Enorrste Comments in Response to the article Kaperoni recently posted regarding the LOP 6/14/2012
The following comments are being made by me to clear up the obvious confusion that has arisen and will arise over the article entitles “Conscious / deletion of zeros from the currency…Decision is preceded by the fear of citizens and economist warned / achievement.”
This article was originally posted on our forum on April 13 but was overlooked by all since there were no highlights in the article. It came from the Investigative Journalism section of an Arabic online newspaper by the name of Al-Iraq News.
The article consists of analysis made by the unnamed reporter dealing with three interviews he held. The interviewees were Hashimi Afaihan, the Chairman of the Chamber of Commerce (presumably in Baghdad), Dr, Jawad Al-Bakri, professor at the College of Economics and Business University of Babylon, and Dr. Abdul Hussein Al-Anbuge, Prime Minister for Economic Affairs in the Iraqi government. In addition, at the end of the article, there is a reference to a statement made by Mohammed Saleh, deputy of the Central Bank of Iraq.
It is important that understand the backgrounds of these players in order to gain knowledge of the meaning and motivation behind their comments. With this knowledge we will be able to place their comments in the proper perspective. This will allow us to separate the “wheat from the chaff.”
Hashemi Afaihan is an ardent enemy of the Central Bank of Iraq. He and Mohammed Saleh have had occasion to battle in the press recently. Here is a quote from an article in which Saleh was defending the role of the Central Bank of Iraq regarding the fall in the value of the dinar against the dollar recently:
“The head of the Chamber of Commerce of Babylon Engineer Sadiq Hashem Afaihan Mamouri lack of sufficient experience with economic advisers in The Iraqi government has led to instability in the monetary policy in Iraq. He explained in a statement (citizen): If left the country under a policy of political consensus, all the facilities of the State is going to lag and inertia to Atianha with people incompetent and do not have sufficient experience which qualifies them in the administration, and that the Iraqi state After changing the system were not based on economic efficiencies of large and efficient management of the economic file the correct form of Iraq and began to be subject to Mhassat abhorrent that the pain is not brought to the Iraqis and their suffering increase Bartqa people to positions they are not worthy of their management under the principle of the wrong person ..The Iraqi economists have no role in solving the economic problems did not give them none of this role as well as economic advisers in the Iraqi government do not have experience in the management of the Iraqi economy, despite the passage of more than eight years on the Iraqi experience of modern, but the politicians did not benefit from their experiences and has continued to insist on the principle of consensus is fruitful in the wheel of economic development.” (http://iraqidinarchat.net/?p=2199
It is clear from this direct quote from Hashimi Afaihan that he believes himself to be superior to everyone else in the Iraqi government when it comes to economics. In short, he is “full of himself.” Therefore, anything that he writes on the issue of removing the three zeros must be taken with a grain of salt, since he clearly believes that he knows it all and that everyone else, including the Central Bank of Iraq, is incompetent.
Dr. Al-Bakri, on the other hand, has given seminars on behalf of the Central Bank of Iraq around the country. Kaperoni posted an article in which Dr. Bakri stated that if you paid 1000 dinars for a pack of cigarettes before the revaluation and removal of the three zero notes, then that same 1000 dinars would buy you 1000 packs of cigarettes after the revaluation and removal of the three zeros. More importantly, it is Dr. Bakri who uses the “pros and cons” argument when discussing the revaluation of the dinar. In the article I am discussing now he makes the point that the removal of the three zeros will stop the dollarization of the economy of Iraq. We have discussed on several calls that this will only work if the dinar becomes worth at least a dollar. While it is possible that a LOP would make the dinar worth a dollar, the same Dr. Bakri is on record with another “pro” argument that the revaluation will involve a substantial INCREASE in the value of the dinar. Also, his cigarette analogy specifically states that the same 1000 dinar note would buy 1000 packs of cigarettes after the RV. If there were a LOP, the 1000 dinar note would equal 1 dinar only, and would therefore only buy 1 pack of cigarettes. Therefore we have Dr. Bakri implicitly stating in this article that this is NOT a LOP. I suspect that he was not present when Hashemi Afaihan had his interview with the author of the article and therefore had no idea that Afaihan would be making such a stupid mistake. Had he known about what was going to be put in the article ahead of his own comments, he would have corrected Afaihan.
