US investors latch on to Iraqi dinar

Reuters/New York

The US stock market almost wiped out his retirement account, but retired pilot Ronald Scarpa hasn’t lost his taste for risk. Lately he has turned to one of the chanciest investments in the world — the Iraqi dinar.

“It’s not a question of if, but when Iraq revalues its currency,” said Scarpa, who keeps dinars in his retirement account. “The dinar will eventually have substantial value, possibly the highest in the world.”

He’s not alone in risking his money on an investment that can charitably be described as a long-term turnaround project that will pay off only for the extremely patient. Thousands like Scarpa in America are buying the dinar, hoping someday the war-torn nation can revalue a currency worth just a fraction of a penny.

US retail investors’ interest in Iraq’s currency is part of a broad push for investment opportunities that will give some yield. Most of them cite near-zero interest on their US savings and certificates of deposits as a reason for buying dinars and other exotic currencies.

The dinar, worth just a tenth of one US cent, is experiencing additional downward pressure as a result of international economic sanctions imposed on neighboring Iran and Syria.

Also, buying the dinar is a task in and of itself. The currency is only traded in Iraq, so it can only be purchased by US customers through a handful of dealers around the US who get their dinars from Iraqi banks. If a customer wants to sell his dinars, the dealer will only buy it back at a 30% discount — so no quick trades here.

But Scarpa said he is prepared to wait. The country has the second-largest oil reserves in the Middle East and exports 3.4mn barrels of oil per day, making it one of the world’s largest oil producers.

“If the dinar rises to just even a penny, you would have realised a profit of 900%,” he said.

In the last four years, the dinar has barely moved. Since 2008, it has appreciated by just 5% against the dollar.

The old dinar was worth $3.20 before the UN embargo that followed Iraq’s invasion of Kuwait in 1990. By August 2002, the dinar had plummeted to a fraction of a penny.

Speculators are betting that given Iraq’s potential as an oil-driven economy, the dinar could rise to a value of $1 to $3.

“I looked at the risks and I decided that this is not going to bankrupt me,” said 35-year-old Ryan Williams, a former sheriff in Bakersfield, California.

“You invest a couple of hundreds or a couple of thousands of dollars and even if it just appreciated by 10 to 15% a year, that’s still a lot better than investing in certificates of deposits here.”

The Iraqi central bank sells dollars daily at a fixed price of 1,166 dinars through two state-run financial institutions and some private lenders. Those institutions set the market rate through sales to customers. The current market rate is 1,215 dinars to one US dollar.

Hassnain Ali Agha, founder of Las Vegas-based currency dealer Dinar Trade, is the biggest US market-maker in Iraq’s currency. He also sells other exotic currencies such as Afghanistan’s afghani and the Libyan pound.

Revaluation will only happen once the Iraqi government stabilises. Iraq’s central bank hopes to make one dinar equal to $1 at some point through redenomination.