Dinar Revaluation – History
Since the second gulf war began, people from around the world have been waiting with bated breath for the Iraqi dinar revaluation, or RV to occur. A revaluation is simply an appreciation of a currency in relation to major global currencies. During the second Gulf war, the dinar depreciated significantly and many people hoped that once the country regained stability, revaluation of the dinar would occur. While that might have been the case for several years after the war, the dinar has not appreciated as fast as people hoped. The following are factors affecting the Iraqi dinar exchange rate:
1. Excessive Dependence on Oil
Iraq depends almost entirely on the oil industry. In the recent years, 95 percent of the country’s foreign exchange earnings can be attributed to oil exports. 80 percent of the country’s revenue is also from the oil industry. Since oil prices are always fluctuating, the value of the dinar has never really stabilized in the recent decade. Now that Sunni militants have seized control of some oil fields and oil infrastructure, oil production has ceased in some areas. This is a huge setback to the expected dinar revaluation. Perhaps diversification of the economy to reduce dependence on oil might stabilize the Iraqi economy as well as its currency.
Before the first Gulf War, the dinar was much stronger than the dollar. After the initial devaluation, people expected the currency to bounce back. Investors bought the dinar in droves with the expectation of selling it at a profit after revaluation. This is what currency traders normally do. In the case of American traders, they sold their dollars for a lot of dinars with the hope of buying back the US Dollar using fewer dinars. After the Iraqi Dinar Revaluation, speculators expected to get a huge profit. Speculation has a negative effect on currency since a large amount of money is put out of circulation. When investors decide to sell at the same time, inflation occurs and the dinar is devalued. Iraqi dinar news indicate that there are people who still buy Iraqi dinar with the aim of making a profit when it appreciates.
3. Flight of Capital
Flight of capital may occur due to a number of reasons. For one, if a country is given sanctions by the UN, or any of the G8 countries, foreign corporations usually move their funds and investments to other countries. Secondly, war and internal conflicts in a country can force investors to move their funds elsewhere. While some people may profit from conflicts, war is simply not good for business. In Iraq, many foreign companies including those in finance and energy had poured billions of dollars into the country during pacification. Unfortunately, Sunni militants are destabilizing the country forcing foreign corporations to move their capital elsewhere. When capital is moved out of a country, the demand for the local currency reduces significantly. If nobody wants that currency, then it becomes worthless. There seems to be an oversupply of the dinar due to flight of capital, and this has dampened revaluation efforts.
4. General Inflation
There are dozens of economic factors that can cause inflation. When there is inflation, the cost of production increases. This leads to increased consumer prices. Every sector of the economy is affected forcing the central bank to increase the base lending rate. Loans become more expensive and the overall cost of living increases significantly. This also affects the value of the dinar.
Iraqi Dinar RV – What is Money
It is important to note that money is not an asset. It is simply a medium of exchange and a measure of value. Currency depends on acceptance by the local population as well as other countries and international organizations. It can also be devalued by central banks where necessary. That said, currency traders have been making a lot money for decades by simply buying and selling currency. While this type of speculation can be profitable, it is susceptible to a number of risks. Investors should seek to understand an investment properly as well as the associated risks before investing in it. Staying up to date with Iraqi dinar news will help you to pick the right time to sell or buy Iraqi dinar. Knowing the current Iraqi dinar exchange rate is also important for international trade.
So, should we expect an IQD RV anytime soon? Personally, even though I am investing in the currency of Iraq, I don’t see anything happening. I think there are several investments better than currencies. Gold and silver are two, land is another, so keep looking for hard assets to protect your wealth, not fiat currencies.