I was first introduced to the Iraqi dinar scam by a friend of mine who asked me if it was a good investment several years ago. And I’m amazed to see how long it has persisted, not to mention how active the scam is today.
The Iraqi dinar scam disproportionately makes victims of people who don’t have money to lose — including returning servicemen and women — and that’s why I’m passionate about speaking out against it.
How the Iraqi Dinar Scam Works
The scam is basically perpetrated by dinar currency dealers, who work through “promoters” on message boards and through church and social groups to sell physical dinar currency. They promise that the dinar, which currently trades at about 1,200 to the U.S. dollar, will soon be “revalued” to a much higher rate. They usually promise returns of several thousand percent when you buy dinar.
The dealers get away with it because as long as you are not directly promoting the dinar as an investment, the dealers can sell it without it being a registered/regulated security.
The promoters get away with what they do because, as long as you are not selling the dinar, you can pretty much say anything you want about it.
The connections between the dealers and the promoters are usually hidden behind false names and corporate shells.
For example, there is a large dealer here in my local area owned by the wife of a popular dinar promoter who goes by an online pseudonym. Hidden relationships like this are more common in this scam than you might think. Very few have been shut down by the FTC or SEC, and I expect that will remain the case in the future.
Why Is This a Scam?
The underlying premises used by the dealers/promoters to convince inexperienced currency traders that this is a “sure thing” are relatively easy to refute, but victims have to be willing to confirm the facts for themselves.
Here is a brief summary of the lies told by the scammers and why they aren’t true:
Currencies are not stocks: Scammers suggest that because Iraq sits on one of the world’s largest (and easiest-to-access) oil reserves, the dinar will appreciate as they export this commodity. If Iraq were a company and the dinar was a stock this would be true, however, oil exporters work very hard to prevent their currencies from appreciating. There is even an economic problem called “Dutch disease” that describes what happens when a commodity exporter’s currency appreciates in value. The bottom line is that Iraq doesn’t want an appreciating currency because it wouldn’t do the country any good. Iraq wants economic growth, not currency growth. If oil exports increased the value of a currency, why don’t other exporters experience appreciation? Much more often they experience the opposite: devaluation.
You can’t do business internationally with a low exchange rate: The argument that a country can’t do business if its base currency (the dinar) is only worth a fraction of a U.S. penny is a common but absurd argument. In the modern global economy, the decimal place in an exchange rate doesn’t matter. If it did, how could South Korea, Indonesia, Madagascar, or Vietnam be such large exporters of consumer goods? You don’t need to look farther than the tag on your shirt to confirm that each of these exporters, with currency exchange rates lower than the dinar, don’t have any problems exporting goods.
Revaluations like this happened before in Kuwait: There are many legends of investors buying Kuwaiti dinar just after the Iraq invasion in 1990 when physical Kuwaiti dinar was selling for “pennies on the dollar.” Subsequently, the Kuwaiti dinar was brought back up to its pre-invasion value in 1991 to be worth more than the dollar. This comparison sounds compelling … until you realize that most of Kuwait’s wealth was held in the banks (unavailable to Saddam Hussein’s government) and the same government and monetary system was reinstalled within a few months. None of that is true for Iraq. The only thing the current government and dinar of Iraq has in common with the pre-invasion country and currency are the names “Iraq” and “dinar.”
What’s the Harm?
I am often challenged by victims and scammers that investing in the dinar is “just a risk” like any other investment, including stocks. However, saying that the dinar is just a risk like buying stock is like comparing the risk of walking out your front door and walking out the door of an airplane in mid-flight. It is possible that either activity will lead to your death or injury, but one is much, much more likely.
With a scam like this, the risks are always understated or just undisclosed. Here are a few to think about:
Liquidity: There is currently no active market for dinars. You can buy them and sell them through dealers, but the difference between the buy and sell price can be 20% or more. If Iraq redenominates their currency (a common issue with developing economies), then it could be very difficult to exchange those dinar anywhere outside Iraq.
Unregistered investment: The dealer/promoters are only operating legally because of a technicality that allows currency dealers to sell hard currency to individuals without having to be a licensed investment advisor or broker/dealer. They hide their real identities behind pseudonyms and can shut down and restart as easily as you can buy an Internet domain. Victims have no recourse if their “investment” goes bad or they were lied to.
Inflation: Most developing economies suffer from very high inflation, if not hyper-inflation. Iraq is running a very large fiscal deficit and already has been warned by the IMF that at this rate, the deficit will likely lead to economic problems. If the price for Brent-oil drop much further, they won’t be able to support their economy and inflation (already running very high) will ramp up quickly.
The Dinar Trap
For years, I have watched more and more new investors sink money into the Iraqi dinar, then become obsessed with watching for their ship to come in. Many of them wind up not only losing their money, but also their time, marriages and jobs over their obsession with this get-rich-quick scam.
Like all investments, if it sounds too good to be true — it is.
John Jagerson and Wade Hansen are the editors of SlingShot Trader, helping investors capture options profits trading the news by using a proprietary 100% news-driven trading platform that turns event-driven pricing inefficiencies into fast profits. Get in on the next trade and get 1 free month today. New to options and need more personal guidance – try our online options course: Strategic Investing and receive your first two weeks free by clicking here.