interesting on dinar

[ronnie s]

The Iraqi Dinar

By Vedran Vuk

Every few weeks I receive an email inquiring about the investment-worthiness of the Iraqi dinar. Since multiple subscribers are interested in the topic and US withdrawal from Iraq is in the news, this issue is worth mentioning. The Iraqi dinar promoters seem to push two main ideas: 1. With Iraq free of Saddam Hussein, the economy will boom and as a result the currency will strengthen; and 2. The Iraqi government will revalue the currency to pre-war levels. Instead of over a thousand dinars per dollar, the government could even set a one-to-one exchange rate - making holders of the old notes rich.

What's missing from both of these cases is an understanding of monetary policy. Either the Iraqi dinar promoters are completely ignorant of the basics of currency markets and monetary policy or they're just plain scammers. I'll let you decide.

Let's start with some common sense. If one thinks the US economy is going to boom, would the dollar be a good investment idea? Well, maybe, but it wouldn't be the best idea. Why not invest directly in the DJIA, Nasdaq, or S&P 500? Currencies and the strength of the country's economy are not perfectly correlated. Just think of the US economy in the past few years. The economy has been in a horrible rut, yet the dollar has been all over the place. Furthermore, as the stock market has plunged, the dollar has strengthened - and vice versa. Many other factors affect a currency other than the strength of the economy. If one really believes that Iraq will become a booming economy, don't buy the currency - buy a diversified portfolio of Iraqi stocks. That might be a little troublesome, but if this is really the trade of the decade in your mind, go for it.

One of the most important factors in a currency's strength is its central bank. A nation can have all the economic growth in the world, but if its central bank is printing money like crazy, the currency will still become worthless. In fact, that growth might be the result of a monetary-induced bubble. Ultimately, a bet on any currency is a bet on its central bank. While many readers are likely familiar with the political situation in Iraq, the vast majority probably don't know anything about the country's central bank. And don't think the connection to oil can save the currency either. Just think about the currency controls and over 30% inflation in Venezuela.

The second case for the Iraqi dinar isn't particularly good either. The central bank doesn't possess a magic wand that revalues the currency. This investment thesis assumes that the Iraqi central bank can just legislate a fixed exchange rate. In reality, it's a process where the central bank must contract the money supply and battle forces on the exchange market. Consider the basic logistical problem here. Currently, 1,170.50 dinars trade for a single US dollar. Suppose the central bank sets a one-to-one exchange for the dollar. What's immediately going to happen? Everyone holding dinars will want to trade them for US dollars, but who will exchange the dinars to dollars? Currency markets always require a buyer and a seller. Will major banks say, "Iraq's central bank told us that the dinar is the same as the dollar, so we are going to assume that's true"? Of course not! No one would trade dollars for dinars based on an arbitrary rate.

Is the central bank completely powerless to fix the rate? No; it can try to convince the market of the exchange rate by purchasing Iraqi dinars on the open market. If the Iraqi central bank agrees to exchange one US dollar for each dinar, market participants may believe the new exchange rate, but that's going to take a lot of convincing - meaning a ton of reserve currency from Iraq's central bank. If the central bank wants to return its currency to a one-to-one relationship with the dollar, it will have to spend billions in the currency market buying up dinars. Why the central bank would want to waste this money is extremely puzzling.

To sum this up, this is a monetary issue, yet the dinar promoters love to discuss anything but the central bank of Iraq. They're on some different planet where the strength of currencies has a perfect correlation with economic growth and where exchange rates can be set with the swish of a magic wand.

Next, Doug Hornig will discuss the growing intrusions into one's privacy from private companies to government agencies.

[fnbplanet]

What a simpleton.

[PUNT18]

"If one thinks the US economy is going to boom, would the dollar be a good investment idea? Well, maybe, but it wouldn't be the best idea. Why not invest directly in the DJIA, Nasdaq, or S&P 500? Currencies and the strength of the country's economy are not perfectly correlated. Just think of the US economy in the past few years. The economy has been in a horrible rut, yet the dollar has been all over the place. Furthermore, as the stock market has plunged, the dollar has strengthened - and vice versa."

Read more:

This person is pulling out some obvious points that would be logical opening statements in a debate, however, this entire piece lacks depth and insight.

For instance, the quoted piece is comparing apples & oranges. Comparing the IQD and Iraq's economy as an investment opportunity, to the USD and the US economy is not a comparable example. The USD has been a stand alone currency in the global market for decades and the stock market is a well established entity. Stating that investing in the ISX is comparable to the US exchanges is not a fair comparison.

