Iran’s Role In Iraqi Dinar Devaluation

By Omar al-Shaher for Al-Monitor. Any opinions expressed are those of the author, and do not necessarily reflect the views of Iraq Business News.

There were conflicting accounts of the reasons for the rise in the value of the US dollar against the Iraqi dinar earlier this month. Politicians and economists have said that Iranian companies boosted the value of the dollar against the dinar by entering the Central Bank of Iraq’s (CBI) auction for hard-currency sales and buying large quantities in order to smuggle them into Iran. On the other hand, a former senior official at the CBI said the rise is linked to increased government revenue from oil sales, leading to an increase in government spending.

The weekly bulletin released by the CBI says 1,260 Iraqi dinars are now trading to the dollar, a level not been reached since last year.

A member of the Iraqi parliamentary finance committee said the value of the dollar increased against the dinar because some Iraqi banks have stopped converting dinars to dollars and have sold dollars to exchange companies at prices favorable to the banks.

Hussein al-Yasiri said some banks have stopped selling dollars to regular customers and instead have been selling them to exchange companies. This has prompted Iraqis to buy dollars from the exchange companies at prices favorable to the companies. The exchanges are not subject to government monitoring.

Ahmed al-Alwani, head of the Iraqi parliament’s economic committee, said Iran’s need for hard currency as a result of international sanctions has prompted Iran to mobilize Iraqi partners to help the country get dollars through the CBI auction.

5 Responses to Iran’s Role In Iraqi Dinar Devaluation

  1. Nasab March 21, 2013 at 5:59 pm #

    Iran and Syria were a problem last year and the last CBI administration dealt with it by stabilizing the exchange rate at below USD/IQD 1200 around end of last 2012.

    This year we have a new administration that has no monetary policy expertise trying to manage the exchange rate auction.

    The reason why the exchange rate is now USD/IQD 1260 is simply because the Acting governor Abdel Basit Turki Saeed was critized by MP’s/the Media because at daily auction sale, $800 million was sold to participating banks. Normally that should not be a problem, but he had claimed before becoming Acting Governor that $800 million was smuggled every week. Once he became Acting governor people started to realize that nothing had changed, he kept the same policy as the previous administration. So once he was accused of lying in his sept 2012 report, and asked to resign and go back to his real job at the BSA, he started to limit the supply of dollars creating a shortage of dollars in the market.You can see that since mid feb 2013 auction sales fell at about the same time when suspicions were raised about Abdel Basit Turki Saeed. That is why banks are going elsewhere to satisy their demand for dollars.

    This is what happens when the appointment of a central bank head is political.

    Note: People do not exhange dinars for dollars just for import/export. What if you just want transfer some of your savings to another country? Or you want ot buy a real estate outside iraq? You need dollars.

    In normal conditions the Iraqi dinar should go up as the export of oil far outweighs the private sectors activities, ie. the government demand for dinars is far higher than the private sectores demand for dollars.

  2. danny March 29, 2013 at 4:01 pm #

    Is the IQD going to increase in value and go back to what it was pre the war?

  3. Barry March 30, 2013 at 9:45 pm #

    danny – “Is the IQD going to increase in value and go back to what it was pre the war?”

    Not in the “turn $1,000 into $1m!” get-rich-quick mis-selling “RV” scam sense that certain Western Dinar conmen have been pumping. It wasn’t the war that reduced the Dinar’s value, it was ordinary inflation (under sanctions). The Dinar was well under 1000:1 even back in 1995 (8 years before we invaded). They printed an enormous amount of money, and the Dinar fell (as all currencies do when you print 1,000x more money).

    Beware of certain scammers here (and elsewhere) claiming the Dinar will “leap up 99,000% in value vs the $” and that “anyone who bought $1,000 worth of Dinar will become a millionaire”. It’s both a mathematical impossibility and economic nonsense that’s been debunked many times over.

    If the Dinar magically became 1,000x more valuable vs every other currency on Earth, then the price of Iraqi goods would cost 1,000x more to export / 1,000x more expensive for non-Iraqi’s to import, and Iraq’s export-based economy would collapse overnight. A 1,300 Dinar Iraqi loaf of bread (currently costing $1.11) would end up with a ludicrous international price tag of $1,110 per loaf! The “RV” is just junk economics promoted by a few conmen who’ve made millions in ripoff USD > IQD exchange fees and spun a string of empty promises & pack of lies to well-meaning people who do not really understand how currencies work and rely on “faith” and fabricated “secret intel” conspiracies, rather than facts of how currency redenominations actually work in the real world.

