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Dinars

Since the beginning of the Iraq War in 2003, speculators have sought to profit by purchasing Iraqi Dinars. Unfortunately, the likelihood of investors seeing any return on their dinars is slim to none. This scam comes in three parts: the hyped returns that play on an investorʹs greed, the deceptive practices of Iraqi Dinar dealers, and the fundamental misunderstanding of international finance. Currently valued around 1,200 dinars to 1 U.S. Dollar, any appreciation in the value of the Iraqi Dinar would theoretically generate profit, but many websites selling Iraqi Dinars boast these returns could reach up to 1000 percent. Investors need to understand these figures for what they are: speculation and hype. Websites selling dinars also exaggerate or misrepresent history as proof that such profits are possible, but history teaches a vastly different lesson. First, the rapid appreciation of any currencyʹs value is extremely rare (the opposite is much more likely), meaning investors should consider this a long‐term gamble not a short‐term guarantee. Second, investors may confuse the appreciation of a currencyʹs value with demonitization, which is the process of governments replacing their old currency with a new currency. While Iraq is not likely to do so again (Iraq demonitized from October 2003 to January 2004), exchanging old currency for new currency still keeps the value in U.S. Dollars roughly the same. So new currencies do not generally indicate a new value. While hard currency scams are not new, the methods have evolved. Currency dealers previously avoided regulation by relying on the currencyʹs numismatic value (treating the currency as a collectorʹs item), now these dealers often register with the U.S. Treasury as a Money Service Business (MSB). An MSB registration is nothing more than a check‐cashier or a money transmitter; it does not reflect any experience in trading currency nor entail any qualifications on the part of the dealer. The reason dealers seek this meaningless registration is to lend legitimacy to their scam and avoid proper regulation, which would entail oversight and require full disclosure be made to investors. Additionally, since no exchange exists for the Iraqi Dinar, dealers can charge whatever they want to sell and buy back the dinars. Investors should fully understand that a small increase in value will not likely be enough to break even after these fees are considered. Worst of all, some websites have even been selling counterfeit dinars. Ultimately, however, the power of hard currency scams come down to a subject most are unfamiliar with: international finance. The market determines currency values based on numerous factors. In the case of Iraq, many of these factors are political and unpredictable, making dinars a risky bet at best. Of all the risks though, inflation is the greatest. As an economy improves, workers find jobs and earn more money, increasing demand and, therefore, prices. As prices rise, the value of the currency falls. Another inflationary pressure may be the Iraqi government itself. As the Iraqi government seeks to improve conditions, it may be tempted to monetize their debt (essentially, print more money) and drive inflation further. Combating inflation is difficult for established governments and economies, let alone one emerging from a dictatorship, a war, and an ongoing insurgency, so even the best scenario of an improved Iraqi economy may not lead to profits for investors in Iraqi Dinars. We may see one day

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