The Iraqi Dinar Revaluation Update 2018
The Iraqi currency continues its range-bound valuation of the past several years. It’s value today is approximately 1,191 Iraqi Dinar (IQD) to 1 U.S. dollar. The 10-year range of the Iraqi Dinar to the U.S. dollar is between a high of 1,209, and a low of 1,089. Staying on top of current trends will help you maximize your return if you choose to trade the Iraqi Dinar.
Before a revaluation can occur, political and economic stability must occur in Iraq. There are several signs that Iraq is moving in the right direction.
- On August 10, 2018, the Iraqi election recount was finally completed. This follows a nail biter of an election which took place in May. Now the way is paved for Iraq to form a new government, a major milestone required before a revaluation can take place.
- After several turbulent years following the withdrawal of U.S. troops from Iraq, the position of the United States has improved greatly as they help to improve Iraq’s relations with Saudi Arabia and international banks.
- Polls show the majority of Iraqis seek a government which focuses on the equality of all citizens rather than politicizing and polarizing various groups and religious sects. There is high demand to stamp out corruption and restore faith in a fair and transparent government.
- Iraq’s relationship with Saudi Arabia is greatly improving. Iraq’s top Shia leaders demonstrate and increasing willingness to reach across the aisle and strengthen ties with the Sunni leadership in Saudi Arabia.
- Concerted efforts against ISIS have led to greatly improved security, which has breathed fresh life into commercial and business enterprises.
WHAT IS REVALUATION?
A revaluation is a change in a currency’s official exchange rate. Usually, it’s a change in the exchange rate compared to other major world currencies, but it can also be some other baseline measure, such as the price of gold, oil, or even wage levels in the issuing country.
Revaluation is undertaken by an official authority in a country, which is either the central government, the country’s central bank, or a combination of both. Revaluation can go in different directions, either increasing the value of the currency relative to the baseline or decreasing it. When the value is decreased, this is more typically referred to as devaluation.
Revaluation is a fairly common occurrence, even among major world currencies like the U.S. dollar, the euro, the yen and the British pound. It usually happens on an informal basis. For example, the central bank may increase the value of a currency, usually by increasing interest rates, to attract foreign capital. On the opposite end of the spectrum, they might weaken the currency to increase exports and decrease imports, improving capital inflows into the country.
Formal revaluations do occur, however. These happen in the event of a major change in a country’s circumstances. For example, the U.S. dollar was devalued in 1933. The U.S. government raised the exchange rate from $20.67 per one ounce of gold to $35 per one ounce of gold. This is an example of a devaluation since the price for one ounce of gold increased. The dollar was devalued in an attempt to increase currency supply during the Great Depression.
AN EXAMPLE OF IRAQI DINAR REVALUATION
Revaluations affect much more than the currency being examined. It can also affect the valuation of assets held by foreign companies in that currency.
It’s important to understand that a revaluation affects more than a country’s currency. Along with the change in dollar exchange value, the nation’s assets are also affected. This is of particular interest to foreign parties who own property or other assets within the country. To put it simply: If a nation’s currency doubles in value, then the nation’s assets do as well.
The reverse is true as well. For instance, if a foreign entity purchases a parcel of land for $1 million, and that nation’s currency revalued, then the land would need to be revalued as well.
Let’s create a scenario using Iraq’s Dinar. For the sake of simple math, let’s pretend the current exchange rate is 1 US$ = 1,000 IQD. But what if the Iraqi government changed the exchange rate to 1 US$ = 500 IQD? It would affect the value of the land, increasing the value from $1 million to $2 million. Foreign investors would be smiling since they doubled their money.
Conversely, should a devaluation occur, and the Iraqi government changed the rate of dinars to 1 US$ = 2,000 IQD, then the opposite would happen. The land would drop in value and be worth only $500,000, leaving the foreign investors with a 50% loss.
WHAT SOCIAL, POLITICAL AND ECONOMIC ISSUES CAN TRIGGER A REVALUATION?
The price of oil is notoriously unpredictable and fluctuates dramatically during boom and bust cycles. After years of trending lower, oil prices have risen quite a bit in 2018. The price increase is based on the realization that low oil prices have led to a lack of investment in new oil production, particularly outside the United States.
Oil production is a long-term process. It takes many years to get a known oilfield into production. Exploration for new oil fields takes even longer since it’s often a hit or miss process. With oil floating between $30 and $60 per barrel over past several years, both exploration and new production have been lagging. Consumption, however, has not. Oil use has been growing steadily over the past few years. This has led to a gap between production and consumption that has been steadily narrowing, creating tighter supplies.
