Hi All,
I have been a member of roi for a long time now and a member of PIPS but i would suggest that you read this (rather long) view of the DIna
Overview
A number of people have begun touting so-called "investment" opportunities in the Iraq Dinar as a "sure way" to make a lot of money with little or no risk. Many of our clients have asked our opinion on the legitimacy of this.
Is "investing" in the Iraq Dinar a sure way to profit? We don't think so. In our opinion, buying the Iraq Dinar is a high risk investment with a poor outlook.
A Little History
The official rate of the old Iraq Dinar, $3.22 USD (U.S. Dollars), was set in 1982 by Saddam Hussein. The old Iraq Dinar could not be freely traded, so this rate was never tested or upheld on the world market.
Ok, that's true.
The current Iraq Dinar (IQD) was introduced between October 2003 and January 2004 by the Coalition Provisional Authority in close consultation with financial experts from Iraq and the international community. The IQD is currently valued at a little less than seven hundredths of a US cent. (1 USD = 1460 IQD). The old "Saddam" Dinar has no current value and is worth only what a collector is willing to pay for it.
All true.
What's Happening Now?
The IQD is not freely traded, and is not being used in any significant international transactions. We are unaware of any official bank or foreign exchange office outside of the middle east that will exchange the IQD.
Ok, this is true as well but does not really mean anything because what's happening with the trading of the NID today, tells us nothing of its trading tomorrow. The whole idea of investing is to be in the right place at the right time so as to be in a position to benefit from what could potentially happen in the future and to be there hopefully ahead of the crowd because once the masses get there it is time to have already been out.
The IQD trades on a very small, tightly controlled exchange. The total volume of IQD traded by the Central Bank of Iraq is in the thousands of dollars, compared to the $1,900 billion dollars traded on the Foreign exchange market every day. This small number of trades makes the IQD's value effectively immaterial.
This also is true, but again, so what? Who knows for certain how the NID will be traded tomorrow? It could be traded on the FX
The Central Bank of Iraq's stated objective is not to promote the free trade of IQD, as is the case in a true free market economy, but rather to keep the value of the IQD stable. The only way the Bank can ensure the semblance of stability is by tightly controlling the exchange of IQD on the market, and by ensuring that the currency cannot freely trade on the open market. They evidently fear that open trading of the IQD would lead to a rout in which the value of the IQD would sink to practically nothing.
Here, you are making an assumption that you know for certain that the CBI fears the NID trading on the open marketcould lead to a further drop in value. In my opinion the NID is practically worthless right now, it can't get much worse and besides, could it be that they possibly wanted to control the trading at first just to get specific plans and things in order so that when opening the trading of the NID to the open world market that there would be specific reasons for confidence in its value and strength?
Consider the situation. Why tightly control the trading of the IQD if it is likely to appreciate in value? If the value of the IQD were to surge, this could be held out as evidence of a surge of confidence in Iraq's economy. So why not open the IQD to free trading? Why would this be done unless the Iraqi Central Bank itself feels that the IQD would decline in value in a free market?
As already stated, perhaps in the beginning of issuing the new currency they wanted to coddle it like a new born baby until it was strong enough to stand on its own. Even at this stage of the game, if it were to be traded on the open market, not everyone would have the confidence to trade it because of all the uncertainty associated with it but many would because traders and speculators know how to manage risk. Bottom line, the time has not been right but who knows about tomorrow.
A Snapshot of Iraq Today
The current situation in Iraq is pretty grim:
Over a decade of international economic sanctions and a devastating war has left the infrastructure in tatters
Yeah, pretty much but there has been a boat load of US and other money donated to the rebuilding of Iraq.
$125 billion of external debt
I understand that most of this has been forgiven.
Millions of dollars in post-war debt
I'm sorry, I don't know what post war debt Iraq has. My understanding is that the USA pony upped the money for the war.
No stable government
I would say that the government is pretty darn stable because the US military is there to see that it is. Now, if it were to pull out, then yes, it would be unstable but that is not likely to happen.
Insurgency steadily on the rise
Who says insurgency is steadly on the rise? Just because insurgents are still a big problem does not mean it is steadily on the rise. I think there is evidence to show that it is actually on the decline.
Oil facilities and pipelines are sabotaged regularly
That was true but is not any longer. I understand that such attacks have been curbed by as much as 80%.
Many (including the former Prime Minister of Iraq) predict out-and-out civil war
I think this statement is untrue. Perhaps he said that under certain circumstances civil war could result but that is a far cry from stating that civil war is likely or inevitable.
These aren't the kind of conditions typically conducive to the creation of booming economies. More to the point -- a 450,000% increase in the value of the IQD (as predicted by some of its promoters) seems ridiculous in the face of these challenges.
This is true but present circumstances will change, either for better or worse but they will change and if the change is good or better then the intire economic picture could be very good tomorrow, who knows.
But Surely There's Oil Under Those Dunes?
