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Is the Iraqi dinar for real? Find out for yourself…

February 3rd, 2012
Talca, Chile

After a week away, I’m really happy to be back down on the farm in Chile. This is one of the most peaceful places I’ve ever been on the planet… and each day, it’s becoming more and more a place where all of the fiat bubble kleptocratic nonsense doesn’t matter in the least.

 Is the Iraqi dinar for real? Find out for yourself...

Central bankers can print all they want, politicians can bicker and spend all they want… down here, it really doesn’t matter. I have more food and water than thousands of people could ever consume, and enough renewable energy resources to power a small city.

More on that soon, let’s move on to this week’s questions. First, Frank asks, “Simon, I know you gave a rare public appearance in the Bahamas earlier this week; can you tell us what your speech was about?”

Sure. BFI Capital Group held an intimate private briefing earlier this week, and they asked me to give the keynote address.  While I almost always turn down speaking requests, I’m glad I made this exception; there were a number of Sovereign Man subscribers in the room, and it was a real pleasure to meet face to face.

As for my remarks, I explained to the audience that what’s happening right now in the west is not new. This is not some apocalyptic, end of the world scenario– imperial collapse has been happening for millenia, from the Macedonians to the Mongolians to the Ming Dynasty.

Empires are born. They rise. They peak. They decline. And they collapse. Big deal. The same thing is happening in the west right now– it’s not new, and we’re not special.

The larger point, is that rational, thinking people need to acknowledge this reality and understand the lessons from history. Collapse of empire is seldom smooth or peaceful. I encouraged everyone in the room to take rational steps based on measured outcomes… and avoid emotional reactions based on fear.

Fortunately there are plenty of good news stories in the world and a multitude of really exciting opportunities. Then we walked through some of my own steps that I’m taking, or have taken… including multiple passports, foreign accounts, and the farm down here in Chile.

I’ll be putting together a video on the topic soon to explain more.

Next, Sarah asks, “Simon, I listened to your recent teleconference about Mongolia banking and brokerages… very insightful, and it seems like a land of real opportunity! My question, though, is about inflation. I’ve read that inflation in Mongolia is quite high. Doesn’t that make the local currency a poor choice to hold?”

Mongolia is definitely a land of tremendous opportunity, and in our recent teleconference, we explained to members a number of different ways to stake your claim in the country, including by opening a bank account there.

As we’ve discussed before, Mongolian bank accounts denominated in the local currency (tugrik) yield up to 14% or more for short-term deposits. In a world full of 0% yields, this is an extraordinary rate.

That being said, there is no asset class or instrument on this planet that carries zero risk and is on a one-way elevator ride up. Is it possible that the tugrik will depreciate against the US dollar?

Certainly. And in the short-term, it’s impossible to predict what will happen. But when you look at the fundamentals, the long-term picture looks very bright.

The biggest thing to keep in mind is that the Mongolian currency is in tight supply, especially compared to dollars, euros, and renminbi. The tugrik market is tiny… and that generally keep speculators away. There is no Goldman Sachs trading desk in Ulan Bator (at least, not yet) speculating writing huge contracts worth hundreds of billions of dollars.

It also means that, as a nation with unimaginable resource wealth and export potential, the relative demand for the Mongolian currency will be extremely high relative to other major currencies.

The tens of billions of dollars flowing into the country should continue to put upward pressure on the currency, and this means a lot more to the tugrik’s trajectory than how much the price of lettuce went up last year.

I have no doubt that Mongolian politicians and central bankers will play games with their money supply just like every other country in the world. But given the absurd amount of resource wealth in Mongolia, it seems implausible that they could screw the tugrik up too badly in the long run.

Ultimately, as with most things in finance these days, it will also depend on Ben Bernanke. If he keeps easing and printing, tangible assets (or paper tied to tangible assets) will likely appreciate. That includes the tugrik, which will become one of the world’s staple commodity currencies down the road.

Next, keeping in line with the currency theme, Mark asks, “Simon, what are your thoughts on the Iraqi Dinar? I have a chance to purchase $3,000,000 worth of dinar for approximately $4,000 USD. Would this be a prudent investment? Thank you for your input, and keep up the great work.”

Are they selling a bridge too?

Look, I know this is a really touchy subject for some folks… there’s a religious fascination with the Iraqi dinar these days. The prevailing rumor is that the Iraqi central bank is going to revalue the dinar 1:1 to the US dollar, making instant millionaires out of anyone holding the old currency.

This is a get rich quick scheme, nothing more. If you have any doubts, I encourage you to take a trip to rural Iraq and spend time with the locals there. They’ll happily sell you their dinars for hard currency. Are they all fools, trading in future millions for a few measly bucks? Or simply realists who recognize a good scam when they see it?

Decide for yourself. But at least do the research.

[Hypothetically, even if anyone holding dinars does become unimaginably wealthy, I should point out that US taxpayers who realize a profit on physical currency get taxed at ordinary rates, not on long-term capital gains. See IRC section 988 for more.]

Last, Chuck asks, “Simon, out of curiosity, do they show NFL games in Chile?”

You bet. In fact I had a bunch of friends over to my home in Santiago a few weeks ago to watch the NFC championship game over pizza and beer. We may do a repeat this Sunday.