While the U.S. has been expanding its production of oil through fracking, other types of oil production, such as drilling for free-flow sources, has slowed down. The depressed price of oil simply hasn’t permitted heavy investment in oil production.
Meanwhile, oil reserves in several major producing countries, including Britain and Mexico, have further reduced the production of free-flowing oil.
In recent months, the price of oil has reflected these fundamental changes. It is now hovering near $70 per barrel, the highest price it’s been in several years. It’s not inconceivable that it will continue to rise in 2018 and into 2019. In fact, production cuts by OPEC are aimed at achieving that exact result. Since OPEC is the primary source of free-flowing oil, production caps have the potential to cause oil prices to rise rapidly.
IRAQI DINAR REVALUATION NEWS AS OF TODAY
When it comes to Iraqi Dinar revaluation news, nothing official has been announced for this year. The Iraqi Central Bank has been running successful auctions of Iraqi Dinar nearly every day, ranging in size between $100 million and $200 million. Clearly, there is strong acceptance of Iraq’s currency among investors, even at its current low valuation rate.
The economic, social and political situations in Iraq largely remain unchanged since 2003. While there has been some stabilization in that time, there is no indication of a formal revaluation.
The latest news related to the Iraqi Dinar is that Iraq has submitted a formal request to become a member of the European Bank for Reconstruction and Development. The European Bank was established in 1991 and made the transition easier for former Soviet Union countries to convert into capitalist economies with free markets.
One factor we are keeping a close eye on is the current exchange rate of the currency. Though the current political situation within Iraq is best described as guardedly stable, the situation is much different in surrounding countries, including oil-producing ones.
Iran is one country receiving a lot of attention right now. President Donald Trump recently pulled the U.S. out of the nuclear deal with Iran, which has created geopolitical uncertainty and opens the potential for a continued rise in tensions between the two countries.
This not only affects the military situation in the Middle East, but also the global oil supply. Iran has oil reserves comparable in size to Iraq. Should those supplies be withdrawn or cut off from the world supply, it could trigger a dramatic rise in the price of oil.
THE CURRENT ECONOMIC STATE OF IRAQ
The value of a nation’s currency is a reflection of the health of the country itself. Iraq is still dealing with the lingering effects of both the Gulf War in 1991 and the U.S. invasion in 2003. The country has been in a political power vacuum ever since and the economy has seen much better days.
Even with the country’s massive oil reserves and production, Iraqi economy hasn’t seen much economic growth, though the situation is slowly improving. Iraq’s borders have been seen as almost imaginary due to domestic factions and foreign powers exploiting the country’s current weaknesses. Fortunately, the recent election and a stronger relationship with Saudi Arabia should bring a much needed dose of balance and stability.
And while many international corporations look to exploit price imbalances between Iraq and their countries, they too prefer a certain level of stability. This is reflected in the currency, which is largely public perception. Both the country and the currency have been under siege for the past 15 years.
Oil production is a long-term process as it takes years to exploit known oil reserves. Exploration for new oil fields takes even longer since it’s often a hit or miss process. Oil consumption, however, has not slowed. Oil use has been growing steadily over the past few years. This has led to a gap between production and consumption that has been steadily narrowing, creating tighter supplies.
Iraq has an estimated 143 billion barrels in oil reserves, giving it the fifth largest such reserves in the world. Meanwhile, production has been running at about 4.5 million barrels per day, placing Iraq behind only Russia, Saudi Arabia, and the United States in terms of world oil production. It is also one of the principal oil exporters in the world.
CLOSING THOUGHTS ON THE IRAQI DINAR REVALUATION UPDATE FOR 2018
It’s impossible to make an exact prediction on whether the Iraqi Dinar will revalue. We always like to remind our readers that everything is speculation when you buy a position in a foreign currency.
You can invest in the Iraqi Dinar through Treasury Vault, buying in 500 or 25,000 note increments. We specialize in the currencies of more than a dozen countries, as well as gold and silver. We even offer self-directed IRAs for your investments.
We will never recommend that you put anything more than a small percentage of your portfolio into any one currency or investment strategy. You should always consult with a professional for specific investment advice, but you should strive to diversify your portfolio and include investments like stocks, bonds, and cash equivalents.
A speculative portfolio allocation, spread between gold, silver, Iraqi Dinar and other currencies, can give your portfolio both greater diversification as well as increased profit potential. This is especially true since 2018 has seen declines in bond prices as well as greater volatility in the stock market.
If you want to stay up to date on Iraqi Dinar revaluation news, check back with our site regularly. As stated earlier, revaluation events take a long time to develop but move at a very fast pace once they do. We’ll keep updating as events unfold, so be sure to check back often.