Dinar in Delusion

I was lounging in a Bierstube in Germany with a couple of associates some time ago, when one acquaintance asked the other what he thought was the quickest way to become a millionaire ...

He got an obvious answer: "Change you money into lire."

At the time, he was referring to the Italian currency, and we all had a good laugh about it. Today, it seems, this punch line is being viewed in some quarters as an investment opportunity. The currency being touted, though, is the New Iraqi Dinar.

Once one is made aware of this topic, it doesn't take much of a search engine excursion to see that cyberspace is rife with dinar vendors virtually screaming about the 'opportunity' that this 'undervalued' currency presents. The pitch is simplistic, to say the least: At 0.0007 New Iraqi Dinar to the USA Dollar, and with the huge political and financial investment the Americans are making in Iraq, there is nowhere for the currency to go but up.

I'm not old enough to recall Germans needing a wheelbarrow-load of post-WWI Reichsmarks to buy a loaf of bread, but I've seen the newsreels. Forgive my bias, but even back then, Germany had a far greater economic potential than Iraq does today. The German 'recovery' stage involved a bit of a dictatorship at the first level, and even then, the Reichsmark didn't survive the transition. Neither did the 'New German' Reichsmark, for that matter.

Proponents of an optimistic dinar point to post-invasion Kuwait as a basis for their excitement. They're missing the point, though. Kuwait already had a thriving economy before the invasion, and most of it was based upon the revenues generated by oil money that was already in foreign markets. It was a simple matter for those portfolios to be restored.

The key to any investment such as Forex is not in the currency's potential, but in the economy to which it is tied. By that measure, the New Iraqi Dinar is not an investment, it's a pure gamble. And frankly, at this point, it's not a very smart one.

There's an abundance of sage advice on the topic in cyberspace, such as an article at CNN Money, where Senior Editor Walter Updegrave not only underscores the point about economy being the key factor in currency value, he also says, "Given the difficulty of predicting currency movements, I'm not even a big proponent of investing in established currencies like the euro or the yen."

A substantial summary of the current and near-term dinar situation can also be found at my favorite currency exchange rate site, XE.com. Their restrained incredulity at the very prospect of considering a purchase of dinars is quite telling.

Now, if you're looking for a more direct analysis, try this conclusion, in reference to those who advocate investing in Iraqi dinar:

"A bunch of small time financially illiterate currency speculators. I suppose of the 'dot.com boom' day-trading mentality, I find it somewhere between attractive and pitiful their complete cluelessness as to the risks they are running."

The author is Collier Lounsbury, a learned man in the ways of finance who has spent time on assignment in Iraq. His Live Journal includes archived postings that contain strong and substantial comments regarding the dinar. For instance, "I don't see Iraqi currency appreciation of a significant level in the near term - so one has to seriously discount the potential returns. 2-3 years down the road, but in the meantime one has X amount of capital sitting in uninsured money market instruments or cash in a box? I'd rather play with equity that is actually getting to work - but that is a personal prejudice. I can see in that context making some bets on Iraqi stocks - like extreme sports - but frankly given the lack of transparency, my bias would be to control (unless of course we're taking petty amounts, then it's like a lottery ticket, amusement)."

I like a guy who doesn't mince words, and so I'd like to continue quoting Lounsbury:

"It is not investing in Iraq that I am mocking - as anyone delving in this journal would know, I worked on several projects in re direct equity investments in Iraq and am close to people putting real money into private equity vehicles.

"It is rather the giddy lack of realism and cluelessness that dominates the ('Invest in Dinars!' website). Retail investors going into Iraq is simply idiotic. If they want exposure to Iraqi opportunities, a more regulated and marginally safer environment like Jordan would be far more intelligent.

"The majority are looking at this situ through the lens of politics, not rational opportunity analysis."

From my perspective, I draw little distinction between the 'amusement' subtly derided by Lounsbury and 'affluent decadence.' If you have investment funds you can truly afford to either lose or let sit for a long while, do something more socially responsible with it. For example, put it to use in the Iraqi financial market (such as it is) if you're looking for a profit. At least that way, you're providing working capital for someone who is already there and has a vested interest in building long-term prosperity for all involved.

Better yet, realize a more immediate benefit from your money --- like getting a genuine tax deduction --- and donate it to a humanitarian Iraqi cause. Given the daily devastation there, funds you consider disposable will be received as vital and appreciated more than you'll ever know.

During the process of your donation, the conversion rate would, for a short while, make you a dinar millionaire, so you could at least lay a momentary claim to the title. At the same time, the good you'd be doing would also allow you to feel like a millionaire.

You'll be achieving wealth on a higher plane, and that will never be devalued.