GO RV :D :D

[hammy]

Well after reading that I think we should all just use our dinars as kindling to start a nice warm fire......NOT! Wow, some of the people that have the power to print, wonder who gave it to them sometimes. That story means we are all idiots, including some of the governments that have invested in Iraq. Keep your dinar and stay patient my friends.

p.s. I don't have one of those verified dinar labels, have not been here for a few months. Been living my life. Though I assure you I am invested.

Edited October 30, 2011 by hammy

[jeepguy]

heyyyyy folks simpilton jeep here hehehehehehe ,,,,, the curency of iraq is or will be backed by the money they have in the c,b,i, accounts ,,with over 5 billion {alot more i bet } they can sustaine a 10 cent start up ,,, { adam revalue idea } this idea has the right thoughts ,,,get the dinar moving get those big bills flowing back into the country,,get dinar and currency trading on for-ex for the purpose of foreign investing, also getting foreign busness`s into country for infrastructure ,,,with the news of all the countrys putting their name in the hat,,for building and oil refining ,, not too mention the mineral s they have over there ,,, now with the dinar buy back system ,,,if c,b,i has indeed a banking account in the u.s.a. which has been mentioned in the postings before ,,,this would create a quick access too the money supply too buy back the large denominations,also for new currency investors too buy the lower denominations,,, 50`s and 100`s and so -on ,,, all we need is c.b.i. too say the new value of iqd is 0.10 and be shown on trade papers,,, for-ex currency markets and the likes ,,, anyway just my thinking of the dinar markets thanks and --r v to all

[olivesman]

I, for one, am THANKFUL for such ninnies. Its like the old saying, "if it were easy, EVERYBODY would do it." If everybody believed the Dinar would RV, our resulting wealth wouldn't be with worth as much.

[Canuklady]

Well after reading that I think we should all just use our dinars as kindling to start a nice warm fire......NOT! Wow, some of the people that have the power to print, wonder who gave it to them sometimes. That story means we are all idiots, including some of the governments that have invested in Iraq. Keep your dinar and stay patient my friends.

p.s. I don't have one of those verified dinar labels, have not been here for a few months. Been living my life. Though I assure you I am invested.

Well said Hammy!

"if it were easy, EVERYBODY would do it." If everybody believed the Dinar would RV, our resulting wealth wouldn't be with worth as much.

So true!

I think I'll hold on to my Dinars, ride this thing out, and see where it takes me!

[jlldrs]

heyyyyy folks simpilton jeep here hehehehehehe ,,,,, the curency of iraq is or will be backed by the money they have in the c,b,i, accounts ,,with over 5 billion {alot more i bet } they can sustaine a 10 cent start up ,,, { adam revalue idea } this idea has the right thoughts ,,,get the dinar moving get those big bills flowing back into the country,,get dinar and currency trading on for-ex for the purpose of foreign investing, also getting foreign busness`s into country for infrastructure ,,,with the news of all the countrys putting their name in the hat,,for building and oil refining ,, not too mention the mineral s they have over there ,,, now with the dinar buy back system ,,,if c,b,i has indeed a banking account in the u.s.a. which has been mentioned in the postings before ,,,this would create a quick access too the money supply too buy back the large denominations,also for new currency investors too buy the lower denominations,,, 50`s and 100`s and so -on ,,, all we need is c.b.i. too say the new value of iqd is 0.10 and be shown on trade papers,,, for-ex currency markets and the likes ,,, anyway just my thinking of the dinar markets thanks and --r v to all

I am also a firm believer that it will come out in the .10 to .30 cent range initially with a 60-90 day cash in period. After the cash in period has expired, your dinar will not hold face value any longer. Within 2-3 years the exchange rate will be in the 3 dollar range after they develop their private sector, oil output increases even more, natrural gas reserves are at a strong output, etc. etc.

The way I have always looked at this is if a person has invested around 2 grand for 2 million dinar and it comes out at 10 cents, that is still 200,000 dollars off a 2 grand investment. That is one heck of a return, before taxes of course But what do I know. Just an opinion! God Bless!

[sheik]

Read this before a zillion times. Love to see a 1:1 but I am not so sure.

First, no one has intelligently answered the question as to how a free floating currency like Iraq and unlike Germany and Kuwait, could RV and 3:1 for example. That is the big knock as to why the IQD can't be compared to that of the Kuwaiti dollar prior to its RV.

No one seems to have THE answer that EVERYONE wants.