Iraqi Dinar Exchange Rate and Investment

When one dollar is equal to over a thousand Iraqi Dinars one might experience significant pause as to whether investing in the Dinar is a good idea. The Iraqi Dinar has been valued between approximately 1,150-1,200 per U.S. Dollar since January 2009 despite the significant depreciation of the dollar since then.

What this low fluctuation in the Iraqi Dinar’s value means is either the Iraqi Dinar is being held around this price via monetary policy or that market forces have allowed it to appreciate at a pace similar to the depreciation in the dollar. According to the CIA World Factbook, the former is the case. Either way, the Dinar has not increased in value a great deal for over two years, and therefore does not appear to have provided a fabulous return on investment in that time.

Currencies that are valued via monetary policy are less likely to fluctuate in value. In the case of Iraq, the central bank’s steadying of the Dinar’s valuation beginning January 2009 halted what appeared to be a decline in value. In doing so, the currency maintained its purchasing power but became subject to the Central Bank of Iraq’s decision making processes. In other words, via close oversight by the Iraqi Central Bank, the valuation and hence the return on investment on the Iraqi Dinar would in effect be determined by the decisions made by that bank and investors’ ability to capitalize on price movements within the Dinar’s historical range.

Even if the Iraqi economy improves in terms of Gross Domestic Product, the valuation of the Dinar will not necessarily improve along with it. This is evident in the International Monetary Fund’s account of Iraqi GDP which has shown significant positive growth since 2009.  The U.S. State department claims investment interest in Iraq has improved, and increases in Iraqi oil production have been noted by the Central Intelligence Agency. Moreover, since 90 percent of Iraq’s revenue is based on oil exports according to the CIA, one might suspect under free market conditions the Iraqi Dinar would appreciate in value, but it hasn’t.

In the short-term the Iraqi Dinar may be stable within a range of 100 or so Dinars per the dollar, however the long-term prospects for the economy in general are uncertain. This is especially the case after 25-50 years when Iraq’s  100-200 billion barrels of oil per the U.S. Energy Information Administration are exhausted assuming increases in production from global oil supply that meet global demand. Regardless of what happens to oil revenue and the Iraqi Dinar, the economy of Iraq is still subject to substantial obstacles in infrastructure, education, health care, and regional instability according to the CIA and U.S. State Department. Without substantial improvement to developing these economic essentials the Iraqi economy will be challenged and heavily reliant on the commodities market.

In summary, central banking policy, geo-political instability and national infrastructural challenges make the Iraqi Dinar more of a speculative endeavor with valuation basis more reliant on monetary policy than economic performance unless good reason can be found linking economic performance to changes in the valuation of the Dinar. Even if economic performance is tied to the Dinar’s exchange rate, there is still substantial reason to doubt its appreciation. In light of this, carefully considering investment in the Iraqi Dinar might be well advised. One way to follow the price movement of the Iraqi Dinar is to monitor the auction price rates offered by the Iraqi Central Bank. These auctions sell currency to banks throughout Iraq in effect influencing the value of the currency along with bank reserve requirements and other policies outlined by the Iraqi Central Bank.