The Iraqi Dinar has been an interesting currency for a long time. Given its very volatile value, investors and professionals have actively discussed it. Over time, it has experienced volatile flows, making it a fascinating study area for scholars interested in international economics, currencies, and Currency politics. In this case study, we will analyze conditions that led to the deterioration of the Iraqi Dinar, related economic factors, and what investors can learn from it.
At the heart of this analysis is the question: Why has the Dinar, the currency of Iraq, suffered a consistent erosion in value, and what awaits the currency in the future?
In blog, you will equip yourself with a comprehensive knowledge of the history of the Iraqi Dinar and its present position in the international and financial market, together with the proper strategies for investment or currency exchange.
Background of the Iraqi Dinar
Before proceeding to the examination of the evaporation of the Dinar’s value, it is appropriate to provide information about the formation of this currency value. Saddam Hussein’s nation once boasted one of the world’s soundest currencies, the Iraqi Dinar, which was established in 1932 after overthrowing the rule of the Indian Rupees and Egyptian Pounds. In the 1980s, the Dinar had some value, especially at the time when the economy of Iraq was relatively stable because of the oil resources.
Nevertheless, due to political crises such as the 1980-1988 Iran—Iraq war, the 1990-1991 Gulf War, and the 2003 invasion of Iraq by the United States, the Saddam Dinar declined. All the aforementioned events helped put pressure on the Dinar’s stability, and as a strategic change in the Iraq political spectrum grew, so also did the poor stability of dinars.
The Fall of the Iraqi Dinar: Key Contributing Factors

1. The 2003 U.S. Invasion and the Fall of Saddam Hussein
   The most pertinent event that contributed to the high decline in the Iraqi Dinar was the 2003 invasion by the United States. After the downfall of Saddam Hussein’s error in the United States, several sectors of Iraq’s economy suffered a major setback. The Dinar has been in circulation for years, but much of its value was lost following the UN-imposed sanctions after Iraq invaded Kuwait in 1990.
   The country’s infrastructure was wrecked, and inflation followed the same suit. The follow-up annexation of power by Saddam Hussein put Iraq in a situation where there was no stability on which appropriate economic policies could be implemented, not to mention the stabilization of the currency. As such, the Dinar lost its first worth as well as its value and destroyed the purchasing power of the African currency against the global markets.
2. Hyperinflation and Economic Instability
   In the years after the invasion, Iraq was plagued by hyperinflation, driven by several factors:
   Lack of Central Bank Control: The onset of the governmental crisis prevented the authority of the Central Bank of Iraq from having strong control over the country’s currency. To cover additional expenditures that accumulated at the government level, too many dinars were produced and put into circulation, and because of this, there were circles of oversupply of money. This caused an awful lot of printing to be done, thus causing a demolition of confidence in the Dinar, which triggered inflation and further weakened the economy. The lack of centralized fiscal discipline leads to the devaluation of the currency into a cycle that the country cannot seem to get away from, destroying the stability of Iraq’s finances.
   Oil Dependency: The major disadvantage of Iraq’s export-based economy is that it depends almost totally on oil prices in the international market. Whenever the price of oil gets low, the revenues acquired reduce, limiting the country’s ability to fund the value of the Dinar. These vulnerabilities arise mainly from the fact that Africa’s oil-exporting countries have made themselves overly dependent on this one commodity as their source of income; it has made fiscal deficits worse and compounded challenges of stabilizing currencies. The country needs to expand its economy to make the Dinar more resistant to fluctuations in the price of oil; thus, the country needs to diversify its economy.
   Political Instability: There are still many factors that are constraining Afghanistan’s economic progress, including political instability and violence, ethnic and sectarian conflicts, insurgent activities, terrorist attacks, and occupations in Iraq, among others. This instability scares investors from other countries away, and they are the people who need to invest in rebuilding infrastructure and the economy. This lack of political integration has a further negative effect on the governance and planning for the domestic economy, which has become an unstable situation that is now reversing not only the Dinar but also the fiscal system of Iraq. Stability is seen as important in enhancing investors’ confidence while solving the frameworks of the economic recovery.
   Weak Financial Institutions: Banks and other financial organizations in Iraq, however, have proved to be very inefficient, corrupt, and not meaningfully advanced in technology, all of which have greatly hampered the country’s/ Iraqi Dinar’s rehabilitation. Most of them have insufficient capital to offer sufficient credit or sufficient capability in risk management and application of contemporary banking solutions, thus vastly under banking the economy and making the populace drastically reliant on cash. This weak institutional framework erodes confidence in the formal financial system and constrains the ability of the Central Bank to implement policies that could help stabilize the Dinar. Economic endurance, investment, and long-term currency stability are inevitable and can be achieved by establishing more financial institutions.
   Consequently, the value of the Iraqi Dinar declined quickly, and Iraqi citizens could hardly afford to buy what we refer to as the basic necessities or even hire some of the basic necessities for survival, such as basic accommodation.
3. Sanctions and Global Isolation
   After the end of July 1990, when Iraq invaded Kuwait, severe international sanctions weighed on Iraq until the regime of Saddam Hussein was toppled. These sanctions caused sizable damage to the economy, particularly in international relations for export and import, mostly in the oil sector. Despite the ability to start restoration work after the invasion, sanctions for a long time influenced the growth of the Iraqi economy and the value of the Iraqi Dinar.
