This is a reply to the above article.
Other side of the story...
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.
This is the opinion of this group of people. Their opinion is mostly based on misinformation as will be outlined below. They paint a false picture by mixing fact and fiction with poor evaluation and assume that the reader will not be educated, so they can apply issues out of context, examples that do not apply, and logic that is circular and flawed.
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.
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.
This is only partly True. Sadam has a tight grip on the currency, however, prior to Sadam the value of a dinar was as high as over $4, and that is WITH A FREE MARKET. During the Iraq / Iran war Sadam printed a LOT of dinar and then only allowed it to be traded in a tightly controlled market. However, it was still traded in that tight market.
So as the UN placed embargos and trade sanctions on Iraq after the invasion of Kwait the value started to drop in that tightly control market. If the currency had no tested market the currency wouldn't have dropped in value because Sadam could have fixed the price, but he couldn't... so it went down. He ultimately couldn't control the value. Anyone wanting to buy Iraqi Oil HAD to buy Iraq Dinar first, validating any price that might have been established, in essence testing the value against the world market.
What's Happening Now?
The IQD is not freely traded, and is not being used in any significant international transactions. We are unable to locate any official bank or foreign exchange office outside of Iraq that will exchange the IQD.
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.
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.
Wow... where to start. Partly true... and a LOT that is false or misstated.
IQD not freely traded -> True. That is why there is such a low value currently. It has not been pegged to a value yet. That's why it is a good idea to buy.
Trades on a very small, tightly controlled exchange -> True. Economic stability is CRITICAL for political development. They are establishing a constitution, re-building the government, building up the countries infrastructure. They need this stability of economy to grow.
They evidently fear that open trading of the IQD -> FALSE! How can you jump from "to keep the value of the IQD stable" to ... Iraq fears the dinar will drop in value??? IT HAS ALREADY DOUBLED IN VALUE UNDER THIS TIGHT CONTROL!!! It's going up... not down... so, where is the foundation for this comment? LOL extremely laughable.
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?
#1- It already has appreciated in value!
#2- To allow the political development and infrastructure to grow.
#3- To build the confidence of the local people.
AND... the biggest reason of all... THE CENTRAL BANK OF IRAQ does NOT control when it will go on the market. The IMF & World Bank do. The IMF & World Bank will wait until the government is in place to peg the value of the Dinar.
Read what was written at ->FORBES.COM http://www.forbes.com/business/newsw...tr1206675.html
"Currency traders say that for the first time since the end of major combat last April more Iraqis are holding on to the dinar as a savings vehicle after years of hoarding dollars.
"Before, at the end of a working day, I wouldn't keep my Iraqi dinars and would change them to dollars. Now I am increasingly keeping my holdings in the dinar," said hotel owner Alaa Jabari.
There is strong demand from neighboring countries. They think the dinar is undervalued compared to the dollar and they expect the dinar to rise in the medium and long term," said Mohammad Hassan al-Jashmae, who runs a currency exchange firm.
Bankers say that by pushing the dinar to around 1,500 to the dollar, Iraq's central bank has attained its initial target to bolster the local currency, a step towards beefing up the incomes of state employees whose salaries are now paid in dinars."
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 -> Isn't that why the US is spending Billions of Dollars over there rebuilding the Infrastructure?... hmm....
* $125 billion of external debt -> The debt is going down DRAMATICALLY! Read these:
http://www.cato.org/pubs/pas/pa-526es.html (Odious Debt)
http://www.clubdeparis.org/en/press_...com11011125170
* Millions of dollars in post-war debt -> Most of this debt is going into developing a stronger economy...
* No stable government -> Um... not true. July 27,2005 Reported by CNN:
BAGHDAD, Iraq (CNN) -- The top U.S. military commander in Iraq said Wednesday that the U.S. military could begin a substantial troop pullout as early as next spring.
Gen. George Casey, who spoke to reporters during Defense Secretary Donald Rumsfeld's unannounced trip to Iraq, said some conditions would have to be met for the withdrawal to take place.
"I do believe that if the political process continues to go positively and if the development of the security forces continues to go as it is going, I do believe we'll still be able to take some very substantial reductions after these elections in the spring and summer of next year."
