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By John Jagerson, analyst at LearningMarkets.com Assume that you are determined to "invest" in dinars despite the shadowy and misleading dealers you will have to work with. You should be aware of the following risks. It is unlikely that you will hear these points from a dealer, but if you are still determined to invest in the dinar, at least you will be more fully informed. Learn more in the Iraqi Dinar video. 1. Liquidity There is currently no active market for dinars. You can buy them but can you sell them? We surveyed several dealers and found that the difference between what you can buy dinars for and what you can sell them for is approximately 20%. This means that the dinar will have to appreciate by at least 20% before you could sell the currency back at break even. It is worth noting that since the new dinar was introduced after the U.S. invasion it has only appreciated about 23% total. 2. Currencies with extremely low values are often demonetized It is quite common for currencies with very low values compared to other base currencies to demonetize their existing hard currency and issue new currency with new values. For example, the Venezuelans, another oil economy, demonetized the bolivar (trading at 2,150 to the USD) in 2008 and allowed currency owners to exchange 1,000 of them for 1 new bolivar. The new bolivar now trades at 2.15 to the USD. This demonetization and revaluation process has been done over and over again in modern history. One of the risks here is the process required to get your hard currency dinars exchanged for potentially a second issue of new dinars at a new value. If there is an extremely illiquid market today there is likely going to be one then as well. It may be something that can only be done in Iraq which could make the process extremely expensive. This is part two in this series of articles. You can find part one of the iraqi dinar scam here. 3. Inflation Currently the Iraqi Central Bank is reporting inflation rates that vary, depending on the month, from -4% to +8%. If the government and economy become more unstable than they are at present, those inflation rates could skyrocket. Hyper-inflation destroys the value of hard currency. By the time the Turkish government revalued in 2008 the lira had inflated to 1.5million lira to the USD. The bottom line is that this is an investment opportunity marketed by unregistered advisors to mostly unsophisticated currency investors. No risks are disclosed and past information is fabricated or modified to make the opportunity look better than it really is. This investment is a gamble at best. Learn more about currency investing through the following links - Trading the U.S. Dollar against a basket of other currencies - How to trade currencies inside an ordinary stock and options account Learning Markets offers daily articles, videos and investing guides---for free---about everything from investing in stocks and options to trading currencies in the forex market and more. Visit LearningMarkets.com to learn more about investing and to interact with other investors just like you. |
