In 1931 the Iraqi dinar was introduced into circulation and was at par with the pound sterling. By late 1989, the official exchange rate was 0.31 dinar for US$1, but the black market rate was about five times higher (at least 1.60 dinars per US$1).Possible future trends of the Iraqi dinar
After the first Gulf War of 1991, the Iraqi government issued a new currency, whilst the original currency became known as the Swiss dinar because it had been printed using Swiss technology - which was no longer available due to sanctions. Very soon therafter,
the Iraqi government disendorsed the old currency (Swiss dinar) and it ceased to be legal tender, but it continued to be used in the Kurdish northern regions.
The post 1991 dinar (sometimes referred to as the Saddam dinar) was very poor quality, printed in almost wild abandon (locally and in China), and subject to forgery.
Not surprisingly the post 1991 dinar declined in value, whilst the Swiss dinar, although effectively not legal tender, more than held its value.
On October 15th 2003 a new national currency, known as the ‘new Iraqi dinar’, replaced the former currency, which consisted of the ‘old dinar’ (post 1991), and the 'swiss dinar' (effectively the original dinar).
The conversion rates for new Iraqi dinars were as follows:
one ‘old dinar’ (post 1991) was exchanged for one new Iraqi dinar.
one ‘swiss dinar' was exchanged for 150 new Iraqi dinars.
The currency exchange was completed on January 15th 2004, at which time the new Iraqi dinar became a single unified currency to be used throughout all of Iraq.
The new currency has a larger number of denominations than the old currency, with 50, 250, 1000, 5000, 10000 and 25000 dinar notes.
There has been a lot of speculation about the new Iraqi dinar being undervalued, especially in view of the country's vast oil and gas reserves. Many cash dinar notes are for sale on the internet, at various marked-up price ranges, and from various eras.
But it is currently illegal to export the new Iraqi dinar. Some people expect its value to return to the days of 1989 (which were essentially the days of the original swiss dinar), citing as examples post
world war II Germany and Japan, and also the short term invasion of Kuwait.
On the other side of the coin, so to speak, there have been 49 countries which have so far removed zeroes from their currency. These include Brazil (who removed 18 zeroes in 6 operations), Argentina (who removed 13 zeroes in 4 operations) and Poland (who removed 4 zeroes in 1 operation).
In particular, Turkey removed six zeroes in January 2005 when they introduced the new Turkish lira (YTL), and nobody became rich because of it. (The old lira had devalued from 14 to 1,500,000 for US$1 over a thirty year period, due to hyperinflation). The old turkish lira (TRL) remained valid alongside the new YTL for one year, and prices were quoted in both units in the shops.
US $1 = 1.48 YTL (new lira) = 1,480,000 TRL (old lira)
Typically these countries use the adjective "new" in order to facilitate the transition, and then eventually omit the word "new" after a while.
One of several ideas put forward for establishing the future value of the dinar is to base it on a basket of three items - the US$, euro, and the price of oil - instead of pegging it to a
particular currency. One scenario is :
1 IDQ = (1/3 of US$) + (1/3 of euro) + (1/100 of oil price) = 1.4 US$ (approx)
The current dinar rate is 1,464 and a rate of close to 1.4 could be achieved if three zeros were removed by introducing a 'newer' new Iraqi dinar in the coming years.
Thereafter the dinar would find its own level within the three constraints of the basket. But of course this is all speculation.
How to open an Iraqi dinar account
It is now possible for a foreigner to open an Iraqi dinar account.
Typically there are two reasons for undertaking this risky venture:
Firstly, if one feels that the value of the dinar will eventually rise, it is no doubt a more viable option to retain the funds in a Bank account, instead of holding onto vast quantities of paper money.
In addition, the Bank's exchange rate is likely to be more favourable than most, if not all, of the internet sites selling cash dinars. Also, if a yet 'newer' dinar were to be introduced in the future, then
having the money already in the Bank would greatly facilitate the change-over.
Secondly, instead of speculating on the value of the dinar, there is an increasing interest in the pending opening of the Iraq Stock Exchange (ISX) to foreigners. By opening a dinar account with Banks which are also
able to make ISX dealings, then one is in a good position for the ISX opening.
How to purchase stock on the Iraq Stock Exchange (ISX)
The Iraq Stock Exchange (known by the common moniker of ISX, and formally the Baghdad Stock Exchange), is a stock exchange in Baghdad, Iraq, and has currently been open to all Iraqi citizens since June 2004.
The ISX operates under the oversight of the Iraq Securities Commission, an independent commission which was modeled after Western-style exchanges.
It is growing rapidly with more than one hundred companies, and currently trades twice weekly ( Monday and Wednesday 10.00am to 12.30 pm local time).
Currently, foreigners are not allowed to purchase stocks on the ISX. Accordingly, stock purchase must be done through a proxy, such that the purchase is not done in your name.
It is probably an understatement to say that this is quite speculative at this stage, and information is scant, but there is an expectation that as foreign investment gradually increases then so to will the
value of the Companies. It would seem imperative that one proceeds with the utmost caution.
It is also possible to issue a stock order and place it on-hold until the Iraq Stock Exchange is open to foreigners.
But the first step is to open an Iraqi Dinar account.