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Information on the IQD Iraq Dinar

Overview

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.

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.

What's Happening Now?

The IQD is not freely traded, and is not being used in any significant international transactions. We are unaware of any official bank or foreign exchange office outside of the middle east 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.

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?

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



$125 billion of external debt



Millions of dollars in post-war debt



No stable government



Insurgency steadily on the rise



Oil facilities and pipelines are sabotaged regularly



Many (including the former Prime Minister of Iraq) predict out-and-out civil war





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.

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'état. 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.

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?

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!

source: www.xe.com

By ROBERT H. REID, Associated Press WriterThu Jun 8, 3:55 PM ET

The death of Abu Musab al-Zarqawi may provide a much-needed morale boost to Iraq's new government. But it is unlikely to end the country's brutal insurgency.

Instead, the death of the most visible and feared terror leader in Iraq simply may give the United States and its Iraqi allies another brief chance to build some momentum toward stability and away from violence.

If the effort stumbles, then al-Zarqawi's death may in the end have no more impact on the insurgency than the capture of Saddam Hussein.

The White House seemed mindful of that Thursday, refraining from calling the killing a breakthrough but also moving quickly to try to capitalize on a clear victory after weeks of mounting death tolls.

President Bush warned "we can expect sectarian violence to continue," but he also announced that top U.S. officials would meet at Camp David to map out America's next steps. Of the militants, Defense Secretary Donald H. Rumsfeld said the death would only "slow them down."

There is no question that al-Zarqawi's killing was a huge symbolic gain. Because of that, it could provide the Bush administration and the new Iraqi government with an opportunity to seize the initiative from suicide bombers, sectarian killers and other extremists.

With al-Zarqawi out of the way and the new government finally in place, some Sunni Arab leaders may be emboldened to resume a dialogue they started last fall — a dialogue that was sunk by al-Zarqawi's al-Qaida in Iraq.

One reason it's so hard to predict what might happen is that it's never been clear what role the Jordanian-born terrorist actually played.

U.S. officials were quick to draw attention to the brutality of al-Zarqawi and his followers — from their slaughter of Shiite civilians to their beheading of foreign hostages, captured on video.

Yet that may exaggerate al-Zarqawi's relative importance, leading to an impression, deemed incorrect by most experts, that the entire insurgency was orchestrated and directed by a single figure.

In fact, more than a dozen Sunni Arab insurgent groups are believed to be operating in Iraq. Several employ tactics just as ruthless as al-Zarqawi but do not share his goal of re-establishing the ancient Islamic caliphate.

Whether these organizations operate entirely on their own or take direction from a central leader has long been the subject of intense debate.

"Most of the insurgency will not be affected, because al-Qaida is a highly visible and extraordinarily brutal cadre within a much larger group of different insurgent movements," said former Pentagon analyst Anthony Cordesman.

"These groups will not be directly affected by Zarqawi's death and could be strengthened if his death weakens al-Qaida," he said.

French terrorism expert Dominique Thomas speculated that al-Qaida might actually step up the pace of attacks just to prove it has survived its leader.

"While Zarqawi's death is a symbolic gain for the Americans, I don't think we'll see a real change on the ground," Thomas said.

Yet most agree the death could prompt another U.S. and Iraqi effort to try to lure Sunni tribal leaders in Iraq's Anbar province toward a political compromise and away from the insurgency.

Last November, the Americans achieved a breakthrough by persuading those tribal leaders to establish a dialogue with U.S. and Iraqi government officials. As a first step, community leaders dropped their objection to allowing Sunnis to join the police and army.

But those moves were undermined by al-Qaida in Iraq, which assassinated key sheiks.

If another effort is now made — with al-Zarqawi out of the way — much will depend on the new Iraqi government's ability to live up to its promises to build a political system that includes all groups, including disaffected Sunnis.

The release of about 2,500 detainees, which began this week, appears aimed at bolstering Sunni confidence in the new government, as does the appointment of new defense and interior ministers.

"Zarqawi's death will not in itself end the violence in Iraq," said the U.S. ambassador to Iraq, Zalmay Khalilzad. "But it is an important step in the right direction."