Why Does Iraq have the Weakest Currency, and How will it Perform in the Near Future?

U.S Dollar is the most traded currency, and the Kuwaiti Dinar is the strongest currency. But are you aware of the weakest currency? Many factors determine the currency value of the country. Economic factors and undervaluation are some reasons that affect the currency of the country.

If the strongest currencies see high demand, the weakest ones see a low demand. Iraq has the weakest currency and has devalued its currency by about 20% against the U.S dollar. Iraq has devalued its currency because the Government of Iraq has faced an economic crisis due to low oil prices and demand.

Reasons for Iraq’s currency to be weak

1. The internal fiscal woes – The budget deficit of Iraq is set to widen this year. It is estimated that the oil exports of an average of 3.25 million barrels per day at an assumed price of $42.It will lead to a wide budget deficit of more than 58 trillion dinars. Cuts in the budget were needed for financial support.

2. Rough times for the economy – Though Iraq is one of the three biggest oil exporters, its economy suffered due to Covid as global oil demand decreased. Iraq’s economy contracted by 11% this year, with its steepest contraction, the currency value is also affected.

3. The announcement of devaluation – The net foreign assets of Iraq are set to drop further in the year 2024. Since the devaluation, the gap between the black market and peg narrowed, it affected the price. For now, the adjustment has helped to ease the pressure to an extent.

4. The international sanctions from time to time – The numerous sanctions on Iraq by the USA have hit the county hard as its economy has fallen into a deep recession in the recent post-war era. It was severely affected by all the sanctions imposed in the past by the international community for the country’s nuclear program.

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However, in 2015, the President of Iraq agreed on a deal with the U.S and five other countries to limit nuclear activities in return for lifting all the sanctions. In the following year, the economy bounced back, and GDP grew by 12.3%. But, in 2017, the growth fell to 3.7% due to sanctions leading the GDP to shrink from  4.8%  to 9.5% in 2019.

5. The tumbling oil exports – In 2018, the oil export reached 3.8 million barrels. Most of the oil was bought by eight major countries after six months of U.S exemption was granted. The condition was that importers reduce the purchase of oil. It reduced govt revenue by billions of dollars. By 2019, crude oil production had fallen to 2.1 million.
6. The constant civil wars – The civil wars and regional fights have also affected the currency value. But once back as an oil reserve, Iraq can spring back and establish itself as a stable economy. It has only managed the bounce after the eight long years of war between Iraq and Iran.

How will it perform in the near future?

The decline in the revenues, expansion history, pandemic, and competitive currency exchange rates have pushed the Iraqi Govt to a budget deficit in 2020. It has led Government to take firm measures to restore its economy.

The Iraqi Dinar is unvalued at present and is expected to rise against the USD due to pending revaluation. There was confirmed news that Iraq redenominated its currency and not revalued it. Economists believe that the Iraqi Dinar is still a good buy, even without the need to revalue.

How Iraq and its economy will bounce back is an uncertain bet. The forex trading currencies are always risky as the external factors are difficult to control. Unless you trade regularly, the value may remain constant. Iraq will revive its economy and bring back its forex rate. But the long-term effect on the currency coupled with external factors affected by the internal factor is quite hard to predict and control.

What is the position of Iraqi Dinar among the Top 10 weakest currencies?

The Iraqi Dinar is still strong against the Iranian Rial, the lowest currency in the world. Several factors caused the Iranian Rial to reach this point, starting with its devaluation after 1979. Most businesses left the country due to uncertain situations, which affected the economy. There was a problem with the country’s nuclear program, and the Iran-Iraq war made the situation worse.

The comparing of currencies is often easy for financial experts, but for laymen, it becomes problematic. Ideally, when currencies are compared, you need to know about the exchange rates because it sets the perfect parameter for comparison. When you compare the currency, the respective exchange rates will help you understand how powerful or weak a currency is.

So next time when dealing with currency exchange, know your rates because the banks, the forex exchange brokers, or the online forex websites may offer the rates they want. You need to make a wise choice, or you might end up buying currency at higher rates.

When it comes to Iraqi Dinar, roughly 1 dollar of the Iraqi Dinar is equal to 1458 IQD. The exchange rate is often affected due to varied factors, both external and international.

In the case of Iraqi Dinar, the recent reforms, the fall in the commodity prices of the currency, and devaluation led it to be weaker. Yet it stands on the 10th spot in the recent weakest currency chart. Factors like political instability and inflation can also be said to have depreciated the currency’s value over the years.

The final word on Iraqi Dinar

Iraqi Dinar stands at the number 10 list in the weakest currencies of the world. It is expected to trade at 1458 at the end of the quarter. If the economy is stable, or if the Covid situation changes, the value may increase gradually.

There are hopes for the future of Iraq’s economy to recover from civil and regional wars. Only then can speculations of Iraqi Dinar increasing in value against the dollar can be foreseen. But for 2021, the performance will remain on similar lines.

Source:

1. https://www.bookmyforex.com/blog/worlds-least-valuable-currency/
2. https://www.bbc.com/news/world-middle-east-48119109
3. https://www.nytimes.com/2021/01/04/world/middleeast/iraq-economy-debt-oil.html
4. https://reliefweb.int/report/iraq/iraqi-dinar-devaluation-and-price-food-basket-enar
5. https://www.washingtoninstitute.org/policy-analysis/challenges-facing-iraqi-economy
6. https://www.investopedia.com/articles/forex/081314/iraqi-dinar-investment-wise-investment.asp