Iraqi dinar not a very worthwhile investment
Q: I had a friend tell me buying the Iraqi currency, the dinar, is a great investment. This seems strange to me. So, is it?
A: It isn't as good as the opportunity that dropped in my lap when I got an email from this guy in Nigeria.
It seems his father-in-law was a big shot in some country and needed an American bank account to deposit his money due to political instability over there. I don't know how he found me, but I am sure glad he did. All I have to do is give him my bank account number, and he is going to deposit upwards of $3 million in it. The best part? I get a 10 percent commission for essentially doing nothing.
In all seriousness, I have heard about people playing the Iraqi dinar from a number of different sources, and it has seemed like a waste of time to me. However, a quick search on Google revealed there are a number of websites offering online trading in the thing. The Iraqi dinar? Really? Yes, really.
The only real problem is the IMF has pegged the dinar at 1,169 per dollar, at the Central Bank of Iraq. So there really isn't an accepted, established secondary market for the dinar like there is for the yen or euro or pound, making it difficult to convert it into other currencies outside of the country. Further, from what I can tell, the black market rate for the dinar is around 1,200 per dollar, which suggests the locals are cool with the current value.
So this looks pretty suspicious: 1) no established market, and; 2) not readily convertible and; 3) black market rate is roughly the peg rate, and actually a little bit cheaper. Add them up, and I am not so certain I see the fascination.
Then there is the simple fact the Iraqi economy is virtually non-existent outside of the oil industry. Couple this with a local government which is heavily reliant on foreign aid for its functioning and existence, and I don't see a miracle growth story here. I could be wrong, but Iraq has been an economic basket case since the Iran-Iraq War in the early 1980s, and the first Gulf War was its death knell.
OK, there is a lot of oil over there, but Iraq's trade surplus isn't as large as you might think, since it has to import virtually everything else. Also, what do you think Iraqis are going to do with their dinars once a real market for it exists outside of Iraq? Do you think they might want to get their money out of there? Get some dollars or just about anything else? I would imagine so.
As such, yes, Iraq has a trade surplus, but it also has a budget deficit which dwarfs it. Hmm. An inefficient, poorly diversified economy, a modest trade surplus, questionable rule of law and a pretty massive budget deficit? That sounds a lot like Venezuela's situation, without the boisterous leader, and its currency has been under constant attack since 1983.
So, is buying the Iraqi dinar a good bet? Surprisingly, yeah, if you can get the right price. After all, there is no such thing as a bad security, only a bad price for it. This applies here. Is it a great investment at 1,200 dinar per dollar? Probably not. At 900 dinar per dollar, I would certainly pass. At 2,500 dinar per dollar and above, why not? Can your friend get me that?
If not, I will stay away from it, and keep scanning my inbox for emails from strangers in strange places.
John Norris is managing director of wealth management at Oakworth Capital Bank. He may be contacted via e-mail at [email protected]