, you should consider other opportunities such as the stock market instead. A good starting point to find stocks that might be of interest is our article exploring the best stocks to buy now.

https://coincodex.com/article/33179/why-investing-in-the-iraqi-dinar-is-a-bad-idea/
RamblerNash
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