27 replies to this topic

[SWFloridaGuy]

6-21-2012 SWFloridaGuy: Redenomination Vs. Revaluation. I take the latest article from the Finance Committee as a great sign. They are saying the new currency "will increase by three zeros, indicating that they had an extensive study concluded that the lifting of the zeroes will strengthen the value of the Iraqi currency." Some people speculate the plan may be a redenomination, followed by an RV, where we would make a profit of around 3x what we paid. I disagree with this. Our money will be worth face value for a year. The "000" notes will be legal tender but they will not be equivalent to those notes without the "000s," which is why there has to be an effort to remove them from circulation in country, prior to raising the value. The large notes will retain their value and there will be 2 choices, trade in for lower denoms we can hold indefinitely or exchange for another currency, in our case USD. The dinar is not considered a promisary note, we will be able to exchange them outside of Iraq and the CBI must be honor them at face value. Article 32 Paragraph 1 also states that the CBI must honor them in accordance with the law. "Article 32 Issuance of currency. 1. The CBI shall have the exclusive right to issue banknotes and coins for circulation in Iraq. Banknotes issued under this Article shall be a first charge on the assets of the CBI. The CBI shall make appropriate arrangements for the issue of its banknotes and coins as required for circulation in Iraq. Banknotes and coins issued by the CBI and intended for circulation are not promissory notes , bills of exchange ,or any other type of commercial document under the applicable commercial law, and the CBI is obliged to honor them only as provided for in this law." We've seen articles that point to a redenomination and that is exactly what we should expect to see. Shabibi himself said in DC, when it comes to the possibility of a revaluation of the IQD, it depends upon inflation, stability and is something they must hide from the public, for obvious reasons. More than just hide from us though, with the attention this has received it's imperative to the process to actively suppress anything that supports a revaluation and their goal is (and should be) to throw us off the scent. They do need to educate the public of the upcoming changes though and the only way I can see doing this is by saying they will introduce a new currency with the zeros removed and reference countries in the past who have gone through a RD. It would be implausibly foolish to reference Kuwait and tip their hand to the world. Shabibi is by no means a foolish man. Iraq does not have hyperinflation and they are one of the wealthiest countries in the world. This plan has been in the works for quite some time and no one wins unless they revalue. It's my opinion that we're going to see the zeros removed and the exchange rate raise somewhere on par with the USD, like the SIGR report suggested. Over time this may raise to become the strongest currency in the middle east (which includes more factors than just the highest exchange rate) but initially 1:1 is a huge jump and if it revalues the way we want it to, presents many challenges in and of itself. These are just my opinions, which seem to be evolving over the years and I absolutely could be wrong. I don't pretend to have this figured out and am not an expert by any means. I enjoy hearing both sides of the redenomination vs. revaluation debate and can appreciate aspects of both arguments. I'm just hoping for the best like everyone else.

[Nadita]

SWFG,

My gosh... can you just tell me what the baby is lol

The waiting game gets tiring plus I want to go shopping for the baby's clothes

[NWGUY]

This should be interesting responses!

I stand by my no lop theory, and before you neg me......I really do understand the other side, but my glass is half full!

Go RV

[puckster_guy]

I cannot see a lop either just a new rate and new lower denoms to fill the gap for the lower values. Big denoms to be phased out...jmho.....GO RVVVVVV Great post SWFG

[jackster]

