Lately, Iraq has been in the news for all the wrong reasons. For instance, the IS militants have turned a large chunk of the country into a caliphate and are slaughtering hundreds of innocent civilians. Moreover, there is even talk the country could split into several autonomous regions if not independent states. On the economic front, the Iraqi dinar has become so unpopular with Iraqis most of them now prefer the American dollar, according to Forbes. As a result, this has fueled talk of revaluation of Iraq’s currency. Here is some more information about the dinar rv news:
What Is Currency Revaluation?
Revaluation of a currency is simply the adjustment of a country’s official exchange rate relative to a baseline such as gold or the US dollar. Since this causes a currency to become more expensive in relation to the baseline, its purchasing power also takes a hit. It is worth noting that revaluation and redenomination are two different concepts. The latter concept typically entails dropping of several zeros from a currency’s nominal value while retaining the same purchasing power.
Genesis of The Dinar Revaluation
Before proceeding further, it is probably important to look at the genesis of this currency’s woes. After the first Gulf War, the UN slapped sanctions on Iraq, leading to the drying up of much needed foreign currency. As a result, the Iraq government started printing new notes. This action caused the value of the Iraqi currency to fall to 3,000 dinars to the dollar in 1995. After the second Gulf War, the Coalition Provisional Authority issued new dinar notes and coins. In 2010, the central Bank of Iraq announced that it would redenominate the dinar to make transactions much easier.
At this point, it is worth noting Iraq has six bank note denominations: 50, 250, 1,000, 5,000, 10,000, and 25,000. The aim of the redenomination process was to drop three zeroes from the nominal value of bank notes and retain the actual value of the dinar. However, the Central Bank of Iraq (CBI) did not go through with redenomination as planned. In March 2014, the CBI started issuing new bank notes that have enhanced security features, including scanner readable guarantee threads. Some people have also questioned the role of the International Monetary Fund in Iraq and if it could lead to the revaluation of the dinar. This is because the IMF monitors the finances of Iraq.
Current State of The Dinar
Currently, the dinar is trading at 1163 dinars to the dollar. This is more or less the same as the IMF’s single rate of 1170 dinars per dollar. However, buying the dinar can be difficult because most banks do not offer this currency to customers. In fact, a report published by Fox Business states that most American banks decline to deal with this currency. You have to buy it from third parties at a huge mark¬-up, which can be as high as 20%. The biggest problem with this approach is that some of these so-called “third party dinar exchangers” may be operating legally, which means you could easily lose your money. In fact, two people have filed a lawsuit in a Texas court against four men and the companies they run. The defendants are alleged to have participated in a scam to sell Iraqi dinars. On the back of such lawsuits, you should be very careful when buying/selling dinars.
When Will Revaluation Occur?
While talk about revaluation of the Iraqi dinar has been going on for close to a decade now, the CBI has not yet set a date for the revaluation of the dinar. However, this does not necessarily mean that the revaluation will never occur. According to professor Cory Bunting, director of the Capital Markets Center at the Virginia Commonwealth University in Richmond, Virginia, the Dinar may never revalue to the rate many pundits expect. Nevertheless, the CBI’s actions in recent years have led many to believe a revaluation is imminent.
In most countries, central banks do not normally interfere with currency exchange rates. Instead, the market forces of supply and demand determine exchange rates. This is not the case in Iraq because the CBI controls money supply through regular auctions. A report published in a Middle East e-paper, Al-Monitor, states that the CBI has been selling hard currency to companies, banks, and traders in exchange for evidence of transaction and import receipts. This is to stabilize the exchange rate of the Dinar to the dollar by controlling the amount of USD in circulation.
In theory, this should work like clockwork and keep the value of the dinar stable. However, the CBI stumbled across evidence showing that some parties involved in these “currency auctions” were falsifying their import and transaction receipts. This meant the amount of USD in circulation was higher than the CBI had intended. When these manipulations came to light in early 2013, the value of the dinar to the USD rose sharply. As a result, the CBI instituted new tougher measures to curb the amount of USD in circulation. For instance, all the parties involved in CBI’s currency auctions had to submit their import and transaction receipts to the Ministry of Interior for approval by the criminal division. Additionally, companies and banks with a capital base of less than $400,000 could not take part in these currency auctions.
Understandably, many Iraqis are dissatisfied with a weak dinar because they have to cough up more for the same goods and services. This has led some to call for the revaluation of the dinar and close watch for any new Iraqi dinar news.
How Will The Dinar RV News Affect The Currency Market?
If a revaluation of the Iraqi dinar occurs, it will not have a huge impact on the currency market as a whole because the dinar is not actively traded in the financial markets. Still, even if it were an actively traded currency, its revaluation would not cause much turmoil in the currency market. This is because the average daily turnover in global forex markets is more than $5.3 trillion, according to statistics from the triennial survey carried out by the Bank for International Settlements (BIS). Moreover, the UK forex market alone is worth more than $2.73 trillion. This is more than the entire GDP of Iraq, which means revaluation of the currency would have little or no effect on forex trading. Financial experts believe that only major currencies such as the USD would have an impact on currency markets if revalued.
The potential Effect of Revaluation on People Who Hold The Dinar
Nevertheless, revaluation would have an effect on people who hold the dinar. For example, say you invest $1,000 in Iraqi dinars. At current exchange rates, your investment would be worth 1.163 million dinars. Assuming that the revaluation will peg one Iraqi dinar to one USD, your $1,000 investment would turn into $1.163 million, which is a lot of money. These statistics show that an investment of say $20,000 could turn you into a multi-millionaire overnight. Most people who have invested money in the dinar believe revaluation will occur at some point in the future.
One person who believes this will happen is Ronald Scarpa, a retired pilot who lives in Las Vegas. He believes the Dinar will be one if not the strongest currency in the world within a few years. This is because Iraq has the second-largest reserves of oil in the Middle East. He reckons that even if the value of the Dinar rises by just one penny, he will realize a 900% profit on his investment. Traditional investment vehicles such as bonds, stocks, and even precious metals cannot match this rate of return on investment.
Effect of The Dinar RV News on Investors
After news of the dinar revaluation started making rounds online as well as on traditional media outlets, many people rushed to buy this currency. According to Hassnain Ali Agha, a Las Vegas based currency dealer, he sold more than $577 million worth of Iraqi dinars to American customers in 2011 alone. This is important because the Central Bank of Iraq announced it would redenominate the dinar in 2010. At this point, most people were expecting the CBI to go ahead with a currency revaluation instead of redenomination. Since then, scores of investors have bought the dinar. In fact, professor Bunting reckons that out of 40 trillion dinars in circulation, only about 5 trillion reside in Iraq. The rest are in the hands of investors and currency speculators around the world.
A word of caution
Since most of the traders and merchants who sell the Iraqi dinar are largely unregulated, investors should proceed with care when buying/selling this currency. To ensure you do not lose your money, Forbes recommends reading the prospectus of any dinar currency dealer carefully. In addition, you should request a written statement giving details such as the name of the company selling Dinars, names of its directors, its financials, and trading history. If you cannot get this information, keep your money because you could be dealing with con artists.
In summary, if you intend to invest in the Iraqi dinar, it is wise to follow dinar RV news keenly. Although the CBI has not set a date for the revaluation of this currency, it is likely to happen in the near future. The good news is there are many willing dinar sellers and buyers, according to professor Bunting.