Some people won’t believe (it’s a scam), even when you tell them now. It’s just human nature (to want to) believe that there is a way that we can 'have our ship come in' and get rich quick. —Keith Woodwell, director of the Utah Division of Securities
SALT LAKE CITY — A number of Utahns are buying what they think is undervalued foreign currency in hopes of having its value increase, offering a potential investment windfall.
Unfortunately, it's a long-running scam perpetrated by dishonest investment brokers and online fraudsters.
Several years ago, Darren Marshall became aware of an investment opportunity in which he could buy Iraqi dinar currency on the long-term hope that he would reap high returns when the currency was “re-evaluated.”
The belief was that once the Iraq economy boomed and the currency was traded on the world market, those who purchased dinar previously could sell the bills on the open market and receive the newly inflated value.
The problem is such a scenario may never happen — something Marshall, a certified internal auditor by training, recognizes and readily admits.
“I think it’s ludicrous,” he said. “It’s a scam.”
Marshall, 42, of Salt Lake City, said he has read numerous online blogs that tout the legitimacy of the foreign currency speculation and describe it as “a high-risk investment.”
Despite that trepidation, Marshall said he has personally purchased $1,000 in Iraqi dinar on the chance he may eventually recoup his investment and maybe make a profit.
“I know it sounds crazy, but part of (the reason behind investing) was the enticing return rate,” he said.
Additionally, he said investing $1,000 was not so much that it would affect his lifestyle in any meaningful way.
“I had it to invest,” Marshall said, adding that he hopes he'll be able to double his investment at some point.
For the past few years, people have been "investing" in Iraqi dinar, Vietnamese dong and a few other currencies in hopes that they will make it big when the monies are re-evaluated.
Unfortunately, it is a scam, explained Keith Woodwell, director of the Utah Division of Securities.
Woodwell said the fraud began years ago at the beginning of the Gulf War conflict in Kuwait and Iraq, initially involving members of the military and their families.
The misconception started because Kuwait’s dinar dropped during Operation Desert Storm, then, following the war, there was an oil boom and the currency increased dramatically, giving those who bought it huge returns.
The difference between the Kuwaiti currency situation and the Iraqi and Vietnamese currencies, Woodwell explained, is that Kuwait’s dinar was not inflated when it was worth less. It just organically increased in value when the country's economy began to grow. The same cannot be said for other countries whose economies are inherently troubled, he said.
Today, unscrupulous brokers are again targeting investors by buying the foreign currencies in bulk and selling them at dramatic profits, Woodwell said. He attributes investor greed with prompting so many people to ignore economic logic and reason to risk their money on what he says is an obvious fraud.
“Some people won’t believe (it’s a scam), even when you tell them now,” he said. “It’s just human nature (to want to) believe that there is a way that we can 'have our ship come in' and get rich quick.”
Woodwell said some investors are not skeptical enough to question the legitimacy of some seemingly questionable investment opportunities, despite the red flags that may be present. While countries may decide to issue new currency when their economy begins to expand rapidly to avoid hyper-inflation, they basically exchange the old bills at the old value, so investors are typically left with devalued currency, he said.
“There has not been any kind of revaluation of the currency,” Woodwell said. “It’s happened in several countries in Africa (and Mexico) where they have had hyper-inflation.
“There is no conceivable way that people are going to make money off of this because they are buying the physical currency at an inflated rate to start with,” he explained. “So even if the currency (increases) a little bit because the economy goes up in that country, because you are buying it at an inflated exchange rate, you are not going to be able to sell it for what you bought it for.”
Businesses today are selling those currencies at huge markups over what is typically charged on the open market, said Scott Stone, senior vice president and foreign exchange manager for Zions Bank.5 comments on this story
People will also buy them from banks, which is better because the exchange rate is less, but they will still never recoup their initial investment, Stone said.
“You should never buy paper bank note currency as an investment,” he said. “If it’s truly an investment, there are other ways to go about it than buying a stack of currency and putting in a shoebox under your bed and waiting for that currency to revalue.”