Elections in Iraq are scheduled for the end of this year.
Casey said he could not say how many of the approximately 135,000 American troops would be withdrawn.
At the same time, transitional Prime Minister Ibrahim al-Jaafari, who met with Rumsfeld, said it was time for a coordinated plan to transition from the American to the Iraqi military and urged that it be done in a speedy fashion.
Casey said there was no agreement on how many insurgents are battling coalition forces.
"The level of attacks they've been able to generate has not increased substantially here over what we've seen in the last year," Casey said. "This insurgency is not progressing."
Referring to the large-scale attacks mounted in recent weeks and months, Casey said "what you are seeing is a change in tactics to more violent, more visible attacks against civilians and that is a no-win strategy for the insurgency."
Last week, national security adviser Mowaffak al-Rubaie told CNN that he'd be "very surprised if the coalition forces will not start pulling out by middle of next year."
Rubaie said he believed the withdrawing coalition forces would be "in sizable numbers."
Rumsfeld said Iraq needs to be more aggressive in its stance against interference from neighbors such as Syria and Iran, and the borders with those countries should be closed to stem the flow of insurgents into Iraq.
* Insurgency steadily on the rise -> Read the previous... LOL
* Oil facilities and pipelines are sabotaged regularly -> Actually Oil production and export is at PRE-1990 levels and going up! See the articles below:
1.6 million barrels of oil daily: August 10, 2005 Iraq's oil minister Ibrahim Baher al-Oloum said that Iraq is to exporting 1.6 million barrels of oil daily in this phase, besides the local consumption estimated at 600,000 barrels daily.
For More: http://www.arabicnews.com/ansub/Dail...005081001.html (Arabic News)
Largest Ever Oil Revenues: August 8th, 2005 At the beginning of the news conference, the minister makes a statement on the Oil Ministry "recent achievements". "...The average increase in the production of liquefied Gas and gasoline was between seven and 10 per cent. As for gas oil and paraffin, the increase in July was between 18 and 20 per cent..."
Asked finally where the Iraqi oil revenues go, given the huge amount of oil sales and the poor conditions of the Iraqi people, the minister says: "God be praised, after the transfer of sovereignty to the Iraqis on 28 June of last year, I would like to assure you, as a person responsible for the oil sector, that all the revenues of the Iraqi crude oil are handled by Iraqis and go directly to the Iraqi development fund.
For More: http://www.rednova.com/news/science/..._revenues_add/ (Red Nova)
* Many (including the former Prime Minister of Iraq) predict out-and-out civil war -> Read the previous CNN Article. Plus those below. This is simply instigating fear where there is no need.
Iraqi Constitution On Track: June 28, 2005 Although Iraqi lawmakers acknowledge that drafting a permanent constitution is one of the biggest challenges facing the country, the team charged with producing the document are cautiously optimistic that they will complete the job on time.
For More: http://www.iwpr.net/index.pl?archive..._130_1_eng.txt (IWPR)
Iraq Clerics Call on Sunni Arab Minority to Vote: July 4, 2005 Several Sunni Muslim clerics have prepared a decree calling on members of Iraq's disaffected Sunni Arab minority to vote in coming elections and participate in the writing of a new constitution, a prominent Sunni leader said Monday.
For More: http://www.washingtonpost.com/wp-dyn...070400662.html (Washington Post)
* 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. -> Not sure who they get their info from... but here is a Doctorate of International Economics:
Keith Laggos, PhD. : There are two conditions necessary for a country's currency to rebound after losing a war. The first is world support. This usually includes a commitment of rebuilding the country's infrastructure and forgiving their debt.
The second condition requires the country to have sufficient internal resources and the ability to put them into the market place. Iraq is the land between the two rivers and is renown to be the breadbasket of the Mid-east. They have large oil production ability and the world's largest untapped oil resources. Oil production is at its' peak with oil demand still growing at 4% annual worldwide. China and India's oil usage is growing at 10% annually. Any country that produces an oil surplus for export will have a large trade surplus. The demand for their currency to purchase the oil will escalate the value for their currency.
These conditions prevail in Iraq today. Once Iraq is normalized and stable, Iraq's Dinar should be at least equivalent to the other countries in the region Dinar, which are worth about $6.00 US.
