Speculators hope to cash in on Iraq's new dinar

Notes: Currency experts aren't sold, but some Americans -- on the Net and in Iraq -- think stability will come and make what is now nearly worthless worthwhile.

June 13, 2004|By Scott Shane | Scott Shane,SUN NATIONAL STAFF

Steve Foran headed to Iraq in January for risky but lucrative work as a truck driver, running a fuel tanker on dangerous highways with a soldier riding shotgun and hopes of banking $60,000 or more for the year.

But now he thinks he has found an Iraqi payday that could dwarf his Halliburton contract.

Like thousands of other U.S. contractors and troops -- and stateside Americans drawn by Web pitches from newborn businesses with names like BetOnIraq.com -- Foran is taking a chance on the new Iraqi dinar.

Today, the colorful currency that replaced banknotes bearing the portrait of Saddam Hussein isn't worth much. A dollar will buy about 1,000 dinars -- more if you're in Iraq, fewer if you're sitting safely in the United States.

But next month? Next year? Once Iraq is a stable democracy pumping oil like nobody's business? Who can say what the payoff might be?

"They expect it to hit really big," said Foran, 29, speaking in the confidential tone of the military-base rumor mill working overtime on the future of the dinar. Home in New Jersey for a 10-day rest break, he said he has bought 6 million dinar for "a few grand" and that nearly all his contractor buddies in Iraq have similarly invested.

"If it does like they're saying," Foran said, "there's a lot of people who will leave there as millionaires."

Currency experts are less enthusiastic. The Iraq war has produced its share of desert mirages -- the absence of hoped-for Iraqi masses grateful for liberation, the missing weapons of mass destruction, the oil revenues that were to pay for reconstruction but have not materialized. The dinar boom so eagerly anticipated by Americans in Iraq and at home may be next in line, experts say.

Hitting the wall

"The only thing the Iraqi dinar is likely to hit is a wall," said Steve H. Hanke, professor of applied economics at the Johns Hopkins University and an international authority on currencies and a currency trader.

He said he has been bombarded in recent months with e-mails from people -- many of them contractors or soldiers in Iraq -- seeking his advice on what the dinar will do. For a while, he replied with polite discouragement, but the volume grew too great to bother.

It's impossible to predict the dinar's course with certainty, Hanke said. But the most likely outcome is that a new Iraqi government, faced with crushing debt and ballooning demands, will finance the budget the old-fashioned way: by printing money. That would threaten the currency with collapse, he said.

Foran, like others who are betting on the dinar, is not deterred by such naysaying. He speaks of Iraq's enormous oil reserves, of foreign companies bringing American billions to Iraq and trading them for dinars, of the Bush administration's commitment to supporting the new government.

According to what he is hearing, if the dinar "hits" -- and Foran is thinking that the June 30 date for limited Iraqi sovereignty might be the moment -- he'll be practically a tycoon.

Foran said the word in Iraq is that a dinar could be worth as little as $1 or as much as $4. That's $6 million to $24 million for Stephen Christopher Foran, future man of leisure.

So many contractors in Iraq have joined the dinar chase that Foran is anticipating an unusual complication for Iraqi rebuilding -- an exodus of Americans with newfound dinar-trading fortunes.

"If [contractors] are millionaires, why are they going to stay in a war zone?" he asked, logically enough.

The lure of Iraqi currency might not be obvious when news dispatches from Iraq are replete with accounts of bombs and body counts.

But the dinar craze is not limited to Americans. In Pakistan, the ministry of finance has warned the public against buying dinars, and Pakistani newspapers have carried accounts of unsophisticated purchasers duped by slick traders.

Egyptian authorities have cautioned the public against hoarding what Egyptians call "Bremer dinars," for interim U.S. Administrator L. Paul Bremer III, to distinguish them from the "Saddam dinars" that they replaced starting last fall.

In the first months after U.S. forces took control of Iraq last year, the Coalition Provisional Authority was forced to take the politically embarrassing step of printing more of the old-style banknotes bearing the portrait of the dictator who had just been overthrown.

From September to January, handsome new banknotes, printed in England with the latest anti-counterfeiting features at a cost of $130 million, were flown into the country and distributed to 250 bank branches throughout Iraq. About 10,000 tons of the Hussein-adorned cash was collected and burned.

Bush administration officials promoting their achievements in Iraq often mention the currency swap.

"By all accounts," Treasury Secretary John W. Snow told a congressional committee in March, "the Iraqis have wholeheartedly embraced their new dinars, and confidence in the new currency remains strong."

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