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SKEPTOID BLOG:

The Ugly Truth About the Iraqi Dinar

by Mike Rothschild

February 10, 2014

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Donate Does it make sense to you than an investment opportunity could pay a 2,750,000% return on what you put in? That for the price of getting your tires rotated, you could buy a new house, and for the price of a new house, you could become a billionaire? Would you believe these claims, or would you run screaming from them? Sadly, these ludicrous, utterly unbelievable returns are exactly what a group of currency brokers are selling to their customers.These customers are, in turn, taking to social media to demand this money from the US government. What's the story with all of it? And how is it actually legal?

Last week, when the phrase "release the RV" began trending on Twitter, I was pretty confused. Was there a recreational vehicle that had been wrongly impounded? What does that even mean?

Then I noticed another unfamiliar trend, the hashtag #wearethepeople. Most of the people using it were clearly new Twitter accounts, as they didn't have avatars and only had a few followers. These are the sure signs of sock puppet spambots. But they were also making references to things like a global currency reset, the International Monetary Fund, sovereign debt and justice for the poor. And most interestingly, they were demanding that the US "release the RV."

Mysterious Twitter accounts acting in unison to promote a shadowy, unknown agenda related to global money and politics? Smells like a conspiracy to me!

Instead, it's something much more common: a decade-long scam. And it has to do with, of all things, the Iraqi dinar. Or more accurately, people who bought Iraqi dinars at incredibly low prices and expect the US government to massively revalue (hence the "RV") them to their pre-Gulf War exchange rate. Unfortunately for dinar buyers, this is almost certainly never going to happen. Or at least not in the way they're demanding it does.

From the time Great Britain took control of Iraq after World War I until the end of the British Mandate in 1932, the country's currency was the Indian rupee. After Iraq gained self-governance, the dinar was introduced. Thanks mostly to Saddam Hussein saying so, it became one of the most valuable currencies in the Middle East, eventually trading at 1 dinar to $3.22 - though only high-level Saddam cronies could get that exchange rate.

Then came the Iraqi invasion of Kuwait, and with it, international sanctions. The dinar plummeted to the point where you could get roughly 3,000 for a dollar. The US removal of Saddam's government brought a little value back to it, but not much. As of this writing, the dinar goes for 1,165 to $1.

Or it would, if anyone conducted international commerce with it. But since the dinar is so worthless, it's not listed on the foreign exchange market (FOREX) and you can't buy or sell them electronically. You can only get them in cash. They have no value outside of Iraq, and very little value IN Iraq. In fact, Iraqis are so distrustful of dinars that they conduct most transaction in cash dollars.

So why would anyone bother buying such a devalued and untrusted currency? Because human nature dictates that any time there's a money-shaped hole in the world, dubious investors and misinformed people looking to get rich quick will step up to fill that hole.

Speculation on Iraqi dinars took off after the first Gulf War, when Kuwait's currency (also called the dinar) crashed, then quickly appreciated back to its previous value. Couldn't the same thing happen with Iraq's currency? Couldn't it also "revalue?" It seemed like a reasonable assumption, given both nations' oil reserves.

And so shortly after the US invasion, an industry was born — selling cash dinars directly from Iraq to American investors, then stoking the hope that they will skyrocket in value. First it was just service members in Iraq buying the currency, but there are now countless brokers on the internet, relentlessly pimping dinars to low-income folks, amateur speculators and retirees gambling on the ultimate lottery ticket.

These companies have names like Dinar Index, Sterling Currency Group, Bet on Iraq and Treasury Vault. They have slick websites, layaway plans and free shipping. And because the currency is marketed as a collectable, they don't have to be licensed by the Treasury Department. They only have to sign a form declaring they are a "money service business." So it's perfectly legal to buy as many dinars as you want. You just need somewhere to store them, and an accountant to help figure out the tax implications of your windfall.

However, the reasons not to buy dinars are still substantial.

Even just the act of buying dinars is a massive rip off, because of the fees charged by the brokers. For example, on Sterling Currency Group's website, you can easily buy one million dinars for the low, low price of $1,100. Of course, at the current exchange rate, one million dinars is actually only worth $859. So you're paying a 22% commission for the privilege of getting unusable cash sent to you. All of the websites I looked at had around the same markup, as did sellers on eBay. And the same markup will be charged to you if you sell them back to the broker — assuming you can.

Which, OF COURSE, you would never do! Because when the RV gets released by those greedy banksters, and the dinar jumps back to its old value (or way past that!), then dinar holders will be rich beyond the dreams of avarice, their thousand dollar investments becoming worth millions with the stroke of a pen. Right?

Not quite.

