Speculators see riches in Iraq's cheap currency

By Scott Shane
The Baltimore Sun

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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, a lot fewer if you're sitting safely in the United States and dealing with some Web sites.

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 a confidential tone. Home in New Jersey for a 10-day break, he said he has purchased 6 million dinars for "a few grand," and 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 only thing the Iraqi dinar is likely to hit is a wall," says Steve Hanke, professor of applied economics at Johns Hopkins University, an international authority on currencies and a currency trader himself.

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 got too great to bother.

It's impossible to predict the future of the dinar with certainty, Hanke said. But the likeliest scenario 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 says.
 
Yet Foran, like others who are betting on the dinar, is not deterred. 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 support the new regime.

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

Foran says the word in Iraq is that at the low end, a dinar could be worth $1. High-end, more than $4. That's $6 million to $24 million for Stephen Christopher Foran, future man of leisure.

"We're hoping," Foran said, excitement in his voice.

In fact, so many of the 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 (contract workers) are millionaires, why are they going to stay in a war zone?" he asked, logically enough.

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 American administrator L. Paul Bremer, to distinguish them from the "Saddam dinars" they replaced starting last fall.

The dinar was pegged at 1,454 to the dollar yesterday on one exchange site. In such numbers, some seek fortunes.

Katja Morgenstern, who works for Dinar Trading in Charleston, S.C., said she got her optimism about the dinar from studying the resources of Iraq on the Web. "Not only are they sitting on untapped oil, Iraq is an exporter of figs," she said.

Jeff Pasquarella, who runs BetOnIraq.com from his home in Danbury, Conn., wrote on his Web site that "some experts say" the dinar may stabilize at 10 cents — 155 times its current value. Asked which experts he consulted, he said that in the scramble to get the business up and running, "I really can't remember where I saw that."

But business is great. "It's been incredible," Pasquarella said. "I've sold 20 million dinars in the last three days." Yesterday, BetOnIraq.com was offering 50,000 dinars for $99, about 505 to the dollar.

Most of the dinar dealers are uncertain about what state and federal licensing and reporting rules apply to their businesses. But two said they have recently been cut off by PayPal, the online payment system now owned by Internet auctioneer eBay.

PayPal spokeswoman Amanda Pires confirmed that the company has cut off service to some dinar traders who could not show that they were licensed as financial institutions, registered with the federal Financial Crimes Enforcement Network and in compliance with other regulations.

"If we don't get a good answer, we don't give them access to the PayPal system," she said.

Hanke, the Johns Hopkins currency expert, said the dinar purchasers are playing at a highly risky enterprise that is not for amateurs.

"It's a world that is hyperprofessional," he said. "The average stock broker doesn't understand currency trading."