January 18, 2011

Is Buying 1 Million Iraqi Dinar a Wise Move?

Featuring John A. Nagl

Source: Stars and Stripes

If you don’t like stocks and bonds, you can invest in something safer, like gold. But if commodities aren’t your bag, how about Iraqi dinar? One reader bought 1 million Iraqi dinar in the hopes that the currency will go up so she can exchange the money for dollars and make a profit.

She paid $700 for the currency five years ago and now it’s worth about $850. Is this a wise investment strategy? The Rumor Doctor decided to look into the mysterious world of finance.

Please understand that The Doctor is not a financial adviser, so it would be better if you consulted with an expert w before making a large investment, especially considering The Doctor’s retirement strategy is to spend his final days living in a tree somewhere in the Bahamas.

Buying Iraqi dinar means you run the risk that the Iraqi government could devalue its currency or change to a new form of paper money, said Boris Schlossberg, of the currency trading firm GFT.

“It’s not clear whether her currency could be recognized three or four years down the road,” Schlossberg said. “So there [are] quite a lot of pitfalls with that strategy, but it’s a highly speculative strategy, so that’s the high risk, high reward, so it may work out in fact if everything goes well.”

One thing to keep in mind is that U.S. troops cannot export Iraqi currency, Maj. Rob Philips, a U.S. military spokesman in Iraq, said in an e-mail.

"The potential for internet scams is also a real concern that should not be casually dismissed,” he said.

However, it is possible to get Iraqi dinar elsewhere in the Middle East. The reader bought hers in Kuwait City.

But the question remains: Will the Iraqi economy improve to the point that the dinar goes up in value significantly?

Michael O’Hanlon is in charge of the Brookings Institute’s Iraq Index, which compiles economic and security data on Iraq. He said the Iraqi economy is expected to grow slowly because violence is still too high for most investors.

“I wouldn’t invest a lot of dollars in dinar unless your time horizon is five years or more,” O’Hanlon said in an e-mail.

But even if the Iraqi economy grows, buying Iraqi dinar is not a sound investment, said John Nagl, president of the Center for a New American Security, a Washington think tank.

“Dinars, like any currency, can be counterfeited, stolen, lost, or inflated by the issuing government,” Nagl said in an e-mail. “They don’t pay dividends while you’re holding them, and exchange rates can eat away any gains they make over time.” U.S. troops would be better off investing in something that they don’t have to physically safeguard and which pays a dividend, he said.

THE RUMOR DOCTOR’S DIAGNOSIS: You may make some money from buying Iraqi dinar, but it is far from the safest or the most certain investment you can make. That said, there is no certain path to riches, as evidenced by the fall of Bear Stearns, Lehman Brothers and MC Hammer.



  • John A. Nagl

    Member, CNAS Board of Advisors, Associate Professor of Warfighting Studies at U.S. Army War College

    Dr. John Nagl is the ninth Headmaster of The Haverford School in Haverford, Pennsylvania and a member of the Board of Advisors at the Center for a New American Security. He wa...