The next person quoted is Abdul Hussein Al-Anbuge. In January of this year he came out against the Central Bank’s proposal to move forward with the “remove the three zeros project” and said the following:
“Criticized the Adviser to the Prime Minister for Economic Affairs Abdul Hussein Al-Anbuge, Saturday, the Iraqi Central Bank's policy to lift the Iraqi dinar against the U.S. dollar, while noting that the bank had not coordinated with the economic system in addressing the situation, saying that such policy violates the productive base in Iraq.
Said Abdul Hussein Al-Anbuge in an interview for "Alsumaria News", "the central bank to raise the Iraqi dinar against the U.S. dollar at the present time is true that the rise is real," noting that "the image of the Iraqi economy is reflected in the exchange rate of the dinar."
He Anbuge "Raising the price of the Iraqi dinar in this way now will contribute to enhancing the phenomenon of economic rent because it will make imports cheaper and thus lead to a deepening of this phenomenon," adding that "this phenomenon will feel the citizen that he should remain imports which are not the productive base in the Iraqi economy which seeks to get to the economic development in all other sectors." (http://www.burathane...cle_147376.html
Dr. Al-Anbuge has been negative on the CBI proposal for quite some time. He is a member of the Council of Ministers under Maliki and was largely responsible for Resolution 107 that was passed in April in which the Council of Ministers passed a resolution that would “indefinitely” delay the “remove the three zeros project.” As we all know, this fell on deaf ears in both the CBI and in Parliament. The Council was forced to admit that it had overstepped its authority and then “begged” the Parliament to delay the project, just as they did with the tariff law, which Parliament refused to delay.
More importantly, however, is the fact that in the January 28 statement made by Al-Anbuge above it is clear that he understands that the revaluation will indeed lead to a “raising the price of the dinar,” as quoted above. In addition he calls the change in value “real” because it would “make imports cheaper.” Only a revaluation will have this affect. A LOP will not do that.
Therefore, we are left with a Chairman of the Chamber of Commerce who is a bloviator and who is clearly an egomaniac who in ill-informed, a Professor of Economics who has staunchly defended the revaluation and laid it out clearly that it is NOT a LOP, and a disgruntled Minister of Economics from within the Maliki government who knows the truth but is still trying to delay it!
This in itself would be enough to squelch the “apparent” import of this article. However, there is one more tidbit that needs to be addressed, and that is the statement made by Saleh in this article. Here is the quote referring to him:
"That the draft lifting the three zeroes from the currency made by the government five years ago to the bank Central, and has undergone during this period to an extensive study over the need to raise zeros to strengthen the value of the currency of Iraq." (http://dinaralert.we...ed-achievement-
There are two important parts to Saleh’s statement. The first I will quote shortly. The second is his clear statement that removing the zeros will “strengthen the value of the currency of Iraq.” Of course the “lopster” will say that the LOP will raise the value of the dinar, since the dinar will rise to about $1 with the LOP. However, that would not “strengthen the value” of the dinar, would it? It would be “revenue neutral.” So how else can we understand this statement from Saleh? Fortunately the article tells us the answer, and this is the second point to note in his statement. It refers to a draft that was written 5 years ago made by agreement between the government (Ministry of Finance) and the Central Bank. Fortunately, I have retained the actual statement that came from that agreement when it was announced in the press. Here is the quote from June 30, 2006, now almost 6 years ago:
“A statement by B.J. AL Zubaidi, the Minister of Finance, in which he said that he had suggested to the Chairman of the Central Bank, Dr. Sinan AL Shibibi, that three zeros be taken from the Iraqi Dinar in order to raise its value so that one Dinar be equal to a Dollar. He explained that the financial authorities were set on holding a meeting next month to discuss the matter. The meeting is to be attended by experts and specialists from the Ministry of Finance, the Iraqi Central Bank and the Commercial Bank.” (http://edinarfinanci...et/news/?nn=320
Here is another, dated February 6, 2010 and quoted in Radio Free Iraq, in which Saleh confirms that the plan is in place:
“Saleh said by the end of 2010 the new banknotes will be fully introduced while the old banknotes will be gradually removed from circulation. He did not specify when the new notes would be issued.
”Both will be legal tender in Iraq until the old notes are completely withdrawn.
