Reuters Article

Ummm...

http://www.reuters.com/article/2012/10/03/iraq-economy-dinar-idUSL5E8KT13720121003

Iraqis still prefer hard currencies for many transactions

* But some foreign speculators see long-term opportunity
* External, budget surpluses could eventually boost dinar
* For now, central bank wants to keep currency stable
* Any major appreciation unlikely before two or three years
By Aseel Kami
BAGHDAD, Oct 3 (Reuters) - Many Iraqis have lost faith in
their dinar currency but to some foreign speculators, it
promises big profits. The contrast underlines the uncertainties
of investing in Iraq as the country recovers from years of war
and economic sanctions.
The logic of the dinar bulls is simple. Iraq's oil exports
rose to 2.6 million barrels per day in September, their highest
level in three decades; the country aims to hit 6 million bpd by
2017, which would put it close to Saudi Arabia's current level.
Even if unstable politics, militant violence and
bureaucratic inefficiency prevent that target from being hit,
Iraq still seems to be on the threshold of an oil boom that will
transform its finances.
Inflows of new oil revenue could give the country big
external surpluses and push state finances deep into the black
by late this decade - the classic recipe for a strong currency.
"As far as our investors are concerned, when they buy Iraqi
dinars they do know it is a long-term investment. You know it
takes time for a country to rebuild itself," said Hassnain Ali
Agha, president of Dinar Trade, a U.S. dealer of exotic
currencies.
Because the dinar is not freely traded by banks outside
Iraq, online dealers of banknotes such as Dinar Trade are the
only way that most foreigners can invest in the currency. The
Las Vegas-based company says it sells as much as hundreds of
thousands of dollars worth of dinars daily, shipping dinar notes
to thousands of customers in the United States and elsewhere.
Agha said that because of optimism about Iraq's oil wealth,
there had been solid demand for dinars since his company was
founded in 2004, a year after the U.S. invasion which triggered
years of political violence and economic turmoil.
Back in Baghdad, however, Iraqis themselves are not
convinced. Many take what opportunities they have to change
their dinars into hard currency, and conduct all but small
day-to-day transactions in U.S. dollars.
"We have no trust in the Iraqi dinar - we feel afraid to
save it. We trust the dollar more. The dollar does not go up and
down, it is fixed," said housewife and mother-of-two Eman
Saadeldine.
WILD SWINGS
The dinar has endured wild swings over the past three
decades. In the 1980s, one dinar bought around $3, but economic
sanctions imposed on Iraq around the time of the 1991 Gulf War
sent the currency into decline and stoked inflation, which the
government fuelled by printing money. By late 1995, $1 bought as
much as 3,000 dinars.
After the 2003 invasion, the central bank intervened in the
currency market to strengthen the dinar, using its supplies of
dollars to manage the exchange rate.
But over the last several years, even as Iraq's oil
production has expanded, there has been none of the appreciation
for which speculators have been hoping. The central bank now
sells dollars in daily auctions at a fixed price of 1,166
dinars, a level barely changed since 2009.
In
fact, the dinar has recently faced downward pressure as a result of the
international economic sanctions imposed on neighbouring Iran
and Syria. Iraqi traders rushed to buy dollars to sell on illicitly to
residents and businesses in those countries, which are hungry for hard
currency.
The dinar fell as low as 1,280 in the open market this year
before Iraqi authorities reacted by allowing two state-run banks
and some private lenders to sell dollars, helping push the
exchange rate back to around 1,200 currently.
Another factor counting against the dinar is the fact that
the largest banknote is only 25,000 dinars. This often makes the
currency unattractive to use in an economy where the banking
system is primitive and deals are often done in cash.
Saadeldine recalls paying in cash for a new house in 2009.
"If our money had been in dinars, it would have been
impossible for us to carry it. It was in dollars and we carried
it in a small suitcase," she said.
The central bank has been considering plans to knock three
zeros off the nominal value of banknotes to simplify financial
transactions. This would not in itself increase the real value
of the dinar, since prices would adjust in line with the
redenomination, but economic experts say it could improve
confidence in the dinar and thus boost its value eventually.
"It would increase trust in the dinar even though its value
would not change," said Baghdad-based economist Majid al-Souri.
"Indirectly, when trust increases there will be appreciation."
Earlier this year, however, the cabinet decided to suspend
the technically complex redenomination plan until further
notice, saying the economic climate was not suitable.
The biggest obstacle to dinar appreciation is the fact that
for now at least, Iraqi authorities appear content with the
exchange rate in its current range.
In a memorandum to the International Monetary Fund on
economic and financial policies for 2011, written in March that
year, the Iraqi government said it saw benefits in keeping the
dinar stable.
"We believe that the policy of maintaining a stable exchange
rate continues to be appropriate, as it provides a solid anchor
for the public's expectations in an otherwise uncertain
environment and in an economy with a still very low level of
financial intermediation," it said.
LONG TERM
In the long term, however, Iraq's finances and economy may
improve so dramatically that authorities feel comfortable
allowing the dinar to appreciate under the pressure of flows of
oil money into the country.
The IMF expects this year's estimated budget surplus of just
0.2 percent of gross domestic product to balloon to 12.1 percent
in 2017. The country's balance of trade in goods and services,
in deficit as recently as 2010, is projected over the next five
years to shift to a large surplus of 11.3 percent of GDP.
Deputy central bank governor Mudher Kasim told Reuters that
he expected redenomination of the dinar to go ahead in 2014 or
later, by which time the amount of Iraqi currency in circulation
would have increased significantly, making financial dealings in
cash even harder.
In the long term, the central bank aims to make 1 dinar
equal to $1 with a combination of redenomination and
appreciation, although that will take over three years because
of instability in the Middle East, Kasim said: "If not for the
regional circumstances, we would proceed faster with that plan."
Some analysts think the appreciation could go further.
Kamal al-Basri, research director at the Iraqi Institute for
Economic Reforms, an independent research body in Baghdad, said
he expected the dinar to stay stable for the next three years,
but that afterwards it might strengthen beyond parity against
the dollar, including the effect of redenomination.
For that to happen, Iraqi politics will have to stabilise,
skill and education levels rise and the economy diversify so
that it is not so heavily dependent on oil exports, he said.
Speaking at the Baghdad currency exchange shop that he owns,
Ahmed Abdul-Ridha said the dinar's stability in the past three
years was good, but it did not indicate the long-term trend.
"We wish the dinar's value would go back to what it was like
before, when it used to equal $3 in the 1970s and even in the
1980s," he said.
"I expect that day will come. Why not? What we are going
through is an abnormal condition...We are an oil country."

