Is the Iraqi Dinar a Wise Investment?

What does it mean to “invest” in the Iraqi dinar? In simple terms, it’s the same as investing in any other currency. You purchase a certain amount of Iraqi dinar (IQD) by paying the respective amount of U.S. dollars (USD).

As with buying stocks, bonds, or other currency, when you invest in dinar, you purchase it at a given price and expect the price to rise. The real question, though, is not can you invest in this particular currency, but should you? While Iraqi dinars could be useful to those living in or near Iraq, there are many reasons to avoid this currency.

Understanding the Iraqi Dinar

Following the 1991 Persian Gulf War, the economy of Iraq suffered under the weight of United Nations sanctions and widespread government corruption. As the government of Saddam Hussein struggled to contain inflation and speculation, the Iraqi dinar fell from its prewar government-set rate of $3 to less than a penny in 1993. By 1994, the inflation rate reached more than 448%.

When the U.S.-led coalition overthrew the Iraqi government in 2003, the old dinars continued to circulate until the interim government launched a new currency the following year. New dinar notes were printed in the United Kingdom and exchanged at par value for Saddam dinars.

The fact that several global powers supported the new government raised hopes that the Iraqi economy would soon turn for the better, especially after the economic isolation that the country suffered through the 1990s. By 2007, the International Monetary Fund (IMF) praised the Iraqi government’s anti-inflation measures, noting that “the Central Bank of Iraq raised its policy interest rates sharply and allowed a gradual appreciation of the dinar.”

As the Iraqi economy began to recover, many speculators began to buy large amounts of Iraqi dinars, expecting the currency to continue to rise. Some pointed to the rise of the Kuwaiti dinar after the Gulf War as evidence that the Iraqi dinar could experience similar success. At the same time, several U.S. regulators warned of scammers selling dinar “investments” for inflated rates and fees.

In late 2020, facing a significant liquidity shortfall exacerbated by plummeting oil prices and the economic impact of the coronavirus pandemic, the Iraqi government announced a devaluation of more than 20% of the Iraqi dinar. The measure resulted in public protests in the already struggling nation.

In January 2024, Iraq banned cash withdrawals and transactions in U.S. dollars. The goals were to reduce misuse of its hard currency reserves in financial crimes and the evasion of U.S. sanctions on Iran, according to a Central Bank of Iraq official, as well as to deemphasize the U.S. dollar that was preferred over the Iraqi dinar in the Iraqi economy.

Advantages and Disadvantages of Investing in the Iraqi Dinar

There are reasons to be optimistic about the future of the Iraqi economy. In 2023 (the latest data available), the country had 11.7% of the world’s oil reserves, providing a strong foundation to rebound and follow the path of its many Middle Eastern counterparts by establishing itself as a stable and developing economy. While this scenario is not unrealistic, it will require significant political reforms to improve the business climate and establish investor confidence.

It is also worth noting that buying dinars is not the best way to bet on Iraq’s economic revival. The Iraqi dinar does not float freely; the exchange rate is fixed by the central bank, meaning that the currency is unlikely to experience rapid appreciation, even if Iraq’s economy does gain traction. In contrast, a more traditional investment vehicle—like Iraqi stocks—could offer returns even if the dinar’s value remains unchanged.

Moreover, legitimate currency trading volume is extremely low. The IQD is not traded on the global forex market, and only a handful of Middle Eastern banks are willing to trade in it. If you want to acquire Iraqi dinars, you can buy them only at select money exchangers, who may or may not be legally registered. These brokers may charge fees of up to 20% for such transactions, significantly eroding the profit potential.

The largest concern, however, is the number of scams and frauds concerning the Iraqi dinar. U.S. state regulators have been warning since as far back as 2011 about currency “brokers” who promise high returns while charging hefty fees for hard-to-sell dinars. This scam proved particularly popular after the 2016 elections, amid rumors that then-President Donald Trump would somehow cause the Iraqi currency to soar. (In January 2016, the dinar was trading at about 1,090 dinars per US$1.)

The Bottom Line

How Iraq, its economy, and hence the forex rate, develop over the long term is a continuing, uncertain bet. If you hold Iraqi dinars and do not live in or near the Middle East, the currency is difficult to trade and cannot earn interest. Although it is possible that the dinar could rise in the distant future, there are many other investments with lower risks and possibly higher rewards. When Iraq’s very survival is at stake, currency revaluation is unlikely to be on the agenda.

In addition, trading forex currencies is always risky, as external factors at international levels are difficult to control or predict. Unless they are trading on regulated markets or through regulated agents, traders and investors should exercise extreme caution when trading exotic currencies like the Iraqi dinar.