Iraq has a notorious history of chaos and instability. The history of the Iraqi Dinar exchange rate demonstrates the volatility within the nation’s borders over the past 80 years. After several decades of positive economic growth, Saddam Hussein completely toppled the economy of Iraq and the value of its currency. He implemented repressive public policies on the Iraqi people and was openly hostile to the neighboring nations. This created an adverse, long-term effect on the Iraqi Dinar currency with echoes that remain to this day.
THE HISTORY OF THE IRAQI DINAR
The Iraqi dinar replaced the well-established Indian rupee as the official Iraqi currency in 1932. The Iraqi dinar was pegged to the British pound, at par, until the year 1959. The peg was eventually changed to the US. dollar in 1959. They used only the current exchange rate between the pound and the dollar to determine the Dinar’s current value. The foreign currency exchange rate determined one Iraqi dinar to be equal to $2.80 USD. By 1973, the Iraqi Dinar had increased in value to $3.3778 USD, before a small 5 percent devaluation correction to $3.2169 USD. This was the continually stable rate history when pegged to the U.S. dollar until the Gulf War in 1990-91.
The economy in Iraq between 1960 and 1980 was vibrant and growing. The strong Iraqi Dinar value was easily supported by a real GDP growth of about 8 percent and per capita growth of about 4.7 percent. These incredible growth rates supported the high Iraqi dinar exchange rate. Iraq was growing at a rate that was one of the highest in the world at that time. Iraq’s long-term history is one of positive growth, global competition and excellent value for the Iraqi currency.
SADDAM HUSSEIN AND WHAT HE DID TO IRAQ
Saddam Hussein became the president of Iraq on July 16th, 1979. In 1980, Iraq’s economy hit its absolute peak. The value of the Iraqi Dinar had been strong, the economy was growing, and the treasury was overflowing with foreign exchange before Mr. Hussein took office. The beginning of the Iran-Iraq War in 1980 put an abrupt end to that. Chaos took over politically and economically.
Iraq became a debtor country, instead of a creditor. The economy deteriorated. The economic embargo and the Gulf Wars crumbled the infrastructure further. The Iraqi Dinar’s value collapsed. Hyper-inflation set in quickly. The economy worsened day by day. In the year 2000, Iraq’s GDP was less than half of what it was 1980. The per capita GDP, which was $3.985 USD in 1980, plummeted to $1.097 USD in the year 2000.
Most of the industrial base in Iraq had been completely destroyed. Some came under direct attack during the Iran – Iraq War and during the two Gulf Wars. Some had just been neglected so completely for so long that there was no current value in the infrastructure itself. Along with declines in GDP, hyper-inflation, and the currency collapse, there was no foreign investment and a crushing debt burden. Iraq was in serious trouble.
SADDAM HUSSEIN’S DOWNFALL
Soon thereafter were the September 11, 2001 attacks against the United States. Bush administration critics still argue that accusations over the weapons of mass destruction were just a smoke screen. Some say the U.S. was simply determined to remove Mr. Hussein as president of Iraq to reassert American global power. Try as they may, they never could link Mr. Hussein directly to Al Qaeda, Osama bin Laden’s organization.
A clan member of Mr. Hussein’s was captured in a raid in a house in Baghdad. He divulged the location where Mr. Hussein could be found in December of 2003. Within hours, American soldiers with tanks, artillery and helicopters surrounded the two farmhouses where he was reported to be hiding. In Operation Red Dawn, they found nothing as they searched the first time. With a more thorough search, they found Mr. Hussein hiding in a hole. Mr. Hussein was finally executed in 2006 after a long trial.
The removal of Mr. Hussein from the presidency in Iraq was a positive turning point for the Iraqi Dinar and the country’s economy. The Iraqi Dinar’s value suffered significantly throughout the Hussein reign. The Dinar’s value had been seriously eroded by hyperinflation. The Central Bank of Iraq (CBI) was instructed to print enormous numbers of banknotes to fund the invasion of Kuwait. After Mr. Hussein was removed from the presidency, even more Dinar notes were printed. They were felt to be necessary in order to maintain the basic money supply. The new leadership literally tried to buy time until the decisions for a new currency could be made, or another currency introduced.
There is also concrete evidence of numerous, large thefts from the country’s banking system during this time. Mr. Hussein, his family and several friends looted vast amounts of wealth from within Iraq. They stole the proceeds from the vast oil revenues, acting as government representatives. Most of these funds were sequestered in secret offshore accounts that are still in the process of being repatriated. This repatriation of lost funds will continue to support the value of the Iraqi Dinar.
Iraq’s economy is rebounding. The lost and stolen funds are being returned. Oil revenues are finally being generated again by Iraq’s oil industry. Saddam Hussein is no longer in power. All of which has fuelled this rebound. It may take some additional time for these factors to be reflected in the official value of the Iraqi Dinar.
THE VALUE OF THE DINAR TODAY
Back in 2003, the official Iraqi Dinar to U.S. dollar exchange rate was set at a fraction of a penny. The Iraqi oil industry was in ruins and had become dormant. Iraq was totally devastated and war-torn. It was reasonable that the currency held little to no value at that time.
