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DINAR HISTORY

In April 1932 at the end of the British mandate, the Iraqi currency board opened with the launch of the Dinar which was then pegged at par with the British pound and backed by pound reserves. In 1947, the currency board was then replaced by the central bank system with the Dinar quoted at $4.86 dollars to the Dinar. By 1970, the official exchange rate had the Dinar at $2.80 dollars and by 1973 was valued at $3.39 dollars.

By 1982 up until the beginning of the invasion, the official rate devalued by 5 percent to $3.22 dollars to the Dinar. The black market rate was volatile and fluctuated between 1500 to 2000 IQD to the dollar in 2001 which represented a significantly lower valuation than the official rate.

At the height of the Iraq-Iran Was was in 1986 and inflation in Iraq reached 50 percent with black market exchange rates estimated in the range of 500 to 1000 IQD to the dollar.

Historic Black Market Valuations Iraqi Dinar from 1991

Historical black market valuations shortly after the Gulf War in 1991 when the old Dinar collapsed to 7,000 IQD to the dollar and by 1995 the rate had returned to 3000 IQD. In 1996 just before the United Nation’s implemented the oil-for-food program, the IQD had returned to a level of 2400 IQD to the dollar and 1530IQD 1997. In December 1999 it stood at 1910 IQD, December 2002 at 2330 IQD and in April 2003 the Dinar fell to 9000IQD to the dollar.

Valuations Iraqi Dinar Currency from 2003

Iraqi banks were being looted, March-April 2003 traded as low as 4,000 IQD with other reports of trading in the 5000 to 6000 IQD to the dollar level.

The exchange rate of 2000 IQD at the time of Saddam's overthrow in April 2003, July 2003 at 1500, October 15, 2003 at 1970 New Iraqi Dinar to the dollar (currency swap to New Iraqi Dinars from old Dinars) and May 2004 at 1340 to 1660 NID.

During the war in spring 2003, the old Iraqi Dinar brought back memories of its validity as wheelbarrows of paper currency were required to facilitate transactions, the currency almost worthless at that time. In addition, other currencies came into circulation including the Kuwaiti Dinar, the U.S. dollar, the Euro, Syrian pound, gold, and the Jordanian Dinar.
Iraqi Currency Forecast

A much higher standard of living for the Iraqis will take hold and correspondingly stronger exchange values for the NID. The short term may continue to be difficult as exchange values for the NID will be determined by the level of terrorist insurgencies versus the speed of successful redevelopment.
The Future

The challenge for the new government will be to provide stability, peace, growth and then prosperity may follow. The short term outlook will determine Iraq’s political & domestic stability. Further, higher world oil prices over the last 3 years will help to provide hard currency earnings for rebuilding as new oil Iraqi oil production comes online.

A Key Decision

A key decision for the new Iraqi government whether to peg the Iraqi Dinar to a basket of currencies, peg to the price of oil or let the value float on the world market. Currently the value is set to float to a natural market level.

There is great investment speculation in the New Iraqi Dinar by many in the international community as some investors believe what happened to Kuwait during the 1990-91 Iraqi occupation may very well happen to Iraq. Foreign buying of the New Iraqi Dinar is creating pressure as speculators think that the rebuilding of a new Iraqi economy will propel the NID to much stronger valuations.

The Kuwait Comparison

The Kuwaiti Dinar collapsed to below 10 cents to the dollar before rebounding to significantly higher valuations of $2-3 Kuwaiti Dinars to the dollar by the end of the 1990’s, to it's present value of $3.39.

Short to medium term volatility may take place with the expected trial of former dictator Saddam Hussein in the months ahead. The media event may create enthusiasm amongst his supporters thereby potentially increasing the insurgency attacks.

Conclusion

Iraq should be one of the wealthiest nations in the world today with its huge oil reserves if had responsible management, but this has not been the case for decades.

Iraq has had a very turbulent history of government. The ethnic make-up of Iraq consisting of different factions of tribes and cultures similar to Afghanistan makes Iraq a very difficult country to govern. Overall country risk remains very high for Iraq for at least the next 2 to 3 years. However, those willing to invest and gamble now, may be reaping large rewards in the future. 
 

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