Should You Consider The Dinar?

Iraq is one country that gets plenty of attention in the news and little attention in the forex market. Should you incorporate the Iraqi economy and its currency, the Dinar, in your forex trading?

Under the Hussein government, every aspect of the economy was closely controlled. The Baghdad Stock Exchange, which was established in 1992, only traded approved stocks and only within a controlled price range.

Under the new regime, the stock exchange has surged and a financial market with good competition is developing. The international financial community also agreed to forgive over 80% of Iraq’s debt in exchange for a partial payment over the next 20 years.

Of course, Iraq’s economy is dominated by oil, but the returns on this resource were limited by a shortfall of capital investment. Under the new government, GDP is expanding by as much as 6.6%. (More accurate statistics are currently unavailable.) Unemployment has begun to slowly fall, but is still at a painfully high level.

When new notes were printed at the end of 2003, foreign investors began buying large amounts of the new currency on the speculation that the economy would soon improve. This practice is legal, but Iraqi companies exchanging the currency, sell it at various rates. The high volume of speculation has also led to significant counterfeiting.

However, the speculation played out for many investors, as dinars have appreciated almost 400% against the dollar since that time. Speculation on the dinar has significantly decreased since 2007. At the present time, the IMF together with the Central Bank of Iraq hold the dinar at a steady level, though an international exchange rate has not yet been set. For that reason, most banks and forex agencies do not exchange the dinar.

On the 6th of February, the Central Bank of Iraq revealed a plan to re-denominate the dinar later this year by removing zeros. In other words, 1,200 dinars (equivalent to $1) will become 12 dinars but with the same value against the dollar.

Based on the rapid growth in Iraq, there is every reason to believe that the value of the dinar will rise in the future. The greatest problem, however, is getting access to the currency within traditional forex trading systems. Even if you are able to do so, expect to pay a premium for the privilege and recognize that you run the risk of buying counterfeit. If you do make the investment, you should also be careful to take advantage of the re-denomination this year. Because the dinar is not traded internationally through standard channels, it is also impossible to follow forex signals or trade the currency using normal strategies.

In short, investing in the dinar is still a speculation. It is a particularly promising speculation, but a speculation none the less. For the sake of the Iraqi people, we can only hope that their fiscal policymakers continue to direct the nation well and that the dinar continues to be a risk worth taking. Perhaps, the dinar will be available through more standard means in the near future.