Foreign Currency Scams Or (Beware of Shady Folks Selling Iraqi Dinars)

As the saying goes, “A fool and his money are soon parted.” The sad reality is that most of the people I have dealt with who have lost money in fraudulent investment schemes have not been fools at all. They have been intelligent investors who are honorable in their business dealings. In most cases their downfall has been that, as good people themselves, they are naturally trusting of others. It is that wonderful quality of trust that is taken advantage of by unscrupulous individuals. In investing, it is wise to follow Ronald Reagans sage advice to “Trust, but verify.”
An investment scam that never seems to die is the foreign currency scam. To give an example of how this works let’s take the Iraqi Dinar scam. After the fall of Sadam Hussein, the Iraqi Dinar, which previously had been trading for three U.S. dollars (a price set by Saddam) fell to an almost worthless level. At this point scammers stepped in and started touting the Dinar in blogs and radio shows, explaining quite convincingly that when the government of Iraq stabilized, the Dinar would regain its former glory and investors could become overnight millionaires. These bloggers would then direct their trusting followers to companies that sold dinars (often secretly affiliated with the scammer themselves) where they could purchase huge quantities at fractions of a penny each. The scam resulted in massive amounts of Iraqi dinars printed to satisfy demand.
The scam played on greed since a person might be able to buy 10 million dinar for a “mere” $10,000. The scammer claimed that even if the dinar regained a fraction of its former value, the investor would become rich. Rather than go into a long explanation of why this can’t happen, let me boil it down to simple math. It is estimated that there are currently 40 Trillion Iraqi dinars in circulation. That’s Trillion with a “T.” For comparison, the total U.S. currency in circulation is only 1.5 Trillion, according to the Federal Reserve.
Currency scams usually focus on obscure currencies whose true value Americans would not commonly know. They tout currencies like the Vietnamese Dong which trade at a fraction of a U.S. dollar, making them seem cheap. They promote the “how can I lose at this price?” mentality. Some of these currency sites charge many times what you would pay for the same currency at your local bank.
Though not illegal, it is dishonest to sell foreign currencies at grossly inflated prices. If you want to invest in currencies, which is generally a high risk proposition, find a legitimate firm to trade with and do an internet search or call your banker to make sure the price you are paying is the current market rate. Or better yet, don’t invest in things you know nothing about. The willingness to do so, coupled with a generally trusting attitude,  places a huge target on your life savings.