Debunking the dinar

Mar 11, 2012 @ 12:01 am

By Jason Kephart

Over the past 12 months, investors have poured about $3 billion into currency mutual funds, according to Morningstar Inc.

But as eager as U.S. investors are to invest in other currencies, there's one they should steer clear of, said Paul Christopher, chief international investment strategist at Wells Fargo Advisors: the new Iraqi dinar.

In a report published in response to frequent questions, Mr. Christopher attempts to sway financial advisers away from the currency by saying that Iraq still faces an uphill climb to get its internal politics in order before the dinar is likely to see appreciation.

Created in 2004 following the fall of Saddam Hussein's regime, the dinar is unlikely to appreciate versus the dollar, even given the rebuilding going on inside Iraq, Mr. Christopher wrote in the report.

In that sense, Iraq is unlike Germany and Kuwait, which underwent similar currency upheavals following World War II and the first Gulf War, and saw their currencies bounce back, he said.

A more immediate issue for prospective investors: getting one's hands on dinars.

When Nadia Papagiannis, an alternatives analyst at Morningstar Inc., was asked about the dinar's portfolio diversification potential, her first thought was, “Where would you even buy it?”

The dinar is mainly available only in paper form, and most U.S. banks won't buy or sell it.

There are some Internet currency-trading companies that will exchange dinars for dollars, but those are largely unregulated, and there has been more than one case of fraud alleged by investors, Mr. Christopher wrote.

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