Investing in currency – generally unique coins or exotic currencies – has long been a hobby for many.
When you feel passionately enough about something, you go to great lengths to get your hands on it.
But what about the Iraqi dinar?
Why are people so crazy about it these days? Is it really so unique and exotic?
In the case of the dinar, none of that really matters too much.
One simple aspect of human nature will explain this little mystery...
No one – passion driven or not – willingly turns down an ideal investment opportunity where the potential for great reward surpasses any associated risk.
The Iraqi dinar is a currency that has acquired quite a bit of popularity since the Iraq war began in 2003. That popularity has increased tenfold amidst speculation that it will dramatically increase in value. Why else would the United States government be hoarding more of it than any other nation on the planet (excluding Iraq)?
Did Bush know something we didn't when he asserted that the “war would pay for itself”?
Recent Dinar Developments
In 2011, Iraq's economy supported the rising value of the dinar: business was booming and the U.S. dollar was falling. Iraq's GDP grew at least 12 percent...
But what about all the NEW news reports screaming “DEPRECIATION!”?
Rumors of extreme deprecation have become a complex issue, as many sources have bantered back and forth over the past year, entertaining the idea that a serious devaluation may be underway.
However, the Central Bank of Iraq attempted to extinguish that notion recently when it publicly announced an imbalance of the Iraqi dinar exchange rate while simultaneously denouncing rumors that the dinar will soon experience a sharp decline in value.
Earlier in mid-April, the finance committee in the Iraqi Council of Representatives warned investors and Iraqi citizens how the low exchange rate of the dinar compared to the U.S. dollar would be detrimental to Iraq's economy. Strict regulations were then mandated on the sale of dollars based on trade restrictions with Iran and Syria.
The Central Bank was expected to withdraw dinars from the market in masses...
Two days later, everything changed....
Iraq has officially suspended all previous plans of dropping three zeros off the value of bank notes of its currency, claiming that the economic climate isn't yet “suitable” for such a dramatic restructuring procedure.
To withdraw the 30+ trillion dinars currently in circulation would be an overwhelmingly tedious process that is not on Iraq's agenda and will not be a priority “until further notice,” according to the cabinet secretary.
Here's a closer look at the change in exchange-rate from July 2011 to present day:
It's a curious story, indeed. Speculating on something so volatile – one day devaluation is imminent and the next it's not to be spoken of “until further noticed” – feels fruitless.
In times like these, investors are wise to hedge themselves accordingly and make sure their portfolios include some sure-winners, like physical precious metals.
Until next time,