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The Iraqi Dinar Revaluation - a great hedge or another scam?

By Flakpanzer | Beyond Crypto | 25 Feb 2024


Recently I have come some news that an impending change on the valuation of the Iraqi Dinar is around the corner. It currently is trading at a ratio of 1310 Dinars to US$1 as writing and becoming one of the cheapest in the world. But let me try to explain why people are expecting it to happen, and I will let you decide in the end if its something worth looking into or just another scam whose bubble hasn't burst yet.

Iraq as we know was invaded 2 decades ago as part of the so-called war on Terror. We wont delve into the politics of it (as it alone cannot fit in a 5 minute article), as we need to focus on what happened to the IQD. In the post-Hussein Era, Iraq has resumed its sales of Oil, selling it for USD as its primary export. The country on the other hand, imports US$10BN annually.  This has resulted to a lot of the USD notes circulating in the local Iraqi economy, becoming the preferred means of exchange of goods, and also helped in part by the presence of American forces (whose soldiers also have USD on hand).

With this background, the IQD has lost favor even amongst the Iraqi locals. Slipping slowly from a and exchange rate of US$3.39 per IQD (or 0.295 Dinar per USD) to today's whopping  1310 Dinars per USD. This doesn't look right though, as while the country has indeed been through a war and other conflicts for the past decade, it has been rebuilding itself and have also restored its oil output amidst the chaos. But how can a country which has a good oil output, and one of the largest oil reserves (even higher than Kuwait) have its currency being one of the worst? Did they print a lot of it as well, just like the USD?

It turns out it was more due to the fact that there was just so much of the USD within the country that people didn't bother using the local currency at all. But this doesnt mean that the valuation should go up right? There should always be a catalyst. And while there are plenty of reasons why it might, the top 2 reasons that I believe to be the most is: The dropping of the USD in Oil transactions by countries, and the pullout of American forces in Iraq. The lack of US forces doesnt mean they will drop the USD just because the US Forces aren't there anymore, but more of they will likely join BRICS, much easier to do when they dont have Uncle Sam standing guard in their backyard.

One of the unintended side effects of the war in Ukraine was that Russia, and collectively the rest of the world, knew that the use of the greenback for foreign trade can easily be stopped by US sanctions, with choice of imposing that onto another country being at the discretion of the US Government. As expected though, nations under sanctions will find a way, just like a tree forcing its roots around a rock that it encounters in the ground. The trade has to happen - they need to find a way. And now, certain countries are trading oil using their own currency for payments after being forced to abandon the USD, setting off an example that IT IS POSSIBLE, with other countries following suit. There is now a legitimate danger to the USD no longer being the sole reserve currency of the world, a position it has dominated pretty much since the 90s after the cold war had ended. It didnt start overnight - the trend has started pretty much from 2023.

This can also be a scam, and some are claiming it is, having bought IQD back in 2013 under the speculation that it will revaluate. A lot of people are coming forward and saying it is a scam as the currency that they bought only went down in value even further. There are numerous sites you will find, especially in Youtube, where people are claiming that IQD revaluation is just around the corner, always, and yet a decade into the supposed "about to go up" calls, the IQD has stayed pretty much the same.

But then again we have the catalyst today, so my take is there might be something soon. Additionally, if ever the USD should weaken, it is also possible that the value of some Crypto as well will get dragged along by it. Holding alternate currencies (with good fundamentals) is a good way to cover exposure.

I do not believe IQD will return to the previous valuation before the war though, why? Its because there is a lot more of the money supply nowadays compared to before. Of course its not linear and while the volume of the currency is almost 23 times that of pre-war, the country also has a lot of inflation to deal with (reason for them to print more) along with the fact that the country is also buying gold , and being one of the top gold buyers of 2023 So maybe a more conservative approach is 20 IQD per USD should the value of the USD not fall.

What are your thoughts about this? Do you think a revaluation is possible?

Disclaimer: I also hold some IQD just in case.

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