The Currency Newshound

It is presumed the CBI will ask Iraqi’s to cash in their existing large note bills which will be exchanged for smaller currency notes such as a 10, 20, 50 etc.

Now..the math…

In the USA the US dollar will always be worth $1 however foreign currencies have exchange rates.

If the dinar revalues tomorrow at $0.86 up to $4.00 that is the exchange rate either on the 25,000 note you have now..or a new currency note with 25 they may produce or may have already produce but waiting to put into circulation.

Currently the exchange rate of the dinar is $0.00086 to the dollar.

For example a typical Iraqi worker brings home the 1,755,000 per month in salary which is the equivalent of $1500/mo USD at the current exchange rate. (1,755,000 dinars x $0.00086 = $1,500 USD)

Now lets say the CBI dropped the zeros without revaluing the exchange rate (theory behind the dreaded LOP). The 25000 note at the same exchange rate of $0.00086 would mean the 1,755,000 in dinar earnings he brought home yesterday would only be worth $1.50 not $1500.

This would send Iraq into a tailspin and an economic collapse.

Redenomination without a revaluation of some kind would actually devalue the currency in my opinion. So it is my opinion an RV will be the initial step in their long term strategy.

Another theory out there believes the removal of the zero’s would be from the exchange rate itself. Meaning the currency exchange rate of $0.00086 would then become $0.86. Therefore the 25000 dinar note today would equate to $21.50 but after the zero’s are removed the 25000 note would equate to $21,500. In turn the CBI would call in large notes and insert small notes into circulation.

There are going to be some negative theories out there as well as more positive theories however I believe the above theories make sense.

I hope this helps

Just Hopin

Also…

“Groovgal” wrote a piece called “Thoughts On Iraq’s Political Situation And The Possible Revalue/LOP of The Iraqi Dinar”.  I believe it is insightful and well explained.

Here are some excerpts from here writing in regards to the currency situation (keep in mind this was written in July 2010):

On the topics of rumors…

The rumor that it is to RV within the upcoming days is false.  I do not wish to depress anyone but I feel the need to let everyone know that this is simply not true.

I’ve also heard that there has been rumor’s of an “in-country revaluation,” this is also not true.  History has shown patterns that it is usually that of communistic countries who follow the methodology of “in-country revaluations.”  If you hear of this sort of rumor please consider it with extreme caution, as it simply does not coincide with the characteristics and/or patterns of the Iraqi government.  I sometimes joke that if there is an “in-country revaluation” it will only last as long as the next time zone banking industry opens its doors. Lol

An article I found interesting is titled, “Ex-IM Bank Opens Financing for Iraq.”  It appears that this “bank” would bridge the gap and lower concerns for foreign U.S. investors.

The U.S. has diligently worked to attract foreign U.S. investors to capitalize upon the future growth ability of Iraq, however since the government of Iraq has yet to pass laws allowing foreign investors to own land coupled with the issue of Iraq lacking a internationally recognized currency which is tradable, therefore allowing ease and stress free unilateral business transactions, investors are remaining reluctant to venture into investing within the Iraqi borders.

With the development of this ability, investors can find reward in exporting to Iraq and feel somewhat safe doing so, with the “insurance” backed trade option mentioned within the article. While the investors would not build or produce consumer goods within the country of Iraq, the U.S. government has found a way to capitalize off of the situation by finding another way around the legal issue.

On another note, yesterday I received an email from someone with someone who had some concerns and simply couldn’t wrap their mind around some of the things being said.   This person mentioned concern for the articles printed pertaining the deletion of zero’s.

While this is a valid concern for one to have, I personally do not find myself too concerned over the implementation of this policy.  The reason is that if one researches the history of this monetary policy (re: LOP) you’ll find that it is usually the practice of communistic countries.  Countries who do not wish for their people to practice “capitalism” or garner any form of wealth beyond that which the country gives them.

This person who had this concern mentioned that rumors or articles mentioning an Iraqi individual who saw there income shorten by 3 zero’s had indeed experienced a “LOP.”  I explained that this is simply not true.  While his income had experienced a so-called form of a LOP itself; his bank account had not.