Now, 15 years later, the Iraqi oil industry is booming again. The country’s internal economy is on the rebound. The Iraqi citizens are beginning to recover from the ravages of the wars and the reign of terror. There is concern that this foreign exchange rate is artificial and is not a true reflection of the value of the Dinar. With Saddam Hussein no longer directly influencing the economy, Iraq has a healthy oil industry so the economy is growing rapidly once again. Iraq has great future potential.
As the oil field infrastructure in Iraq is restored, Iraq is now able to re-enter the global oil market. At current potential production levels, Iraq should be one of the largest oil suppliers in the world. This could generate over $20 billion in annual revenue very soon. These production figures could double in just under a decade.
PERHAPS THE GREATEST THREAT – ISIS
ISIS could still be the single greatest threat to Iraq. The government is strengthening ties with allies to gain momentum against these militants. Iraq has increased their involvement against ISIS by joining with Syria, which could possibly mean the U.S. would be working with Iran and Russia.
There are continuing concerns about ISIS, but overall Iraq is doing well politically and economically.
THE IRAQI DINAR’S REAL VALUE
The residual effects of Saddam Hussein’s horrific reign are still keeping the Iraqi Dinar’s value artificially low.
Iraq is basically just an oil producing nation, even at top production. Oil is sold in U.S. dollars all around the world. The rest of the world has absolutely no need for Iraqi Dinars, only a need for Iraqi oil.
THE FUTURE OF THE IRAQI DINAR AND THE ECONOMY IN IRAQ
Iraq is recovering from the reign of terror that was brought on by Saddam Hussein. The country has rebuilt some of its infrastructure to allow for an exponential growth opportunity in the oil industry. The government of Iraq has a plan to deal with ISIS to create additional financial stability for the nation.
- Stable and Solid Monetary Policy
- Competitive and Progressive Local Finance Sector
- Flexible and Adaptive Organization
- Competent and Skilled Human Resources
- Constructive and Integrated Communication Channels and Business Relationships
“The Central Bank of Iraq must adopt a monetary policy that stabilizes the value of local currency in order to build and preserve a stable financial system to establish and promote a free market economy based on competition, sustainable development, and business opportunities.”
The Central Bank Act – Clause (3)
There are issues that need to be addressed before Iraq can participate normally in the global economy. Iraq needs civil peace and a legitimate government. The Hague and Geneva Convention limits on the restructuring of the economy will need to be followed. Iraq still needs a solid monetary system plus more market-oriented finance and banking systems. The industrial sector must be focused on global best practices paying particular attention to both productivity and to relative prices. Most importantly, Iraq must ensure the new government can not again use oil revenues to reestablish an authoritarian regime.
THE FUTURE OF THE IRAQI DINAR
There are those who claim that the Iraqi Dinar will be one of the highest valued currencies in the world in the next decade. They believe that the increasing oil production will offset the issues outlined above, or that these issues will be resolved. If the previous 10 years’ increase in oil production from 2008 to 2018 are considered, the trajectory certainly suggests this may be so.
FINAL THOUGHTS ON THE IRAQI DINAR
Iraq had a stable history until the year 1980. Before Saddam Hussein’s upset of the economy, the Iraqi Dinar had a stable exchange rate of almost $4.00 USD at its peak. Pegged to either the British Pound or the U.S. dollar, the Iraqi Dinar was completely stable before the chaos of Mr. Hussein began.
From 1980 to 2003, Iraq was terrorized by Saddam Hussein. The citizens were horrifically abused, the economy failed and Hussein stole from the banks. Hyperinflation made the Iraqi Dinar essentially worthless. The infrastructure was demolished by war and then neglected, so the nation’s oil industry was in ruins.
The U.S. invaded Iraq in 2003 and has only recently withdrawn most of the troops. The Iraqi political situation continues to be unstable. The Iraqi Dinar, which is worth just $0.001 U.S. now, experiences continual downward pressure because of the economic sanctions imposed on Syria and Iran. ISIS, Iran and Syria’s contributions to instability in the area are minor in comparison to the American and Russian political interference.
The Kuwaiti Dinar is the world’s highest-valued currency. The political issues in the region that affect Iraq most certainly have some effect on their neighbor, Kuwait. This juxtaposition of the value of the Iraqi currency versus the Kuwaiti Dinar is part of the reason for the current speculation about the reevaluation of Iraq’s currency.
While the Iraqi Dinar is essentially worthless — you can purchase 1,000 for just a single U.S. dollar, making it worth one-tenth of a U.S. cent. Forex Trading speculation has become popular as American investors hope for an Iraqi Dinar revaluation. Forex traders are willing to consider this a long-term investment. With an increase to even a penny, the profit from this reevaluation would be 900 percent.
While the history of the Iraqi Dinar has been pretty rocky in recent years, that situation may be ready to change. And when it does, it might very well turn out to be one of those changes that happen before anyone sees it coming.
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