Wondering what to do with that rebate check? If you’re feeling brave, throw it at the Iraqi Dinar. The Dinar is up 20% against the dollar since it began to float on currency exchanges in late 2006. The fledgling Central Bank of Iraq has been aggressively raising rates to fight a dollarization of the Iraqi economy, and the currency has consistently appreciated.
It also helps that the U.S. troop surge has delivered significant, albeit fragile, gains in security. And as Iraqi prime minister Nouri Al-Maliki begins to challenge Shia militias in Basra and Sadr city, more stability gains could be on the way. Also on the plus side, the Iraqi economy has grown at a torrid rate following the Hussein regime’s ouster and the subsequent elimination of sanctions. Nominal GDP has more than tripled since 2003, though the real growth rate slowed to approximately 5% in 2007, when violence peaked.
Ultimately, however, everything depends on whether the Iraqi government can build on the stability improvements of late 2007 and foster a climate of ethnic and political reconciliation. Whether the Iraqis can deliver on this is anyone’s guess. But with Goldman Sachs predicting $200 oil and the Iraqi army delivering tentative security gains, the Dinar may not be a bad bet.