I also explained while an individuals income my see a decrease or what looks to be a decrease that the individual has not experienced a decrease in pay as it will even itself out.  In layman’s terms, while his monthly income might experience a decrease in pay, the individual worth of 1 Dinar will increase therefore it is essential for a company to decrease one’s earnings as the Iraqi currency gains in value.  Otherwise, the individual will be overpaid and the company will eventually go broke.

The important factor to consider is that the individual’s bank account was not affected (savings).  If his savings had experienced a deletion of zero’s with seeing the gain in value of the Iraqi Dinar to offset the difference then that would be a true signal that a LOP had indeed occurred.  In which case, this did not happen and therefore NO LOP has occurred or even a form of it.

We must remember that the average Iraqi is indeed very poor and is considered part of the impoverished that live upon this earth.  If the GOI were to LOP it would leave the already struggling Iraqi people standing in food lines that do not exist.  Since welfare is a limited concept in Iraq and food lines are unheard of the Iraqi people would most likely revolt against the authority of the GOI and demand otherwise!

It is my belief that this method of monetary policy will simply not work for the Iraqi government.  Yes, anything is possible however, how does this theory support the idea that the UN/US wishes for Iraq to be the next Kuwait?  It doesn’t.

So, why do we continue seeing article pertaining to the deletion of zero’s?  And, why do I see this as wonderful news.  It is my opinion and my opinion only, that deletion of zero’s is a signal of the following:

A)  The Iraqi government is aware of the large investor bills in circulation.  The primary and most practiced way of dissolving this issue is to get them out of circulation and destroy them.  At which time, once the revaluation takes place, most of the individuals holding the large notes will indeed exchange them for their local currency.  Once their local central banks have them in their reserves they will either:

  1) Destroy them on behalf of the GOI

2) Hold them as reverse currency

Or

3) Sell them back to the GOI

Once one of the above takes place the GOI has begun to dissolve the issue of liquidity in circulation.  It is my guess that majority, if not all, foreign countries will most likely hold the IQD as foreign reserves.  This will not only help the countries hold the IQD as a reserve currency but it will also help the country of Iraq strengthen their currency and maintain its value of the IQD as well as its international credit rating with the global community.  If you need additional help understanding what I just mentioned it might help to reflect upon the December issue of China threatening to sell the U.S. T-Bills and mass concern of the value of the U.S. Dollar dropping.  Of course, as I said then, this was merely a ruse performed by China to bully its way into the spotlight.

B)  Since we are seeing continued chatter from Iraqi economist as well as foreign economist about Iraq’s need to follow the mechanism set forth by the IMF, I believe we seeing the garnered pressure we’ve been wishing to see to push this RV in the position of importance that we desire.

C)  I believe that the CBI will look to printing lower denominations and this is what is meant when it speaks of deleting the 3 zero’s.  Once the investor notes are withdrawn from circulation the GOI/CBI can look to overhauling the pricing of commodities etc. and therefore can delete the 3 zero’s to ease transactions….  You may or may not agree with my frame of thinking and this is more than okay. J

Anyone who has paid any attention or who has read in-depth studies or articles on Iraq’s situation can easily manage to see that their currency is due to gain in value.  The mechanism that was put in place and agreed upon by the IMF/UN hasn’t been closely followed and they’ve yet to move on to the final stage of revaluation.  And, I believe that all will easily agree that currency speculation has grown ten fold and it’s rather useless to attempt to deter speculators.

We are on the down hill slide of this investment.  If one looks at the articles printed by not only Iraq but that of the UN, IMF, UNAMI, and the most recent WTO… You’ll see that there is one area that Iraq hasn’t wavered or played games with and that is their desire to become a sovereign nation and to join the ranks of the global community.  With this being said they’ve also expressed a desire to boost trade both in imports as well as exports, tourism, and relations with other oil producing countries.  With this train of thought comes the realization, that Iraq with all of their ambitions will not see the growth they wish to see by not having a globally recognized currency, and one that will be traded on the free market.

They must implement the last phase of the mechanism by joining the free market exchange as well as finding themselves released from the restrictions of Chapter 7.

Groovgal

July 2010

Regardless of the theories expressed in this opinion piece you must always keep in mind you as a hold of curency are speculating.  Meaning you are speculating for something positive to happen to your investment.  As with any investment however there is risk.  Therefore while everyone who hold dinar is hopeful for a fruitful outcome we must recognize there is risk it could be a negative or different outcome than exepcted.