Have you ever heard the term “artificial” in reference to the current value of the Iraqi dinar?  One well-known pumper whose name starts with a P and ends with X and sounds like a city in Arizona refers to the current ratio of 1166 IQD to 1 USD (or $.000857) as the artificial program rate.  Others have stated that the current rate is a placeholder until the real value of the dinar is represented via a revaluation.  Well I’m of the opinion that the current rate is quite real and fully representative of the value of the dinar.

Was the current value of $.000857 just plucked out of thin air?  Why not go with $.001 or $.0009?  One of my readers named DaveD pointed this out recently.

Iraq has $60 Billion in FX reserves. Their M2 is 70 Trillion dinar.
They have stated they want to maintain 100% backing.
Well guess what. 60 billion (dollars) divided by 70 Trillion (dinar) comes out to .000857 or 1166.

Coincidence?  Hardly.  A “dirty float”?  I don’t think so, Tim.  The current value is determined by long accepted principles of economics and currency valuation.  (Actually I ran the latest figures on the money supply and reserves and came up with about 1146:1 which would yield a valuation of $.000872, so there’s your RV right there.  Party hearty everybody!)

The idea that the value of the Iraqi dinar crashed when the US invaded in 2003 is nonsense.  It was already in a hyperinflated state long before 2003 as per the CBI website.  When Coalition forces removed Saddam they replaced the Saddam dinars with the IQD shortly thereafter to indicate an end to the Saddam era and to demonetize the currency held by terrorists.  Since conditions were still less than ideal with the insurgency going on, the currency was still depreciating in value so the existing valuation wasn’t changed when they redenominated in 2004.  Things began to improve in Iraq after the surge in 2007.  That, along with a series of exchange rate adjustments (RVs) from 2006-2009 increased the value of the IQD as they brought inflation under control.

As those adjustments were made IQD speculation took off as investors saw the dinar steadily increasing in value.  Dinar dealers and forums starting sprouting up everywhere and a huge revenue stream was created for Iraq.  Once inflation was reined in however the rate froze.  For three years it held steady at 1170:1 until the current rate was set at 1166:1 back in January.

Usually countries redenominate after a period of hyperinflation comes to an end.  Turkey, Romania, Brazil … etc. all went with a new currency with a more respectable sounding rate that made cash transactions much easier, but not so with Iraq.  Why?  I am of the opinion that the only thing preventing Iraq from redenominating over the past three years is the gravy train provided by dinar speculators.  I would estimate that well over $1 billion USD has found its way into the coffers of the CBI due to speculation in their currency.  Sweet, huh?  Who would want to put an end to that?  Those other nations didn’t have that luxury.

My guess is that Iraq will drag this out until dinar sales have abated to the point where it makes more sense for them to redenominate than to keep their currency in its present hyperinflated state. In the meantime I look for them to continue to bump the value up from time to time.  Last Thursday an article came out saying that Iraq is working toward making the dinar worth 1/10 of a penny at 1000 IQD to 1 USD.  This would perfectly position them to RD and gain parity with the US dollar.