    What Iraq are genuinely planning (and have been planning all along) is a 3-zero redenomination (“lop”). When they eventually get round to it, they will exchange the current notes 1:1000 for newer ones denominated 1,000x lower, which will reduce Iraq’s money supply by 1,000x which will increase its international value by the same.

    So basically, each 25,000 Dinar note will be exchanged for one 25 New Dinar (10,000 current Dinar for 10 new Dinar, etc) that will have a 1,000x higher value (both will still be worth about $21.50). So for $1,000 worth of Dinar : instead of having 1,000,000 Dinar at current 1165:1 rate vs the $, it would be 1,000 Dinar but at a new 1.165:1 exchange rate vs the $. It all balances out (as it has to).

    Often, smaller current banknotes are replaced with coins of the same value, ie, when 500 / 1,000 current Dinar get changed for 0.50 / 1 redenominated Dinar, then those redenominated 1 and 0.50 Dinar will be issued as coins rather than notes, ie, you’ll swap current 500 Dinar notes at 1165:1 rate) for 0.50 coins at 1.165:1 rate). They too will be worth exactly the same (approx 43 cents).

    In the long run, there may be a very gradual slow appreciation of 10-20% or so, over the next 2 decades, but you certainly won’t make any profit (let alone a million!) just from changing $1,000 worth of Dinar into $1,000 worth of 3-zero redenominated Dinar, as the process is revenue neutral by design (and is no different to the 80-odd other countries who have been though exactly the same process over the past few decades, including next-door neighbor Turkey (1200000:1 to 1.2:1 in 2005 6-zero lop), occupied Afghanistan (4300:1 to 4.3:1 in 2003 3-zero lop) and oil-rich Venezuela (2,150:1 to 2.15:1 in 2008 3-zero lop)).

    Hope this helps, Danny. Be careful as there are a lot of conmen out there running a get rich quick “RV” scam, and selling Dinar to Westerners at outrageous 20-80% ripoff spreads far higher than is normal of most currencies. The only people profiting from this are those “personalities” and websites selling them (and taking a +20% cut in the process) on the back of manufactured hysteria and empty conspiracies, not those holding them.

  4. Coozbee April 2, 2013 at 10:42 pm #

    I agree Barry. These thieves will have to come up with a New scam or a job, and the job market doesn’t look too good right now. Ask yourself this question? Does ANY company doing business in Iraq accept payment of dinar for any type of purchase or service. The answer is, NO!!!
    Why, because the dinar is worthless and sinking!!! These thieves have stolen from the housing industry, the stock market, the financial collapse, etc. They wait until things get better after a few years, and start all over again. Taking your hard earn money away from you, with some type of scam, or get rich quick idea. Remember, these are PRO
    FESSIONAL thieves, making promises and offers that are unattainable. So, do yourself a favor and run in the opposite direction, when you hear these fabrications that WILL NOT happen. The odds are so high, AGAINST anything like that happening, that you will LOSE any or ALL of your money. I’ve posted on several locations of this website, to keep what you have, and be thankful you didn’t lose it all, like so MANY others have in the past. I’ve been getting a lot of heat and insults from these scammers, because I keep reiterating what is going on with this Dinar scam. If companies in Iraq accepted the dinar as payment, it might work out. But there isn’t any company wanting Iraqi dinar for payment of any kind.

  5. Harrier June 30, 2013 at 7:49 pm #

    I to agree with Barry. It appears the people trying to pump buying the Dinar are either deliberately trying to let the public think “Redenomination” is the same as “reevaluation” of currencies and they post serially on many other websites. I have noticed, one even said after call to prayers, it was being announced that the currency would be re-evaluated. They did not use those exact words, but that was the import they were trying to achieve. The same person posted it on his own website, then on others, and then removed it from his own. It is clear to me, people are deliberately trying to lead ignorant people over the cliff to continue to profit. Most of the people know nothing about currency.