   It was a matter of course that it no longer had any value in the international market because Iraq no longer had it as an internationally convertible currency of account. Hence, the U.S. dollar, together with other currencies, and the Iraqi Dinar were reduced to the periphery of the world economy as the world embraced trade in currencies.
4. Corruption and Mismanagement
   Some of the causes other than political instability that led to the decline of the Iraqi Dinar have something to do with corruption in Iraqi political and financial sectors. After the overthrow of Saddam Hussein, different groups have been struggling to get their hand on Iraq’s oil resources. The issue here is a misuse of these resources, along with corrupt practices that are throttling the nation’s efforts to get its economy on its feet.
   However, uncertainty about the government’s finances, over time, weakened confidence in the Dinar’s role in holding value. As such, people and corporations have begun looking for places to hide their money, using the U.S. dollar or some other stable foreign currency to secure their precious wealth.
5. Ongoing Conflicts and Terrorism
   Other conflicts that add to the demolition of Iraq’s economy include internal disputes within Iraq, including present groups like ISIS. The electrical power that was making Iraq capable of earning its revenue and maintaining a stable currency has been interrupted due to these events. This, we think, is true given the fact that insecurity remained a topical issue, which saw the Dinar’s value decline, not due to a lack of investor confidence but also because foreign investors had no confidence to invest in the country.
   The country’s infrastructure, which had been devastated during the previous conflicts, was repeatedly targeted; thus, it was practically impossible to talk about economic recovery. Lack of control over some important oil areas also affected Iraq’s revenue and, thereby, Iraq’s decline of the Dinar.
   The Current State of the Iraqi Dinar
6. The Dinar Today
   For the past data, the Iraqi Dinar is still in trouble in the financial market system. The Central Bank of Iraq has tried to stabilize the currency by using monetary tools, including controlling the inflation rates and even boosting foreign exchange earnings. The Dinar has regained its pre-2003 value. They include high inflation rates and instabilities of the dollar against the American dollar.
   Nevertheless, the Iraqi government has actually done much in an effort to restore the economy. Oil exports still constitute the main foundation of the economy, and measures toward diversification of the economy have been taken, though not very comprehensive.
7. The Role of the Black Market
   The black market has been one of the leading causes of the continued inflation of Iraq’s economic problems. Iraq has introduced an unofficial exchange rate, which is considerably higher than the official one. As a result of restricted and controlled foreign exchange supplies and suspicion of the stability and value of the Dinar, citizens, businesses, and international investors resort to the loopholes of the black market with better rates. The neutral economic activity drains from the regulated channels, which reduces the Central Bank’s influence over monetary policy and currency stabilization. The second problem in distribution is the creation of instability since people have little to no trust in the Dinar’s stability anymore. She constantly fluctuates between black market rates and fixed official rates.
   Instead, what is observed is this consumption and reliance on black-market exchanges that only serve as a toxic cycle that’s detrimental to Iraq’ economy. Transactions are now transacted out of the official foreign exchange market. Hence, the ability of the Central Bank to direct the amount of money in circulation and foreign exchange reserves is affected, hence reducing the confidence in the Dinar. It also poses problems for the government’s appeal and macroeconomic stability because the spread between the official and black market rates points to the uneasy foundations of the domestic economy. To address this problem, the Integrated Strategy needs to involve actions to rebuild confidence in official financial sources, increase access to foreign exchange for the informal sector, and undertake measures to narrow the official parallel exchange rate differential.
8. Opportunities for Investors
   Even though the Dinar has devalued, some people believe that the Dinar of Iraq could be another pump-and-dump scheme investment. The concept of investing in the Iraqi Dinar is to aim at buying and holding this currency for a long time on the belief that once political instabilities in the region simmer down and Ibrahim initiates the process of reconstructing its economy, the value of the Dinar will crawl up.
   However, such investments are incredibly high-risk. It is important to highlight that Iraqi Dinar can be grown more valuable in the future, therefore the acquisition of such a currency involves high risk, and is largely applicable for people who are willing to take a hand in high risk investments. However, because the stated value of the Dinar has typically fallen in the market its utility for gaining from the appreciation of the value may not be very clear to investors.
   Conclusion
   The Dinar is the official currency of Iraq, and its evolution has been a dynamic and long story with plenty of historical, political, and economic conditions. Beginning from the 2003 invasion of Iraq by the United States right up to the emergence of terrorism and other internal crises, the Dinar has faced a lot of challenges in the past couple of decades. Though the Iraqi government has tried so hard to stabilize its currency, the process of revival is slow and full of risks.
   Specifically, items like the depreciation of Dinar mean that potential investors have to consider a country’s political and economic climate before they invest. The clarion call for people to invest in the Iraqi Dinar should begin by noting the fact that similar to other forms of investment the activity has its own set of risks.
   For further details about currency markets and trading areas, including the Iraqi Dinar and other related items to follow trends and get useful advice, always visit www.dinarit.com. It is highly valuable not to lose the chance to obtain additional information on performed operations with currencies and the possible gains and losses!