The Iraqi Dinar Scam
I recently listened an episode of “Rethinking Wealth with Jay Peroni” from FTMDaily where he covered investing in the Iraqi Dinar. The episode can be found here:
I was in Iraq as a Marine infantryman in 2004-5, right after the invasion and shortly after the establishment of something vaguely resembling some kind of government in Iraq, as well as the new currency. I remember many people talking about investing in it – before the Persian Gulf War the exchange rate between the dinar and dollar was anywhere from 3 dollars per 1 dinar or 1:1. After the fall of Saddam, new dinars were issued and the exchange rate was something in the neighborhood of 1 USD per 1200 dinars. Naturally, people looked at this and saw huge upside potential – maybe someday their 1200 dinars purchased for a dollar would go to somewhere near the previous exchange rate, resulting in something like 1000% gains. After all, with all that oil they were sitting on and the fact that it appeared like they could only go uphill from where they were at, the prospect seemed likely and tempting. One gentleman I worked with who bought dinars told me that the ace-in-the-hole for Iraq’s economy was that they were sitting on the world’s largest mercury deposit and once that operation was up and running, the currency would skyrocket. I can’t confirm or deny Iraq’s mercury deposit, but this is what I was told.
Many people I was with talked about investing in dinars and over the course of time I’ve talked to a few civilians that put money into dinars, banking on a rise in value. Although I have a handful of dinars as souvenirs (both old with Saddam and new) laying around, I didn’t purchase any dinars for the sake of an investment and I’m glad I didn’t – I know it was tempting to do so.
Peroni points out that the currency is not convertible – it cannot be exchanged on the market for other currencies. They are only good as currency within Iraq and if you have them in the United States, they’re pretty much only valuable as collector’s items. I will admit that their currency is kind of cool looking, for what that’s worth, but useless for foreign exchange trading. In other words, the people that bought dinars with the intent of exchanging them when they rose in value were sold a lemon, unless they plan on hitting up the bazaar in Baghdad sometime in the near future. I’d also like to point out that Iraq is nowhere near stable and it’s highly likely that they could issue a new currency when/if it becomes convertible. I also think that there might have been some of the same phenomena with penny stocks going on – the arbitrary value assigned to it makes it appear like any change in value will be drastic but in reality the actual value of the stock/currency isn’t magically more likely to jump/fall as dramatically as anything else. What I mean by that is that the currency will go up and down in value just the same as if it were arbitrarily priced at 130, 13 or 1.3 dinars per US dollar – the fundamentals do not change simply based on the price alone. I guess it goes to show that sometimes if it sounds too good to be true, it probably is.
It’s been about seven years since I was in Iraq, but occasionally the Iraqi dinar will cross my mind and I’ll briefly wonder what happened with it as an investment and the thought will leave my head as quick as it came in. I’ve put out a few feelers on Facebook to see if any of the other Marines I was deployed with on Facebook had any updates on how that was working out for them, but I never had any good responses. Fortunately, I don’t think that many of the Marines in my unit put any sizable sums of money into the dinar.
Peroni stated that the current exchange rate is somewhere in the neighborhood of 1400 dinar per US dollar. When I was over there, it was in the neighborhood of 1300 per dollar, so I’m a little surprised to see it dropped in value – I figured it would eventually hover around 1000 dinar per US dollar once things leveled off a bit until they eventually rebased the currency. My unit spent a lot of time on the streets and we would often purchase things in the market with US dollars, usually getting somewhere near the actual exchange rate but the more savvy merchants and currency exchangers knew how to get a little bit of a premium out of the trade (1000-1200 dinar per dollar). Either way, the dollar still went far on the streets of Iraq – a dollar could buy 2-4 packs of cigarettes or a few packaged cakes (I was a big fan of cappuccino flavored ones from Iran) and candy bars or a large bottle of soda. $5 could get you pretty much anything you wanted. Although they would rip you off a little bit here and there, it was kind of hard to really get bent out of shape over it when you took into account the relative poverty of the average Iraqi.
I remember one comical incident where we found a merchant in the town that sold gold – we naively expected that we would be able to get gold at rock-bottom prices but we were shocked when the guy wanted $150 for a gold ring. I believe at the time gold was at $300 per ounce, so it wasn’t priced too far over spot. Robert Kiyosaki describes a similar incident in one of his books when he was in Vietnam trying to buy gold from a North Vietnamese mine at below-spot prices and not understanding the way pricing works on those kinds of things.
Although I didn’t know much about investing then (and I’m still not an expert today by any means), I had enough sense to know that I didn’t like the fundamentals of Iraq’s economy and that’s about the nicest way I could put that. I believe that our leaders had dubious intentions on Iraq, but I believe that most of us at the ground level had good intentions for the people of Iraq. I wish them great success in future endeavors and I think it would’ve been great if both the Iraqis and the American servicemen who put money into the dinar could grow wealth together via this investment, but the dinar as an investment vehicle just wasn’t meant to be.
Interestingly enough, a visit to http://www.dinartrade.com shows the option to purchase dinars, but under the menu of selling dinars you get this:
Dinar Trade Inc. is currently undergoing some major changes never before seen in the market. Soon we will be offering new options for your current and future Iraqi Dinar holdings, along with other investment opportunities in Iraq. We would like to thank all of our loyal customers for their blessings and support during this major transition. We look forward to doing business with you in the near future.
I have a feeling that this page has looked like this for quite some time.