GDP is a reflection of the size of an economy. The more GDP the more currency required to support that GDP. One thing to be careful about Iraq and other oil countries though. Iraq's GDP is currently about $90 billion a year. But about 90% of that is from oil sales. Oil sales are in dollars, so 90% of Iraq's GDP doesn't even involve dinars. Economics at it's most basic... Supply and Demand. Iraq has a HUGE supply of dinar, and very little demand.
Inflation comes in many forms and could be a long long discussion. A lot of countries get in trouble when they try to answer inflation by printing more currency. That's like throwing fuel on a fire.
It's a myth that the Iraqi currency dropped dramatically with this war. The "official" rate remained at around $3 per dinar, but that meant nothing, it was not honored, the "real" rate had dropped to about 3000:1 prior to the war. That 3:1 rate was back in the early eighties before Saddam took over. In the early eighties Iraq had a money supply of 20 billion dinars (all Swiss dinar at that time, no Saddam Dinars) and probably 50-60 billion in foreign currency reserves. Saddam came into power and got into a war with Iran and then the first gulf war with the US. He spent/stole all the reserves and then started printing more currency, the Saddam dinars. He increased the money supply to somewhere around 5 trillion dinars. That was a 20 year process and it was over that time the value diminished.
Kuwait:
Another myth. Kuwiat had less than 400 million dinars in circulation when Saddam invaded. Saddam broke into the central bank and stole Billions of un-issued dinars. That destroyed the value of the currency. When the war was over... only one month after the war, Kuwait issued a new currency right back to their official rate. Total of 7 or 8 months from start of war to new currency. When people exchanged for the new currency, every bill serial number was checked. The ones Saddam stole were not honored. So they started with less than 400 million dinars and ended with kess than 400 million dinars. Very easy to return to the old rate.
The Indian Rupee... I know nothing about it.
Historical precedent? Not that I've ever seen. People like to talk about Kuwait... but it is nothing like the dinar... not even close. One started and ended with same money supply. One has increased it's money supply 1000 times.
What do I think.
Well... there have been a few articles out that that talk about the dinar going to 1000:1 and then lopping. That would mean a new currency. Cash in hand could be at risk, depends on how long the exchange period is. Dealers will go into reverse mode buying back dinar, at a large markup of course.
I don't promote sending cash to Iraq to sit in a bank account... there are risk involve for sure, but that seems like it might be the way to play this. I think you avoid the big dealer mark up that way.
I think eventually Iraq will introduce a new currency. The Minister of Finance has been pushing it for 2 years now. The CBI has been holding off. Recently an article surfaced with an Advisor to the CBI stating that they will lop 3 zeros, but he wouldn't say when. Sounds to me like they all agree, it's just a matter of timing now. They could lop and make a substantial increase to 1000:1 all at one time. Or they could lop and not change the value... .00083 for this dinar, and .83 for the new dinar.
Summing up... 1000:1 is about the best I think this dinar will do.