About the author: Simon Black is an international investor, entrepreneur, permanent traveler, free man, and founder of Sovereign Man. His free daily e-letter and crash course is about using the experiences from his life and travels to help you achieve more freedom.

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Comments on this entry are closed.

  • Gainsmore

    ..even though the central bank of Iraq has said to the contrary…. and plainly. I find it extremely ironic that on this site above all- there are those that just cant see the reality of a country with the 3rd largest proven oil reserves having a currency worth 1/10th of a penny( to usd) being an undervalued play. Go see Christine LeGarde from the IMF…. and others. Seems like politics has entered the commentary when compared to the Mongolian currency(which again could be a good play…). As far as the tax issues…. well, that’s a good problem to have. Really Simon???

    • Jon Horne

      You are right Gainsmore. The US will be paid for the 1 Trillion Dollars that they spent on the war in Iraq. Just like they got paid for the war in Kuwait. I think that Simon is a smart guy, but in this case I think that he me be acting like a friggin’ idiot.

  • Nickbert

    According to media in Mongolia, inflation is swinging quite a bit, anywhere from around 8 percent to 13 percent (more recently to the high side).  In my recent experience there it felt like at least 10 percent, in regards to grocery shopping anyway.  I expect when we go back in a couple months, prices will have jumped again.
    As for the banks, IMHO one should concern themselves more with the possibility of bank failure.  The recent history of Mongolian banks has not been one of stability, and it wasn’t too long ago my in-laws lost a small portion of their savings when a couple of the local banks went under.  I agree with Simon in the sense that if one HAS to keep some money in the bank, Mongolia has a better overall reward-to-risk ratio than US banks.  But that’s a little like being the smartest kid in summer school.  We do keep some money in the bank there, but hold more in cash form.  All that said, I have to say one thing I really liked about our Mongolian bank was that large cash withdrawals (in dollars even) is not nearly the big deal it is for US banks.  Half the time you try to withdraw more than $5000 at a US bank, they either have a conniption fit or want to know about your business.  It is nice to have a bank where you don’t have to deal with that.

  • Another Joe

    The dinar is an interesting issue that I’ve studied a bit, but still find somewhat elusive. There are those who say it’ll be like Kuwait, when they revalued. But Kuwait was different.
    Most of the sites are full of hype, some of them claiming it’ll revalue at astounding rates, pegged to the pound and other exciting and yet unrealistic sensationalism.
    There are a few who say it could revalue at parity with the US$. But, as Simon says (no pun intended), there are concerns here. One, is it true? Can’t answer that one. Two, will they devalue first? There is much talk of removing three zeroes. And, there is even more discussion about what that would mean (the CBI website has some info on this, but it’s hard to grasp).
    Another consideration is cost. If someone offers you 3m dinars for $4k, tell them you have a bridge to sell them for their dinars. It’s too much. The exchange rate is around $1170/million dinars. I’ve picked up a few and sometimes sell them for a little more in smaller quantities, but you can find resources as well. I think eBay would even be better than the quote Mark received.
    Finally, it’s a foreign exchange transaction. There are always risks inherent in such actions. And there are potential gains. There are some interesting developments in Iraq that could result in a stronger economy. But it’s an unstable area, so who knows? The dollar is being systematically destroyed by fiscal policy. 
    Whether it’s Mongolian tugriks, Iraqi dinars, euros, yen or dollars, whatever you have is a position. I’ve chosen to take a small position in dinars. I sell some every now and then, taking a small profit. And, if nothing else happens, I expect that I’ll likely be able to cash them in any time and lose nothing.
    Having said that, I have a whole lot more confidence in my shiny stuff.

  • Anon

    whats the difference between the iraqi dinar and mongolian tugrik? nothing. 

  • Smith78412

    whats up with Chile; any way I can be part of the resilient society with 50 K ?  

  • Gainsmore

    Nice,… not showing my comment…. you know I joined your site thinking that it upheld the ideas of transparency. But because I may have seemed to buck the trend somewhat here I now think differently…sadly… and on point and on this post-  I guess those who trade in penny stocks and make 5000% in six months on their money don’t exists either right??? If you really believe in freedom and the sovereignty of the self you might want to re-examine  your reasons for not putting my post up for all to see. Regrettably….

  • Mastersmookpn

    Quit promoting your Chile project at every oppourtunity. You are making me and others PUKE.

  • Gene

    ” This is a get rich quick scheme, nothing more.”

    I’ve been asked about the dinar by less-than sophisticated “investors” quite a few times. And when I see multiple people who don’t know much, all start to get excited about the same thing, I KNOW a scam must be brewing. So I looked into it. If you look at the history of the dinar, it has been refashioned several times in the past. NEVER has it been a re-valuation (upward). It’s ALWAYS, every time, been a massive devaluation. And obviously, if the deal is so great, then why would anyone sell them to you?

    • Another Joe

      Probably “speculation” or maybe even “gamble” would be more appropriate than “investment.”

  • B B

    First off, I am supprised you so lightly disconunt the long term potential of owning IQD. Just a little research of other countries that have gone thur similar histories, Would cause any thinking person to Say Hummmmmmmm.   No it is not a get rich quick idea.  However it is not a scam
    either. Iraq is a real country, with real currency plus the country is very wealthy in underground assets. I am disappointed that you have so lightly discounted the possibilities of a great long term gain.  I will look at you future information more closely..  BB

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