The Future of the Iraqi Dinar

 

The political impasse in Iraq has been frustrating for all parties involved, particularly Iraqi citizens. The Iraqi people have been frustrated by the lack of leadership by all sides to come together to form a unified government that will work for the benefit of Iraq as a country. It has been five months since the March 2010 elections were held, a landmark achievement for Iraq. However, no formal government has been established. The deadlock primarily between Nouri al-Maliki and Ayad Allawi as to who will take over the premiership and have the first chance to form a government has stalled all political progress. In addition, there have been some concerns about the stability of Iraq as U.S. troops withdrawal to a non-combat level by the end of August 2010. As Iraq embarks on a new chapter, the Iraqi dinar has been a widely discussed topic.

Many Iraqi dinar speculators have invested in the dinar to take advantage of its historically low value. Currently, the exchange rate according to the Central Bank of Iraq is 1,170 Iraqi dinars to $1. This is in stark contrast to historically high values before the Gulf War of around 1 Iraqi dinar to $3. However, these low values have made the Iraqi dinar an enticing and exciting opportunity. Dinar speculators are looking forward to Iraq stabilizing as a country and waiting for the Iraqi dinar to be on the open market. Currently, Iraqi dinars can only be purchased from private dealers like Dinar Profits since commercial banks have stopped carrying the dinar. Since the dinar is not listed on a foreign exchange, banks do not have an urgency to carry the dinar. Dinar investors are waiting for the dinar to be publicly traded so that market forces will determine the value of the dinar.

So the question is, when will the Iraqi dinar be publicly traded? No one knows exactly when this will happen, however, there are some key events that one can look as indicators. First of all, a formal, stable government needs to be in place. Part of the reason why commercial banks have stopped transactions with the dinar (dinars were last available at commercial banks around 2004-2005) is because of Iraq’s instability as a country. After the fall of Saddam Hussein in 2003, Iraq has been strife with war, violence and insurgency. The war in Iraq has progressed to a point where U.S. troops are pulling out to non-combat levels by the end of August 2010. However, even after the historic elections in March 2003, no government is in place. Without a formal government in place, the banks view the Iraqi dinar as unstable.

In addition, it is yet to be seen how Iraq’s future will be shaped after the U.S. troops pull out. First, when will a government be formed? The next question, might be the most important question – will Iraq be able to protect and secure its borders and infrastructure after U.S. troops leave? There have been concerns that Iraq does not have the man power, resources and training to protect its country in a region littered with missiles and territorial aggression. Forming a government is the first step, but will Iraq be able to support a safe and stable environment for its people to thrive? The value of the Iraqi dinar is directly tied to the strength of Iraq. It will be up to Iraq and the international community to support Iraq in this critical time to provide infrastructure and basic needs for Iraqi citizens and Iraq as a whole to prosper.

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