Why The Dinar Is Undervalued, And How You Can Profit
The Iraqi Dinar is seriously undervalued. Nowadays, Iraq’s economy is growing at a rapid pace, yet the official exchange for the Dinar is still being artificially maintained at just a fraction of one cent per Dinar.
With oil revenues increasing almost every month, it seems inevitable that the Central Bank of Iraq (CBI) must soon announce a revaluation (RV) to allow the IQD’s value to move upward to its true price level.
While we wait for the RV, let’s take a quick look at why the Dinar is undervalued, and what that means for investors.
Why the Dinar is undervalued
In a nutshell, the Iraqi Dinar is undervalued because the central banking authorities are hesitant to let the currency achieve its full price. The CBI, in coordination with other national government leaders, can easily revalue the Dinar, but they’re being conservative with their monetary policies.
The CBI seems to be afraid that the rapid economic growth won’t continue. After suffering under the Saddam Hussein regime and years of UN-imposed economic sanctions, Iraqi bankers appear to be very cautious in accepting the idea that the country is finally on the road to becoming a regional economic giant.
In any event, the current value of the Dinar doesn’t reflect the economic realities on the ground in Iraq. When the exchange rate of the IQD was originally set at a fraction of a penny in 2003, the country’s economy was in a shambles… The oil industry was stalled, the social-services system was non-existent, and the country had no cash.
Just ten years later, the economic situation has improved dramatically. Oil wells are pumping huge quantities of petroleum to eager buyers, and export revenues are funding a massive building construction boom.
Whatever the CBI’s reasoning for setting the currency exchange so low back in 2003, nowadays the country’s circumstances are remarkably better, yet the Dinar’s value is still low.
The benefits of an undervalued Dinar for investors
The best thing about any undervalued asset is the fact that it’s so cheap for investors… Buying assets which are truly undervalued is an excellent way to earn good profits.
Since the Dinar appears to be valued at a rate far below its inherent worth as suggested by the vibrant Iraqi economy, now may be the best time to buy more, before the price begins to rise.
In fact, even if the price of the Dinar were to drop, savvy investors would continue to buy, firmly convinced that the Iraqi economy is growing so rapidly that the value of the Dinar must rise soon.
Cheaper oil for importing nations
Among other benefits of an undervalued Dinar, countries which buy oil from Iraq and pay by using Dinar currency receive an excellent bargain. Oil-buying nations are happy to pay for oil with Dinars, since the currency is so cheap.
Of course, as Iraq continues to export large quantities monthly, eventually the demand for IQD will push its value upward, regardless of whether the CBI takes action or not. The Iraqi economy is being fueled by petroleum, and the country has such large reserves that it’s almost free for the taking.
Oil-poor Asian countries like China and India need all the Iraqi oil they can get, and the demand is expected to continue for many years into the future. So, the value of the Dinar is likely to rise soon, but for right now the currency is a bargain for eager oil buyers.
When will the Dinar finally be revalued?
The Iraqi Dinar can be revalued anytime the leadership of the Central Bank of Iraq (CBI) shows enough political backbone to take a firm stand on the issue of revaluation (RV).
There are signs that the days of undervaluation may soon be over – For example, Haider al-Abadi, the new Prime Minister, has already signaled his intention to quickly move forward on a broad range of long-awaited reforms. The RV may be among the upcoming changes.
In any event, the country’s economy is growing rapidly because of oil export revenues. Eventually, economic realities will create unstoppable political momentum for RV.
Once revaluation occurs, the economy in Iraq will do even better. And, Dinar investors will rejoice because of the large expected gains.
Why the Dinar is undervalued, and how investors can profit
The Iraqi Dinar is also undervalued because it hasn’t yet been discovered by most investors. Once the herd of mainstream investors notices the Iraqi economy’s success story, demand should push the Dinar price higher. And, the booming economy will eventually move the Dinar to new high levels, based on the nation’s oil wealth.
The undiscovered, undervalued Iraqi Dinar represents a continuing opportunity for currency investors.