Iraqi Dinar Purchases Approved by Israel

An interesting report from ynetnews.com indicates that there is significant enthusiasm in [tag]Israel[/tag] for the investment potential of the [tag]Iraqi dinar[/tag]:

Looking for [tag]investment opportunity[/tag]? Try the Iraqi dinar
by Shlomi Shefer

Despite Trading with the Enemy Act prohibiting trade in enemy currency, finance minister approves trade in Iraqi dinar for another year. Buying Iraqi dinar at unprecedented lows could prove enormously profitable if and when war-torn nation returns to economic prosperity

Despite the Trading with the Enemy Act, which forbids trade in enemy currency, Finance Minister Abraham Hirchson renewed authorization to traffic in the Iraqi dinar for another year this week.

The CashFlow Club Israel, which unites entrepreneurs and investors in various financial sectors, said the extension constitutes an investment opportunity with potential for significant profits.

The guiding principle in the move can be traced back to World War II, when the German mark collapsed. The few people who purchased German currency at its low point and held onto it for a few years were rewarded with astronomical profits when the mark regained strength a few years later.

The same went for the Kuwaiti dinar, which slumped during the Iraqi invasion of the country and soared when the economy restabilized.

The forecast that [tag]Iraq[/tag] will someday return to economic prosperity is based on the nation's tremendous oil reserves.

Bibi okayed trade

After the outbreak of the war in Iraq, the Iraqi dinar plummeted to all time lows. For the sake of comparison, before the war one Iraqi dinar was equal to USD 3. Nowadays, one American dollar is equal to about 1,000 Iraqi dinars. In other words, the value of the dinar plunged over 99 percent. According to historical trends, the purchase of 100,000 dinars for USD 100 could bear significant yields if and when Iraq stabilizes.

The current situation in Iraq precludes electronic [tag]foreign currency trade[/tag] in dinars, and therefore dinar bank notes must be directly purchased and kept. Since the days of the British Mandate, Israeli law prohibits trading with the enemy and bans, among other things, trade in the currency of enemy countries like Iran and Syria.

Until three years ago, Iraq was also on that list. However, since Saddam Hussein's regime was deposed and the United States gained control in Iraq, then-Foreign Minister Benjamin Netanyahu decided to okay trade in the Iraqi dinar.

The go-ahead is only temporary and must be considered for re-approval every 21st of July. This week, despite the war in the north, Hirchson decided to extend the authorization for another year. As a result, the CashFlow Club Israel brought hundreds of millions of [tag]dinars[/tag], in cash, into Israel from Jordan.

After reading this report, it's hard not to wonder whether Israelis - closer to Iraq and with more at stake than most - have a better feel for the investment potential of the Iraqi dinar than we Americans do. Time will tell.

New Iraqi Dinar: Two-Year Review

With any investment, it is important to periodically review performance. This provides a basis for assessing whether the investment is as worthwhile as originally perceived and, also, for making "buy, hold, sell" decisions. [tag]Iraqi dinar[/tag] is unique in that it is not an investment security or currency with a price determined through organized trading. Buying and holding dinar is easy (though dealer pricing varies widely), but selling (for individuals, at least) is presently done through mechanisms like [tag]e-Bay[/tag] rather than a developed exchange market.

Nonetheless, there is [tag]exchange rate[/tag] pricing data available which provides some guidance as to how well the dinar is doing. It also provides rough indication for assessing [tag]investment performance[/tag] if the new Iraqi dinar was traded and exchanged actively.

The following chart was prepared using the average [tag]Interbank[/tag] "ask" price as reported by Oanda.com. The "ask" price is the price at which sellers are willing to sell a currency. The "bid" price is the price at which buyers want to buy a currency. The ask price is always higher than the bid.

According to this data:

• the 6/30/06 price ($1540.70) is 5.52% higher than the price on 7/1/04 ($1460.00). This represents a 2.8% annual rate of gain if the dinar could have been freely exchanged in a market environment at these rates.
• As comparison, the S&P 500 stock index increased from 1128.94 to 1270.20 (12.5%) for the same period.
• the average "ask" price over this 730-day period was 1493.06925
• the highest "bid" price during this same period was1473.8000
• the lowest "bid" price during this same period was1384.7000

Of course, most people who buy Iraqi dinar realize it is long-term (5+ years) prospect. Still, a two-year review provides useful information for buyers (and prospective buyers) to consider.

Investing in the Iraqi Dinar: Expert Opinions

There are a lot of "experts" out there telling people to buy Iraqi dinar. But often these experts are also the people selling dinar. It's relatively easy to find websites selling dinar with their in-house expert painting a seemingly convincing picture as to why Iraqi dinar are a good investment.

But finding truly independent and clear advice from acknowledged personal finance experts is more difficult. Only a few of the best-known personal finance gurus have ventured to express clear opinions on this topic, but the few who have are decidedly negative on the idea:

If you are aware of other experts expressed opinions, please leave a comment and we'll include them.