A lot of the hype over the IQD centers around Iraq's vast oil reserves and their supposed economic value. The oil market is extremely unpredictable. An economy based on oil alone (oil makes up 95% of Iraq's foreign exchange earnings), will mirror that unpredictability. Let's look at a real-world example: Venezuela.
Before we make any comparisons, let's define what we mean by unpredictable. The price of any commodity could be said to be unpredictable but one thing is very predictable, all commoditys have intrinsic value and will always be worth something and oil is know different. Also, oil will always, in our lifetime at least, be needed and it is reasonable to think that the need for it will continue to grow even more so exponentially in the foreseeable future.
Oil accounts for 80% of Venezuela's national exports and 50% of its government revenues. The country is one of the world's top five oil producers. In the last four years, Venezuela has experienced intense political instability, including an oil strike and an attempted coup d'état. The resulting economic chaos has led to the extreme devaluation of the Venezuelan Bolivar -- today, it is worth only about a third of its US Dollar value from January 2000, and only about a quarter of its Euro value from January 2000.
Ok, this is true, but Venezuela does not have the US military occupying its country determined to do what ever it takes to make it a success, Iraq does.
Investing in a country's currency is tantamount to investing in that country's economy as a whole, not in any single commodity. Investing in the Iraq Dinar is not the same as investing in Iraq's oil.
This is true, but if Iraq stablizes and begins to function as the US plans then, it's whole economy will flourish as will the strength of its currency.
But What About Kuwait?
Promoters of the IQD like to compare Iraq now to post-Gulf War Kuwait -- but this is comparing apples to oranges.
Before the Gulf War, Kuwait had a stable government and its foreign investments generated more income for its economy than its oil did. After the war, despite losing a third of its pre-war investment portfolio (over $100 billion USD), Kuwait still had a solvent economy, a stable government, and an intact infrastructure. Of course its currency increased.
I don't know if this is true or not although, it's hard to believe that its foreign investments generated more income thans its oil, maybe so, I don't know. This I do know, Iraq has more economic potential than Kuwait ever had and that is what matters here, not what it was but what it could be. Often times a wise investor will see a company that has been sorely mismanaged but has been bought up or taken over by new competent managers and under their auspices he sees that this company could realize its true potential and therefore, he is willing to risk investing in it.
In comparison, Iraq entered the war with a $125 billion USD debt, has almost no infrastructure, no stable government, and no other foreign income except its oil -- the vulnerability and unpredictability of which we have already pointed out. The outlook for its economy and the IQD is grim for the foreseeable future.
As refuted above, these points are invalid. Debt has been forgiven, billions donated to rebuilding infrastructure, governments is stable because the US military is there to see to it and will not leave until it is capable of maintaining stability on its own, Iraq has many other potential incomes besides its oil and the need for oil and its rising demand for the foreseeable future has been established therefore, Iraq's economy has huge potential.
In late 2004, the US was successful in convincing some foreign creditors to "forgive" some of Iraq's debt. However, debt forgiveness is seldom a blessing, and generally comes at a very heavy price. Other countries whose foreign debts have been "forgiven" have found it nearly impossible to generate any foreign investment afterwards. Think about it: how would you feel about investing in Iraq again if you lost your entire investment (i.e. you "forgave" it) last time?
Look how many times individuals file for bankruptcy and after a period of consolidation or what have you, they once again demonstrate their credit worthiness and once again banks and credit card companys are once again offering them credit.
If it Sounds Too Good to be True...
Ask yourself one question: if the Iraq Dinar is such a hot commodity, why would anyone in the know be willing to sell it to you? If you thought that the IQD was going to multiply in worth by hundreds of thousands of percent, would you sell it? Of course not -- you'd be too busy buying as much of it as you could.
Perhaps to facilitate their acquiring more of it themselves, to answer the question.
But if you thought that the IQD was going to go down in value over time, well, then you might start trying to convince people that it was a "great deal" so that you could get rid of all of yours before it nose dives.
What competent investor would sell short a commodity that was was already trading at historically low prices? The price can't go much lower, it's at the bottom now.
Remember the old saying: if it sounds too good to be true, it probably is. Be careful!
This is true, if something sounds to good to be true, it likely is but not necessarily, so, be careful and never, ever invest more than you are willing to lose because you just might.
they information is valid. It is doubtful that you will EVER make a penny from a collapsed currency in a country that buys and sells barrels of gold in $US not Dinas
This statement makes no sence. To start with, the information is not valid and the currency is not collapsed, it is new and the government is new and it sells oil not gold for dollars and the fact that Iraq sells oil for dollars is all the more reaso for it to peg its currency to that dollar.
Another piont I'd like to make here is that shortly after 9/11 American airlines filed for bankruptcy and it's stock feel to below $1.00 however, savey investors bought it up at that price and it subsequently recovered and was sold for more than $12.00 a share. Just because things may look bad does not mean that it can not change for the better.
in case you doubt the information, here is where the information comes from :
http://www.xe.com/iqd.htm