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October 15, 2004
[Have an opinion about the issues discussed in this article?
Sound
off in our Discussion Boards.]
By Juliana Gittler,
Stars and Stripes Mideast Edition
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| Staff Sgt. Matthew Gadbois, a Vermont
National Guardsman with the 1st Battalion, 86th Field Artillery
at Camp Victory, Baghdad, shows off his investment in Iraqi
dinars. (Juliana Gittler / S&S) |
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What’s in a dinar?
Iraq’s currency once held sway in
world markets. According to a Library of Congress report,
the Iraqi dinar was once worth as much as $3.39 during the
1970s and remained at nearly that level until the Iran-Iraq
war during the ’80s. Sanctions following the Gulf War caused
the currency to plunge, according to the Central Bank of Iraq.
After Iraq fell in 2003, the currency,
which once included Saddam Hussein’s picture, was changed.
On Oct. 15, 2003, the Coalition Provisional Authority, ?then
in charge, launched a new dinar.
Currently $1 buys 1,460 Iraqi dinars.
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BAGHDAD — In drawers and footlockers, servicemembers in Iraq
are banking on the future by hoarding millions of Iraq’s year- old
currency, the dinar.
Many suspect the dinar’s precipitous drop in the past decade could
mean a huge rebound ahead. Each dinar was once worth a few dollars;
they’re now worth a fraction of a penny apiece.
If post-war Kuwait is any example, they might be right: A Kuwaiti
dinar was valued at a about a dime after the war. Each now brings
in $3.40.
Still, that’s a big gamble, financial experts say. And Iraq is
no Kuwait — a small, politically stable country with massive oil
reserves.
Insurgents, a nascent government and extreme poverty still plague
Iraq.
“If only the country turns around,” said one investor, Staff Sgt.
Matthew Gadbois, a Vermont National Guardsman with the 1st Battalion,
86th Field Artillery at Camp Victory, Baghdad.
“That’s the gamble,” adds another, Sgt. Richard Couture, from the
same unit.
The two, and most soldiers they know, have picked up a few hundred
thousand dinars — equivalent to a couple hundred dollars. They know
others who have bought considerably more.
If the value jumps just a bit — from 1/16th of a penny to 1/8th
of a penny for example, investors double their money. If it jumps
to a few cents, they can start paying off mortgages, the goal for
Gadbois.
He learned of the scheme from a fellow soldier who, he adds, likes
to gamble.
“I was skeptical at first,” Gadbois says. “But it’s like playing
the stock market. If it takes off, great.”
Iraq has a few attributes that make it attractive. The most obvious
is oil, and the fact that it could blossom into a functional country.
Still the government could overspend and weaken the economy despite
its oil. And there’s always inflation to dampen the already low
value.
“While that is a nice idea, soldiers probably shouldn’t be currency
speculators,” said Michael A. Goldstein, associate professor of
finance at Babson College in Massachusetts in an e-mailed statement.
“All sorts of things could happen, especially inflation in dinars.
This is likely a sucker bet — if the major investment banks aren’t
speculating, neither should your average GI.”
He points to the example in Eastern Europe after the Cold
War. Gains in currency value were eroded by inflation as the
country developed.
“One of the easiest ways to finance government expenditures is
just to print more money and spend it. When the government prints
more money, it causes inflation,” he says.
It might also be difficult or expensive to off-load the dinars
down the road. The few banks that buy foreign currency in the States
charge fees for doing so, he says.
Many soldiers recognize the gamble and are prepared to wait years
to see what happens.
“It’s not really a big investment,” says Capt. Scott Moreland,
currently serving with the 1st Battalion, 185th Armor Regiment of
the California National Guard in Camp Scania, Iraq. “Most of us
have thrown a few hundred bucks at it to see what happens. Your
odds are better than they are in Vegas.”
He adds that Department of Defense savings programs are probably
a better bet.
Military investors should note that U.S. customs laws require them
to declare if they bring home more than the equivalent of $10,000
in any currency.
And post offices in theater forbid mailing currency home. But there
is no Department of Defense regulation to stop them, according to
military officials.
The get-rich-quick idea isn’t limited to those serving in Iraq.
On the auction Web site eBay, dinars sell for marginally more than
the going rate. A recent sale collected $75 for 100,000 dinars.
Under the current exchange rate, that amount should cost about $68.
Scores of vendors online have been set up just to sell dinars.
In one case, a million dinars, worth about $685, was on sale for
$895.
One of these sites sums up the efforts in its name: BetOnIraq.com.
Its Web site adds a caveat: “We sell genuine currency that, in
our opinion, stands a good chance of appreciating in value. We can
offer no guarantees of a return on investment.”
Goldstein adds that as a gamble the idea isn’t crazy, but it’s
certainly not a wise investment.
“Short answer — don’t do this with more money than you usually
bet in one evening’s poker game.”
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