”Iraqi officials have had a long-running plan to redenominate the Iraqi dinar. In 2006, the Finance Ministry recommended to the Central Bank that it carry out such a plan.”
Obviously due to the election and other problems with the formation of the GOI, this plan has been delayed beyond 2010. But the point is that the plan exists and includes a “raise” in the “value” of the dinar.
And finally here is one more quote from June of 2006:
“The Ministry of Finance together with the Central Bank are studying a proposal to raise the value of the Iraqi dinar in order to return it to previous levels where one Iraqi dinar was valued at 3.33 US dollars.”
Further elaboration on the plan that was being worked on was also given in the same article:
“A statement by B.J. AL Zubaidi, the Minister of Finance, in which he said that he had suggested to the Chairman of the Central Bank, Dr. Sinan Al Shabibi, that three zeros be taken from the Iraqi Dinar in order to raise its value so that one Dinar be equal to a Dollar.” (http://www.iraqdirec...ws.aspx?id=1593
All three of these articles refer to the draft that was written in early 2007, five years ago. However the last article is the most important, because it clearly states that the plan is to RAISE THE VALUE OF THE DINAR back to the “previous level” of $3.33 per dinar, with an interim level of $1. This is entirely consistent with the multitude of recent articles we have seen coming from the CBI recently that indicate that the value will initially be “about $1” and then “gradually” rise from there.
Now, it is impossible to talk about a “raise” in the “value” of the dinar and talk about a LOP in the same sentence. A LOP is revenue neutral, whereas a revaluation involves a “raise” in the “value” of the currency.
Therefore, the article that Kaperoni posted does NOT accurately portray the plans of the Central Bank of Iraq. Instead, it consists of the rant of an uninformed egomaniac included in an otherwise innocuous article in which ALL of the other participants know that the “value” of the dinar will “raise” with the removal of the three zeros project.
*********************kaperoni at June 14, 2012 at 6:22 PM
Here is a quote from the CBI at a symposium...
"the point of view the central bank is that the deletion of zeros does not affect the value of the Iraqi currency"
That clearly means no LOP direct from the CBI.
Kaperoni is correct here. The removal of the large notes (remove the three zeros) does NOT affect the value of the currency. The RV (revaluation) which makes the small denoms have value ("about $1" per CBI statements) DOES INDEED raise the value of the currency. However, after the RV, those who have some of the large notes will benefit, because THOSE NOTES will also RAISE THEIR VALUE, only at the NEW value of $1 per dinar.
The confusion for those who view this event as a LOP is that they have consistently misunderstood the meaning of "remove the three zeros". They think that the zeros are just LOPPED off, when in fact the CBI is quite clear that the "three zeros notes" will remain legal tender at least until mid 2014, AND that they will retain their value as legal tender, just as Saleh said in the statement I quoted at the beginning of this thread. However, in addition it is also clear that the CBI will RAISE THE VALUE to about $1 rather than LOP to $1. This is the reason why we will benefit from the RV. There will be a revaluation AND THEN a redenomination as the new currency replaces the existing dinars, including the small denominated notes.
This is also why the statement by Saleh that the dinar would become a world reserve currency "for a long time" has meaning. If there were a LOP, this statement would be meaningless. On the other hand, if there were a true revaluation to $1 then the countries around the world that have dinars (large denominated notes) would indeed benefit by placing them as reserve currency in their Federal Reserve deposits.
Furthermore, in order to reduce the money supply from 30 trillion dinars to 30 billion dinars the large denominated notes must eventually disappear (in the sense that they won't be counted in the money supply of Iraq, just as the dollars in reserves outside of the US are not counted in our money supply). However, just as a $500 bill and $1000 bill are still legal tender in the US, the large denominated notes from Iraq will remain legal tender "for a long time".
If Iraq were doing a LOP, then they would be forced to call in the large denominated notes from around the world, and destroy them. But instead they have stated just the OPPOSITE! They have NO PROBLEM with other countries holding large denominated notes in their reserves. They actually are counting on it! If a 25,000 dinar note is held in reserves in a foreign country, it MUST have value commensurate with the $1 rate of the dinars in Iraq after the RV. Otherwise that note would lead to worldwide confusion. The CBI is not in the "confusion" business.