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Setting the Record Straight on the Iraqi Dinar

By Sean Hyman   |   Monday, 03 Jan 2011 07:39 AM

Sunday, while I was at church, a guy couldn’t wait to stop me. His relative told him that he needed to buy the Iraqi dinar. He knew I worked in the currency market and so thankfully he consulted me first.

I’m always fascinated by people who don’t know anything about currency investing ... and yet they fall hook, line, and sinker for one of the biggest scams of them all.

Many currency scams out there involve the dinar. That’s because the dinar has huge appeal ... much like a penny stock.

Have you ever seen someone tempted to buy 10,000 shares of a stock that’s worth 10 cents? They say, "Heck if it goes to 20 cents, 50 cents or even a dollar, I’m going to make quite a bit of money on my investment."

While that may be true, people never get rich off of penny stocks. There are many reasons for that. One of them is that many of the biggest institutions are barred from buying stocks below $5 a share.

Another issue is the lack of volume in these stocks. Without the big institutional involvement, these stocks remain dead in the water.

Well, it’s the same way with a currency like the dinar. Everyone seems to think that since Iraq is forming a new government, that its currency is going to soar and investors are going to get rich.

If that were so true, why aren’t the big institutions snapping it up? They aren’t stupid. Why don’t central banks snatch up a lot of it? Heck, if an individual could get rich, a central bank could buy up enough to resolve their country’s deficits. But none of them are snatching it up either. They all know the truth that the naïve don’t know ... it’s never going to skyrocket in price.

Why not? Well, the first point is mentioned above. No big institutions are going to invest in it and that’s what it takes to push up a currency over time. It takes the “big money” being involved.

Secondly, Iraq still lacks political instability and that region will always will have political and economic instability. The big money is never itching to gamble on a region that has continually proven to be unstable.

Thirdly, it’s technically illegal to have the currency outside of Iraq according to the country’s central bank. So there are “importation risks.” FedEx and others are not supposed to deliver it to other countries since it’s illegal to own outside of Iraq.

Fourthly, anyone who is selling it to you is going to price in a huge mark-up that would take an enormous appreciation of the currency to overcome that enormous mark-up. But that’s just when you buy it. Then when you sell it, someone would do the same thing again to you. So the “spread costs” would be simply crazy.

Many of you know that I don’t gamble ... but I’d rather see you go to Las Vegas and gamble away the money you were going to spend on the dinar. At least that way you would have had a thrill and gotten at least that out of it.

So don’t be tempted to buy the dinar from some website, eBay, or anywhere else. You can look on many governmental websites and they will show you that it’s a scam.

Don’t buy penny stocks ... and don’t buy the Iraqi dinar.

Instead, buy “real” currencies that are fully tradable and have the macroeconomics behind them to appreciate over time. Buy ones with sufficient liquidity and small spreads between the buy and sell quotes.

Trust me, there’s a reason why the major currency trading firms of the world don’t trade the dinar. They may trade high-risk, emerging market currencies, but at least those are fully tradable and legal to own and hold.

So don’t fall for all of the “dinar hype” out there. It’s just that — hype!

About the Author: Sean Hyman
Sean Hyman is a member of the Moneynews Financial Brain Trust. Click Here to read more of his articles. He is also the editor of Money Matrix Insider. Discover more by Clicking Here Now.

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Sunday, while I was at church, a guy couldn t wait to stop me. His relative told him that he needed to buy the Iraqi dinar. He knew I worked in the currency market and so thankfully he consulted me first. I m always fascinated by people who don t know anything about...
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