Why would anyone want to buy and sell Iraqi dinar? Perhaps their is a need to travel there, or they need to pay salaries to staff living there, and they would need to have a supply of the local currency. Also, if businesses or individuals buy goods in Iraq, they would probably have to pay in Iraqi dinars because the Iraqi government is intent on minimizing dollarization of the economy.
International banks do not typically exchange Iraqi dinars. The Central Bank of Iraq sets an exchange rate. There are money service businesses that buy and sell dinars. In May 2007, the IMF released a statement on the government reduction of fuel subsidies and raising of central bank interest rates would reduce inflation; thereby, decreasing the risk of dollarization of the economy. Reducing fuel subsidies would free up public money for investment in other vital development projects.
Recently, and for the first time in twenty-five years, the IMF issued an economic assessment on Iraq, advising the Iraq government to increase the pace of reconstruction and investment, mainly in the oil sector. Iraq has rich resources of oil, and by world standards, production costs are relatively low. In 2006, real GDP growth reached 17% so there is a good chance that inflation will decrease substantially if security improves.
There is substantial risk in speculating at this stage. A new law to determine the structure of oil industry institutions and international tendering is still being finalized; foreign investment vitally needed to modernize the industry cannot be accessed until new law is enacted. However, the Cabinet of the Iraqi parliament and the Kurdish regional government has approved a new law to determine how oil revenues will be divided between the Shiites, the Sunnis, and Kurds.
Of course, buying dinars at this stage carries with it substantial risk. The dinar is not traded on an international market, so banks will not openly trade dinars and dealers’ rates vary wildly. There is a risk of illiquidity and inconvertibility. Larger institutions are buying dinars at a rate of around 1,250 dinars to the dollar, and because there is little competition, traders are often not prepared to buy back dinars and U.S. banks won’t transact in them. On top of this, although power has been handed over to the regional governments, nobody knows how long insurgency, and therefore, political and economic instability, will persist.