For one thing, the comparison of the Iraqi dinar to the Kuwaiti dinar might make sense on the surface, but they have little in common. Kuwait is extremely wealthy and stable with a high-functioning government, little circulating currency and a robust economy. Iraq is entirely dependent on oil (which trades in dollars) and is still beset by sectarian violence, massive debt and a primitive banking system. Kuwait's dinar recovered quickly because Kuwait recovered quickly. A decade after Saddam's removal, Iraq shows no signs of being able to support a currency that trades equally with the dollar, and probably won't any time soon. Quite simply, the country has bigger problems.

In fact, the dinar has barely moved since 2009. Revaluation won't change that, because revaluation doesn't simply make money more valuable. What is far more likely to happen in Iraq, as it has with many other countries, is redenomination. This is the process of knocking zeroes off an inflated currency by introducing a new version of it, and revaluing THAT currency. The old is traded in for the new, and everything in the country is re-priced to the new currency.

For example, say I buy 10,000 Skeptoids for one dollar. Then, the Bank of Dunning redenominates its Skeptoids to make them 10 for one dollar. My 10,000 Skeptoids are not suddenly worth 1,000 dollars. Instead, I'd trade my 10,000 Old Skeptoids in for 10 New Skeptoids, which would be worth one dollar. The same amount I paid for them.

Redenomination helps curb inflation, makes currency easier to use and brings prices back into parity with other economies. With Iraq circulating at least 30 trillion cash dinars, and maybe much more, this is a sensible way to restore the population's trust in its money. And if it does happen, the New Dinar (or whatever it's called) might become slightly more valuable over the long term. But it's not going to make shot in the dark speculators filthy rich.

Of course, the dinar pumpers know this. They know there's not going to be a miracle revaluation, neither by the US or anyone else. But the only way to get victims to buy more dinars is to convince them that it's RIGHT AROUND THE CORNER and if they don't BUY MORE DINARS NOW they'll miss it forever. So they stoke the revalue frenzy through message boards, daily conference calls, fake "intel" updates and social media campaigns. All of these endlessly claiming that revaluation and instant wealth are imminent.

They also start rumors. They claim that the US government holds trillions of cash dinars, which it doesn't. They claim that American banks have started trading them, which they haven't. They dredge up quotes from financial gurus declaring that the dinar is an amazing investment, even though nobody has ever said that. They claim Executive Order 13303, issued by President Bush in 2003, allows Americans to invest in the dinar, when it's actually related to protecting oil company investments. They claim all the currencies of the world are going to reset and make everyone rich, which, of course, is ludicrous. And, my personal favorite, they claim that the "wealthy elites" have already exchanged their dinars (because politicians and bankers already bought them and don't want you to know about it) for a "contract rate" of $32 per dinar.

Seriously. $32 per unit of a massively overprinted currency from an unstable country that's currently worth a fraction of a cent.

Anyone who puts the slightest thought into it should realize that a 2,750,000% return on an investment, which the "contract rate" would give, is fantasy land. Even for the dinar to be equal to the dollar would be an increase of over 100,000% in value. And again, Iraq has at least 30 trillion dinars circulating. Revaluing to its pre-Gulf War value would give Iraq a cash circulation worth nearly 100 trillion dollars. The "contract rate" would put that at almost one quadrillion dollars. The US, by comparison has 1.2 trillion in currency circulating.

Does this pass any kind of logical test? Does it make sense to invest one thousand dollars and walk away with thirty million, or even one million? Is it reasonable that Iraq, still struggling and recovering from civil war, could suddenly have many more times in cash than the GDP of the United States? In what universe does that happen?

And if it did, why would brokers sell them for pennies on the dollar? Wouldn't they keep them all and become the wealthiest people on the planet? And wouldn't the massive influx of cash completely destabilize the world's economy?

Fraud notices from federal and state agencies have gone out, and elected officials have warned their constituents not to buy dinars. But the dinar holders just say they're protecting their investment and keeping the little people from instant wealth. Likewise, I can find articles from legitimate financial websites going back nearly a decade saying that the dinar isn't going to revalue any time soon. For example, one piece, an ABC News article from 2006, quotes a dinar holder who claimed to have bought 31 million of them saying that the precious RV was going to happen within a month.

But it didn't happen then, it's not now, and it might not ever. Iraq indefinitely put off a plan to redenominate, and that was in 2012. The dinar remains the financial equivalent of super juice that will cure all your diseases, or that "one weird trick" for losing weight.

It's a magic bullet with no historical or political basis in fact, built on greed, lies and the pernicious false hope of becoming rich.

9/3/14 edit: This week, I took another look at the dinar scam as it relates to the rampage by ISIS through Iraq. Needless to say, things don't look good for the IQD - and the scam has continued unabated.

by Mike Rothschild

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