What is the Iraqi Dinar (IQD)?
The Iraqi Dinar, also denoted as IQD is the official currencyused in Iraq. It's issued by the Central Bank of Iraq. Each Dinar is divided into 1,000 smaller units, although these smaller units, called "fils," have become practically obsolete due to high inflation since 1990. As of 2022, the exchange rate between the US Dollar and the Iraqi Dinar is approximately 1 US Dollar equals 1,462.5 Iraqi Dinars.
The history of the Iraqi currency is quite interesting. It first appeared on April 1, 1932, replacing the Indian rupee. During World War I, when Iraq was under British control, the Indian rupee was used, and the initial exchange rate was 1 Iraqi Dinar to 11 Indian rupees.
Later, the value of the Iraqi Dinar was pegged to different currencies. It was initially linked to the British Pound until 1959, and then it was tied to the US Dollar, with an exchange rate of 1 Iraqi Dinar to 2.8 US Dollars.
After the Gulf War in 1991, Iraq faced economic sanctions imposed by the United Nations. To cope with the economic challenges, Iraq began printing new, lower-quality banknotes in large quantities. This led to a significant drop in the value of the Dinar.
The previous banknotes remained in circulation and became known as the Swiss Dinarparticularly in the Kurdish region of Iraq.
The new (convertible) IQD came into circulation on October 15, 2003, eventually replacing all the old Dinar and Swiss dinar banknotes that were no longer legal tender.The freshly released Banknotes were similar to the Swiss Dinar, with added security features to protect against counterfeiting.
The banknotes were then experiencing rising demand by overseas investors expecting the currency to increase in value as Iraq's economy started showing signs of recovery.
As we have seen, before 2003, the IQD fell sharply in the parallel market against the dollar due to the ongoing wars and subsequent economic blockades.Nevertheless, after the central bank's independence in 2003, there has been a rising value of the Dinar, which became relatively stable against the dollar.
The Iraqi Dinar and Scams
The dinar investment opportunity fraud has been around for a while and has recently become more widespread. This fake opportunity is displayed as a way to profit from a nearly worthless IQD that promises to appreciate in the future.
Scammers argue that millions of dollars in profits are virtually guaranteed if an investor buys the dinars at today's values (1000 dinars to 1 US Dollar) and later converts the dinars back for dollars later in time once the dinar exchange rate has appreciated.
Below are some fundamental problems associated with the dinar scam that potential buyers should consider before investing in one of the most unstable currency markets in the world.
1. Dinars are sold on misleading hype
The potential value of an investment in dinars is usually displayed with reference to what happened to the Kuwaiti Dinars after the Gulf War and the German Deutschmark following World War 2.
These could be suitable examples, except that none of them was afree-floating currencyat the time. Their value was mostly a function of policy making and currency management, unlike the Dinar.
Moreover, no rational investor would make an investment decision solely based on past data (more than 60 years past).
An economy such as Iraq is more prone to experience a currency crash or international devaluation as compared to drasticreflation.
2. Liquidity
There is currently no active market for dinars. While it is possible to buy them, selling them is not always a straightforward procedure. Several surveys from dealers evinced that the difference between what an individual can buy dinars for and what he can sell them for stood around 20%.
It simply means that the Dinar will need to appreciate by at least 20% before it can be sold back at break even. It's essential to point out that ever since the new Dinar was introduced after the US invasion, it has only appreciated about 23% overall.
3. Inflation
The Iraqi Central Bank reports inflation rates ranging from -4% to +8%. However, in an instance whereby the government and economy become more unstable than they are present, those inflation rates could skyrocket.
This phenomenon can triggerhyperinflation, which eventually shrinks the value of a hard currency.
Future Prediction for Iraqi Dinar 2022 and 2025
Based on the future predictions of the Dinar, it's easier to plan how to buy the Dinar for those interested. Below are some forecasts and analyses that investors can look into before investing.
1. Higher Oil Prices
The value of Iraq's currency highly depends on its oil industry. The good news is that the forecast for Iraq's oil prices in 2022 and further is higher than the estimates for 2020. If those predictions materialize, it will boost the IQD's value in the international market.
2. Potential Oil Reserves
Iraq's economy is experiencing strong growth due to its prominent oil industry. The country is yet to leverage its oil reserves which require exploration. These potential reserves directly impact a probable increase in the value of the Iraqi Dinar.
It is also noteworthy that an array of international companies such as Shell, Exxon Mobil, and Total are ready to invest in Iraq's gas and oil resources.
Iraq is in a favorable position to attract several investors worldwide as long as it keeps unlocking its oil resources. Even today, Iraq is a vital Petroleum exporter to various countries.
The Iraqi Dinar's future predictions reveal a rise in value when the country expands its potential oil sites. Historical patterns also show the immense prospect of Iraq positioning itself as an international energy super-provider.
All these factors can help to raise the value of the Dinar in the coming years.
3. More Reforms
The Iraqi government plans to introduce additional reforms to improve its economy. Successful implementation of these reforms will likely lead to an increase in the value of the Iraqi Dinar.
Reforms primarily focus on Iraq's gas, electricity and oil sectors. Those reforms are expected to yield positive outcomes within the next three or five years. The reforms also suggest a boost in Iraq's oil production following the end of the current OPEC + pact.
The pact ends in April 2022. An increase in oil production in Iraq after this period will automatically increase the Iraqi Dinar's value.
