The Iraqi Dinar Scam - Part One
By John Jagerson, Analyst at Learning Markets
The Iraqi dinar "investment" opportunity is a scam that has been around for a few years and has recently been regaining much of its former popularity. The opportunity is pitched as a way to profit from a nearly worthless Iraqi dinar that is "sure" to appreciate in the future. The scammers promise that millions of dollars in profits are virtually guaranteed if you buy the dinars at today''s values (about 1,000 dinar to 1 US Dollar) and then exchange the dinars back for dollars at a later date once the dinar exchange rate has improved.
This is part one in this series of articles. You can find part two of the iraqi dinar scam here.
However, there are some fundamental problems with the Iraqi dinar scam that potential buyers should be aware of before they begin investing in one of the most illiquid currency markets in the world.
Lack of registration
It is illegal in the U.S. and most other major economies to market an investment without appropriate securities registration. The scammers get around this requirement in two ways. First, it is technically legal to sell hard currency for its numismatic value. In other words it is possible to sell hard currency as a "collector''s item." Second, some dealers will register with the U.S. Treasury as a Money Service Business (MSB)
Registering as an MSB is something that dinar dealers will do to put on the appearance of registration and government oversight. However, the difference between a legitimate MSBs and dinar dealers is that a real MBS is not marketing an investment. So ask yourself; if a business has to lie to get around registration are they really making a legitimate offer?
Dinars are sold on misleading hype
The potential value of an investment in dinars is often illustrated with references to what happened to the Kuwaiti dinar following the first Gulf War and the German deutschmark following World War 2. These would be good examples except that neither one was a free-floating currency at the time so the value was mostly a function of policy making and official currency management. It is also a fact that no rational investor would base an investing decision on two instances of past data (more than 60 years in the past) without considering all the times this investing strategy did not pay off.
Will the Iraqi government pursue a policy of currency appreciation in the future? Since an appreciating currency makes funding your b.rand new government and paying off past debts more expensive it seems unlikely. An economy in Iraq''s situation is more likely to experience a currency crash or intentional devaluation than a sudden and dramatic reflation.
In fact, more recent currency history would seem to show that it is more likely that the dinar will depreciate further in the near term. The fallacy that dinar dealers are relying on is that a growing economy will result in a stronger currency. That is not the case. As the recent examples of Venezuela, Turkey and Mexico show; a growing economy is as likely to be accompanied by an inflating (weakening) currency as not.
Many dinar dealers refer to the value of the Iraqi dinar prior to the 1990 Kuwaiti invasion (1 dinar = $3+ US Dollars) as evidence that the potential for the dinar is theoretically unlimited. They don''t mention that the pre-1990 dinar has been demonetized (worthless) and that its value was arbitrarily set by an autocratic regime led by Saddam Hussein. Following the embargo, the ability for the Iraqi government to manage its currency''s value collapsed and it spent the next 10 years at 2,000 - 3, 500 dinars to the U.S. Dollar.
Investment risks they won''t tell you about
In the next article on this subject we will outline the major risks of investing in hard currencies like the dinar. If an investor was determined to take a risk on a currency like this they should be prepared for what is likely to happen to their investment''s value and they won''t hear it from dinar dealers.
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Thread: The Iraqi Dinar Scam - Part One
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03-11-2009, 11:43 PM #1
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The Iraqi Dinar Scam - Part One
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03-11-2009, 11:44 PM #2
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Iraqi Dinar Scam - Part 2
Problems Dinar Dealers Won't Tell You About.
Assume that you are determined to "invest" in dinars despite the shadowy and misleading dealers you will have to work with. You should be aware of the following risks.
1. Liquidity
There is currently no active market for dinars. You can buy them but can you sell them? We surveyed several dealers and found that the difference between what you can buy dinars for and what you can sell them for is approximately 20%. This means that the dinar will have to appreciate by at least 20% before you could sell the currency back at break even. It is worth noting that since the new dinar was introduced after the U.S. invasion it has only appreciated about 23% total.
2. Currencies with extremely low values are often demonetized
It is quite common for currencies with very low values compared to other base currencies to demonetize their existing hard currency and issue new currency with new values. For example, the Venezuelans, another oil economy, demonetized the bolivar (trading at 2,150 to the USD) in 2008 and allowed currency owners to exchange 1,000 of them for 1 new bolivar. The new bolivar now trades at 2.15 to the USD. This demonetization and revaluation process has been done over and over again in modern history.
One of the risks here is the process required to get your hard currency dinars exchanged for potentially a second issue of new dinars at a new value. If there is an extremely illiquid market today there is likely going to be one then as well. It may be something that can only be done in Iraq which could make the process extremely expensive.
3. Inflation
Currently the Iraqi Central Bank is reporting inflation rates that vary, depending on the month, from -4% to +8%. If the government and economy become more unstable than they are at present, those inflation rates could skyrocket. Hyper-inflation destroys the value of hard currency. By the time the Turkish government revalued in 2008 the lira had inflated to 1.5million lira to the USD.
The bottom line is that this is an investment opportunity marketed by unregistered advisors to mostly unsophisticated currency investors. No risks are disclosed and past information is fabricated or modified to make the opportunity look better than it really is. This investment is a gamble at best.
http://www.learningmarkets.com/index...-part-two.html
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04-11-2009, 11:19 PM #3
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So after all these years and posts, you are saying it is all a scam. Tell me it is not true!
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04-11-2009, 11:43 PM #4
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last week i saw this guy called Cramer on cnbc or something like that talk about it ....like any other investment their is a gamble..he seems to think their is potential for it to grow....i guess time will tell....hell i invested in pips and that turned out bad...so i tried this..i've had mine since feb. 2005...i guess time will tell the true outcome..Pat
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06-11-2009, 04:21 PM #5
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Well seaview, now you have dun it. Just caused the left front wheel to come off the roller coaster..LOL. heck, I can make a bit now, maybe time to sell most, keep a mil for fun and get on with this thing called Senior life...LOL God Bless us all.
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06-11-2009, 10:20 PM #6
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So Seaview, are you saying we who bought into the dinar investment have been scamed and its finally over for all of us and waiting for a reval that will never happen, is no longer necessary. Are you saying we should call a Dinar trader and dump our dinar as quickly as we can for what ever we can get for it. Or by your post are you not saying this.
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06-11-2009, 10:24 PM #7
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I blame Brian Marsden for this, LOL If I had never heard Of PIPS, it would have been Led to this Dinar fiasco, and more years of waiting to be told that I have or had been scammed yet again. Bitter table for one, But I digress
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06-11-2009, 11:24 PM #8
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I am not sure seaview believes this, he is just posting an article by another author.
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07-11-2009, 10:02 AM #9
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I would never bash seaview but its interesting Seaview has not posted anything more about this or has not come out and said our dinar is worthless, so until Seaview does, we wait. Waiting is something we all know how to do.
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07-11-2009, 06:42 PM #10
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Lol - I think you're turning into a 'Conspiracy theorist' benzboy. I haven't posted anything because I have been giving it considerable thought. I think the second part is not new information.
I'm still thinking about the first part. If I didn't post it and only posted good news, then 'as a messenger of news' would that make me an irrational pumper?
We need as much information as possible - both good and bad to make wise investing decisions.
Investing in cash only is far riskier in my opinion than investing all round because it is limiting your market and profitability.
I believe if a lop does occur it won't be until the dinar has been rounded down to around 1000 - 1. So there is still room for profit taking for cash holders only. Or, for all we know, there maybe a slow and steady rise over time. I still believe more information is necessary to complete the picture, which will come out over time.
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