OK, so, what's the 'GOOD' news?:shock:

Terbo,

I wish I knew....

Honesty, right from the get-go! I can't ask 4 anything more than that, can I? Thankyou, ssmith, 4 your honest opinion- Alot of people SHOULD follow your lead! :cheers:

Because the dinar is not freely traded by banks outside
Iraq, online dealers of banknotes such as Dinar Trade are the
only way that most foreigners can invest in the currency.

I don't see any good news in this piece...

What in Sam Hill did we invest in, then? We have better luck investing in Daimler-Chrysler!

We invested in our dreams and our futures. Honestly I was skeptical, but decided to throw caution to the wind....but down deep I had this "feeling". Maybe it was just gas. Thankful it was a small amount. Time will tell. Sorry to be a downer....but JMHO

Just to clarify...small amount of money - not gas!

Same here- I thought I'd try it out for size, and, well, here we are- And it will be the last time-

Heres the good news from this article I see alot of it!!................The logic of the dinar bulls is simple. Iraq's oil exports
rose to 2.6 million barrels per day in September, their highest
level in three decades; the country aims to hit 6 million bpd by
2017, which would put it close to Saudi Arabia's current level.Iraq still seems to be on the threshold of an oil boom that will
transform its finances.
Inflows of new oil revenue could give the country big
external surpluses and push state finances deep into the black
by late this decade - the classic recipe for a strong currency.In the long term, however, Iraq's finances and economy may
improve so dramatically that authorities feel comfortable
allowing the dinar to appreciate under the pressure of flows of
oil money into the country.
The IMF expects this year's estimated budget surplus of just
0.2 percent of gross domestic product to balloon to 12.1 percent
in 2017. In the long term, the central bank aims to make 1 dinar
equal to $1 with a combination of redenomination and
appreciation, although that will take over three years because
of instability in the Middle East, Kasim said: "If not for the
regional circumstances, we would proceed faster with that plan."
Some analysts think the appreciation could go further. We wish the dinar's value would go back to what it was like
before, when it used to equal $3 in the 1970s and even in the
1980s," he said.
"I expect that day will come. Why not? What we are going
through is an abnormal condition...We are an oil country." Ahh! so what people, if this was never even in your (our) lives what would be your issue.Atleast this baby is in our lives,be glad.Just forget about it keep the nose to the grindstone and Conceive it,Believe it,achieve it !!!

*sigh*-

Maybe our grandchildren will benefit.