Additionally, I have purchased Dinar as an Investment myself.
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.
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'�tat. 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.
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.
-> Okay... not sure the point here of a Venezuela history lesson. No one in the international community seems to care to much what is happening in Venezuela. 160,000 US troops aren't stationed in Venezuela. France, Russian, Germany, Canada didn't just forgive Venezuela of 80% of it's debt... This is like comparing Apples and Bananas.
The stability of Iraq is increasing daily. With over 150,000 IRAQI Security Forces, Constitution soon to be ratified by the public, and Elections again in January. President Bush has no reason to pull out unless he feels the US can reasonably pull out. Re-read the CNN article above.
BTW, the concern over Venezuela is that it has very close ties with Fidel Castro of Cuba and the current military dictator is extremely hostile toward the US.
http://www.cia.gov/cia/publications/...k/geos/ve.html CIA Website: "A disastrous two-month national oil strike from December 2002 to February 2003, temporarily halted economic activity. The economy remained in depression in 2003, declining by 9.2% after an 8.9% fall in 2002. Despite continued domestic instability, output recovered strongly in 2004, aided by high oil prices. Both inflation and unemployment remain fundamental problems. "
Iraq has no inflation and unemployment is going down dramatically, while salaries are MASSIVELY going up. The issue in Venezuela isn't in any way comparable to Iraq.
Additionally, because Iraq's currency is not part of the world market at this point and Venezuela's currency is, it is a good indicator that these 2 scenarios are dramatically different.
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.
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.
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?
-> Okay 2 points here. #1- Kuwait. The example of Kuwait is good for establishing the rebound value of a currency in the region. We never compare the 2 situations as if they are the exact same.
However, a situation that is VERY MUCH the same as Iraq is Afghanistan. They have the same culture, they just went through a war, they have a newly instituted government (which was facilitated by the US). Afghanistan has Opium as it's #1 exportable resource. DRUGS! (compared to Iraq's Oil reserve, second largest in the world) And the Afghani is at $0.025 (2.5 cents) That is 25 TIMES where the Iraqi Dinar sits currently.
The question you have to ask is... Will the Iraq's Dinar with it's Oil, new found stability, natural gas, international support be able to reach the same level as Afghanistan's Afghani, if not higher? I'm not sure that is a difficult question to answer.
#2- Debt Forgiveness. I have to point out that they are using logic both ways.
First they say debt is bad... then they say debt is GOOD? They make no sense. Debt is ALWAYS bad!
Odious Debt: IF debt was accumulated by a former leader who used the money he got for selfish reasons or in BAD ways, the debt can not be held against the people of the country. The debt is forgiven by international law.
It is clear that no one and no country will blink or have any hesitation at investing in the NEW Iraq... while NEVER again lending to Sadam!
Funny thing here is that XE.com even goes on to say in their points above that Iraq has received POST WAR debt. Which is TRUE... but totally counters XE.com's claim that Iraq will NEVER get loans again... and that no one will Invest in Iraq. LOL These guys are playing both sides toward the middle.
http://www.jubileeiraq.org/odiousdebt.htm
Also, please re-read what PhD. Keith Laggos stated above.
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.
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.
Remember the old saying: if it sounds too good to be true, it probably is. Be careful!
-> A few points... but this one is just ridiculous. Why would ANYONE Sell dinar?
Well if someone could sell at a slight markup... take the profit and buy more, why not do it? IF you had 100,000 dinar and you sold it for $150. Then took the extra $50 and purchased more dinar with it... wouldn't that be a good Business Move? YOU BET. Ompus did the same thing.
If you own something and can leverage it to get more of that something... isn't that a good idea? Of course those selling it think it will go up... no wonder they sell it! They want more for themselves! Wouldn't you?
Read the Forbes Article. Foreign countries are STOCK PILING the Iraqi Dinar... why? Because they know what will happen! These XE guys obviously haven't done their research.
Too Good To be True? Um... well, IF you had purchased $1000 of Kuwait Dinar in the 90's you would have $35,000 today. Is that too good to be true? YEAH... but it happened.
We do not encourage people to get in trouble financially by mortgaging their home or using rent money to buy dinar. Only buy what you could afford to potentially lose.