Dinar Deception Driven By False Hopes

Dinar Deception Driven By False Hopes



John Wasik

Contributor

May 28, 2013 @ 10:56 AM

I don’t think it’s a coincidence that the Iraqi dinar features the ancient Tower of Babel.  The monument symbolizes how people can hear different languages, when the message is essentially the same.

The Iraqi dinar is still being sold to thousands of unwitting buyers. The country is still in trouble politically and economically. The currency keeps losing value to the dollar. It is not traded on any legitimate foreign exchange.

Yet it’s still being hawked as the latest get-rich-quick scheme. Hopeful buyers keep accumulating the paper, believing the oft-told tale that the Iraqi government will somehow revalue the currency in their favor, so they keep buying more of the questionable notes. There’s a better chance of finding Aladdin’s flying carpet in your local Home Depot HD +0.18% or some day seeing Facebook FB -0.36% priced as high as Google GOOG -0.19%.

Last week, the dinar’s value plunged even more against the dollar: from 1,200 to 1,300.  This development shows that the dinar’s dropping value represents hyper-inflation in the troubled country, which has been beset by more than 500 deaths due to sectarian violence in recent months.

Where does this leave you if you’re a dinar investor? It means you’re holding paper that’s worth increasingly less. If one was to consider it an asset — one that’s untraded and not listed on any real exchange — it would be like owning a rusting, undriveable car sitting in your driveway.

Last week, Adil Abdul-Mahdi, the former Iraqi vice president who resigned from his post, harshly criticized the current government’s economic policy (as reported by Al-Monitor Iraq Pulse):

“The high demand for the US dollar that we have seen for months has been widening the gap between supply and demand, at about $60 million-$70 million per day. A black market has emerged, in addition to two different exchange rates with a difference of 8%-10%.”

Why would Iraqis prefer dollars? Because their own currency is worth less and less, so their purchasing power diminishes.  That’s not only the curse of inflation, it’s a sign of an unstable economy and lack of confidence.

If you’re an investor in dinars, it would be essential to find out what the market is for selling the currency (before you buy it, which is not recommended). In a healthy market, there’s an active exchange on both sides of the trade.  There are now several dealers on the Internet willing to sell you dinars, but what will they charge to buy back the currency? My educated guess is that you won’t be able to get what you paid for them — ever.

I realize that you can probably buy hundreds of thousands of dinars for relatively few dollars. But you shouldn’t expect a payday. There’s no relationship between the value of the currency now and future appreciation. These notes may continue to devalue and the Iraqi economy and political state will suffer more strife.  There’s no reason that you should share in their economic misery.

http://www.forbes.com/sites/johnwasik/2013/05/28/dinar-deception-driven-by-false-hopes/#1b26ffef6da4