Among those buying and holding the Iraqi Dinar currency, some buy for collectible purposes, however more often than not people buy hoping for a revalue or an increase in the value of the currency. They buy hoping to make money off this "investment".
Some point to other "revalues" or "rv's" such as the Kuwaiti Dinar, German Mark, or a host of others. The fact of the matter however, is that none of these currencies actually revalued at a substantially higher rate. This is people mis-interpreting history. In the case of Kuwait it was a loss of consumer confidence and people with Kuwaiti Dinars selling at pennies on the Dollar or in this case pennies on the Dinar. It wasn't a true "revalue" as Iraqi Dinar holders tend to think of one.
A more likely scenario is what's called a redenomination. This is what Mexico did back in 1996, and what a host of other countries have done over the years. Though some may call this a revalue, in fact this is a redenomination, and nobody makes money. If a currency redenominates, you turn in your old bills for a new bill. They knock a few zeroes off, just like people speculate will happen with the Dinar. The key point of this however is that the equivalent value in USD does not change. For example in the case of the Mexican Peso you had 50,000 pesos which was worth about $5. You swap that 50,000 Peso note out for a 50 peso note. The 50 Peso note also has a value of $5. You didn't make any money, you simply swapped out a 50,000 note for a 50 note. It makes more sense to people, it makes commerce easier, but it doesn't make anybody rich.
Take a look at the photo below. Romania did this back in 2005. You'll see the bill is nearly identical, just has a different denomination of 100, instead of 1,000,000. Nobody got rich, people still had the same USD equivlanet of money, just a different denomination bill. When we are trying to make educated guesses or predictions on the future, we often look to the past. It's a sad fact but many Dinar holders are going to be in for a rude surprise if/when this happens with the Iraqi Dinar. This is a much more likely scenario for the Dinar than a revalue as Iraqi Dinar holders often think of it.
On Friday, July 1, 2005 Romania introduced a new redenominated currency. It's called the Leu with the currency symbol "RON". It is valued at 10,000 of the old Lei, who's currency symbol was "ROL". This process is known as redenomination and it started in March of 2005, at which time Romania started a dual-currency display and had all prices displayed in both the new Leu and the old Leu. The new notes and coins of the new Leu became the new legal tender and is the official currency of Romania.
The redenomination or conversion from the old to the new is fairly simple. 10,000 old Lei are replaced by 1 new Leu. Nobody made any profits. The new bill is not worth any more in USD compared to the old bill, it's simply a new denomination to make commerce easier. Turkey also did a similar thing. The new notes circulated alongside the old notes until December 31, 2006 so Romanians had until that point to swap out their old notes for the new notes. In most redenominations, you have a specified period of time to do the exchange, generally 6 months to a year. After that point the old notes are outmoded and become worthless. One unique thing about Romania doing a redenomination is they have stated the old Lei, though not accepted in commerce at businesses, will be exchanged by banks indefinitely. This is not the case however with most redenominations.
The redenomination of Romania represented a symbolic end to transition. I would imagine something similar would happen with the Iraqi Dinar. A redenomination is a much more likely scenario than a revalue in the case of the Iraqi Dinar.
At the time this redenomination was done the Governor of the National Bank of Romania, Mugar Isarescu, stated that the redenomination of the Leu marked a symbolic end of Romania's economic transition from a planned economy under communism, which was overthrown in 1989, to a free market economy.
Though Iraq wasn't a communist country they were a dictatorship and a redenomination for Iraq could represent the transition from that to a true Democracy. At the time Romania also thought this would be paving the way to enter the European Union and get on the Euro. This was expected to happen sometime between 2012 and 2014, though it doesn't look like it will happen as things currently stand.
So what does this mean for the Iraqi Dinar and those holding this speculative "investment"? Could mean a lot could mean nothing. I'm sure the Guru's and Dinar pumpers will say this is nonsense and means nothing for the Dinar, claiming DInar has all this oil and gold under the streets. I'm not saying this is 100% what will happen with Iraq and the Iraqi Dinar. I do however think when trying to predict the future we look to the past and past instances and examples and in most cases as with the Mexican Peso and Romanian Leu, the past shows a redenomination is much more likely than a revalue. There has yet to be anyone be it Gurus, Dealers or Dinar holders who have showed an true example of a past revalue.
What do you think? Leave a comment below...