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Friday, December 31, 2010

The Iraqi Dinar: Penny Stock, FOREX Style

Apparently, the new hotness for the get-rich-quick schemes on teh intarwebz is investing in the Iraqi Dinar. A representative web site for this may be found at, say, DinarTRADE[1] - which also offers investments in the Korean Won, the Chinese Yuan, the Vietnamese Dong, and an Afghanistan currency they can't even be bothered to name[2]. For what it's worth, DinarTRADE guarantees that the Dinar they sell "are 100% authentic and of non-criminal origin."[4]
So how does investing in Dinar make you richer than Croesus? Here's how DinarTRADE pitches it: "Picture Iraq as a company selling stock. Each Dinar you purchase represents a share in Iraq's bright future. As Iraq recovers from the removal of Saddam Hussein, and starts rebuilding, the country's infrastructure resumes production. Boasting the 3rd largest oil reserves in the world, Iraq's economy can only improve. The Dinar will appreciate in value as the oil driven economy booms." They then show an approximate exchange rate (as of 12/30/2010) showing $1 = 1168 Iraqi Dinars[5], and then show a chart showing how you can get fabulously wealthy if the value of the Dinar leaps upward to $0.01, $0.10, $0.20, $0.50, and $1.00.
They also, in an attempt to assure you that they are legitimate, give you a link to their registration with the US Treasury. All this means is that they have filed the Registration of Money Services Business form (FinCEN Form 107). A money services business is defined by the Financial Crimes Enforcement Network of the United States Department of the Treasury as "any person doing business, whether or not on a regular basis or as an organized business concern, in one or more of the following capacities:
  1. Currency dealer or exchanger
  2. Check casher
  3. Issuer of traveler's checks, money orders or stored value
  4. Seller or redeemer of traveler's checks, money orders or stored value
  5. Money transmitter
  6. US Postal Service"
Notice that it says nothing about acting as a FOREX solicitor. That's because FinCEN form 107 has nothing to do with FOREX trading. All persons and organizations that intend to do business as futures professionals must, under the Commodity Exchange Act, register with the National Futures Association (NFA). If a group - like DinarTRADE - is only citing their completion of FinCEN form 107 while selling you a story about how you will get rich through investment in Dinars, they are vigorously exploiting a loophole. They are not legitimate Retail Foreign Exchange Dealers.
Now, I could continue to make fun of their web sites and their advertising pitches and the fact that they really aren't what they imply through their ad copies[6]. But really. That's like taking candy from a baby. A small baby. One that hasn't learned to walk, yet. Instead, let's review their claims, which boil down to "if the Iraqi Dinar goes up in value, you will be mad bags of money, filthy disgusting rich!"
Technically, this is true. However, using their own $1 to 1168 IQD figure, buying Iraqi Dinars is something like buying a pink sheet stock trading at $0.0008561 per share. Sure, if it goes up, you stand to get rich. If it goes up. If Iraq doesn't dissolve into civil war. If Iraq doesn't begin to experience massive bouts of hyperinflation. If the United States doesn't just pull out, leaving their infrastructure shattered and their nation vulnerable to attack by Iran. Assuming they don't revalue the Dinar, making the old notes worthless.
Their claims also include a second serious flaw: "Picture Iraq as a company selling stock." This is not actually true. Paper money is constantly being printed, in whatever quantities the government needs, for whatever purposes they want. It would be slightly more accurate (well, slightly less inaccurate) to compare Iraq to a mutual fund company, because Iraq stands ready to constantly issue new shares. But not to redeem existing shares. Or to pay dividends. Or do anything else a mutual fund company would do.
In a nutshell, investing in the Iraqi Dinar is not a guaranteed get-rich scheme. At best, it is to FOREX trading what penny stocks are to equity trading. At worst, it is a scam.
[1] "Investing in your future"
[2] Two things here: first, the Afghanistan currency is the afghani. Second, if your foreign currency supplier can't even tell you the name of the currency, think long and hard about how wise it is to buy from them.[3]
[3] Answer: not very. (And yes, I'm aware that I've footnoted a footnote.)
[4] Well. I feel better now.
[5] Oanda, a real FOREX site, shows the Interbank exchange at 1181.530 Dinar to the dollar for 12/30/2010. So that's a 1.15% premium.
[6] Remember, DinarTRADE isn't the focus of this article. It's a representative sample.


  1. The Iraqi government has come a long way since the overthrow of Saddam back in 2003. With current Iraqi Dinar being stable at 1170 for over a year while all other currencies have been fluctuating up and down, mostly down, as with the U.S. dollar now at lowest exchange rates in decades, you cannot ignore the fact the Iraqi Dinar has been rock solid throughout the economic meltdown of banking in U.S. Dinar Blog

  2. First of all, I can't believe I missed this comment for this long.

    Second, the Iraqi Dinar has not been stable at 1170 Dinar to the US Dollar for "over a year". Taking the date of your post (1/29/2011) and working back a year, we get the following: the Dinar hit a high of 1123.10 to the US Dollar on 10/25/2010, and a low of 1180.09 to the US Dollar on 1/17/2011, This is roughly a 5% swing from low to high. That doesn't really prove anything about whether or not this is a valid investment, just that it hasn't been "stable at 1170 for over a year while all other currencies have been fluctuating up and down".

    Third, your comments really don't have any actual bearing on my original point: investing in Iraqi dinar (or any other similar foreign currency) is the FOREX equivalent of penny stock trading. Investing in Iraqi Dinar (or any other similar foreign currency) by purchasing it from a money services business instead of from a registered Retail Foreign Exchange Dealer is the FOREX equivalent of buying the stock that 50-Cent tweeted about.