6-21-2012 SWFloridaGuy: Redenomination Vs. Revaluation. I take the latest article from the Finance Committee as a great sign. They are saying the new currency "will increase by three zeros, indicating that they had an extensive study concluded that the lifting of the zeroes will strengthen the value of the Iraqi currency." Some people speculate the plan may be a redenomination, followed by an RV, where we would make a profit of around 3x what we paid. I disagree with this. Our money will be worth face value for a year. The "000" notes will be legal tender but they will not be equivalent to those notes without the "000s," which is why there has to be an effort to remove them from circulation in country, prior to raising the value. The large notes will retain their value and there will be 2 choices, trade in for lower denoms we can hold indefinitely or exchange for another currency, in our case USD. The dinar is not considered a promisary note, we will be able to exchange them outside of Iraq and the CBI must be honor them at face value. Article 32 Paragraph 1 also states that the CBI must honor them in accordance with the law. "Article 32 Issuance of currency. 1. The CBI shall have the exclusive right to issue banknotes and coins for circulation in Iraq. Banknotes issued under this Article shall be a first charge on the assets of the CBI. The CBI shall make appropriate arrangements for the issue of its banknotes and coins as required for circulation in Iraq. Banknotes and coins issued by the CBI and intended for circulation are not promissory notes , bills of exchange ,or any other type of commercial document under the applicable commercial law, and the CBI is obliged to honor them only as provided for in this law." We've seen articles that point to a redenomination and that is exactly what we should expect to see. Shabibi himself said in DC, when it comes to the possibility of a revaluation of the IQD, it depends upon inflation, stability and is something they must hide from the public, for obvious reasons. More than just hide from us though, with the attention this has received it's imperative to the process to actively suppress anything that supports a revaluation and their goal is (and should be) to throw us off the scent. They do need to educate the public of the upcoming changes though and the only way I can see doing this is by saying they will introduce a new currency with the zeros removed and reference countries in the past who have gone through a RD. It would be implausibly foolish to reference Kuwait and tip their hand to the world. Shabibi is by no means a foolish man. Iraq does not have hyperinflation and they are one of the wealthiest countries in the world. This plan has been in the works for quite some time and no one wins unless they revalue. It's my opinion that we're going to see the zeros removed and the exchange rate raise somewhere on par with the USD, like the SIGR report suggested. Over time this may raise to become the strongest currency in the middle east (which includes more factors than just the highest exchange rate) but initially 1:1 is a huge jump and if it revalues the way we want it to, presents many challenges in and of itself. These are just my opinions, which seem to be evolving over the years and I absolutely could be wrong. I don't pretend to have this figured out and am not an expert by any means. I enjoy hearing both sides of the redenomination vs. revaluation debate and can appreciate aspects of both arguments. I'm just hoping for the best like everyone else.

25,000IQD equals US$21.50. Exchange rate 1IQD + US$0.00086.

New currency 25IQD equals US$21.50. Exchange rate 1IQD = US$0.86.

For an 1:1 RV, the increase in value is only 16%. If you're expecting 1IQD = US$3.00+, then there could be a 3X on investment.

I posted this earlier:

In Switzerland, they accept 2 currencies. The Swiss Franc and the Euro.

In Iraq, they'll have 3 currencies. US Dollar (I'm assuming that local merchants accept them), Old Dinar (what they currently have) and New Dinar.

Assuming they'll set one price on their goods. Old price for Item A is 25,000IQD becomes 25IQD. They might show 3 prices. US Dollar, Old Dinar and New Dinar prices.

Old Dinar 25,000 will buy 25IQD Item A. New Dinar 25 will buy 25IQD Item A.

Old Dinar 25,000 will exchange for US$21.50. New Dinar 25IQD will exchange for US$21.50. And if they accept US Dollars, Item A will sell for $21.50. None of this considers bartering.

Old Dinar exchange rate $0.00086. New Dinar exchange rate $0.86.

For that one year, you won't be cashing in the Old Dinar at $0.86. The Old Dinar 25,000IQD will exchange for New Dinar 25 IQD. A person would not be able to exchange Old Dinar 25,000 at US$0.86 for US$21,500, then exchange it back to New Dinar 25,000.

I've seen in France, back in 1986, that they made a new currency and the store owners would not accept the old currency. Even though it had the same value. Had to exchange it at the bank.

Read more: http://dinarvets.com...0#ixzz1yS4J80sZ

[Maggie123]

Thank You for your thoughts SWFloridaGuy I am a "glass half full" person too.

You make a very compelling argument for the RV side!

[Amos9:13]

The million dollar question is (no pun intended) is..."How much physical currency is out there?" It's a question that can't be answered, because I doubt even Iraq knows. Some naysayers
constantly post "well Iraq stated they have this much" blah blah blah...Iraq says a lot of things that are BS. If they've reduced their money supply like I think they have, we will see a lesser rate
on the older dinar than the new dinar. They will disable the dirty float to be IMF compliant and the money supply based on that time frame will be more than likely what we cash in at which is where
Adam gets around .10c. Hopefully it's a lot more...like Saudi Arabia...maybe it will be .33c. I would assume most of their currency is in electronic form which can be converted to bills but guess what?
They don't need it due to their dollarization problem, so I would assume they would destroy the excess electronic money to further reduce their money supply. Think about it...the more of the money supply
you can get down currently, the better the value of your currency once it revalues...and even more when you redenominate. If we had a pizza (representing Iraq's backing) and cut it into tiny pieces and said ok...."you guys dig in." Well let's say...Syria says "nope...I want US pizza it taste better, I'll trade you my pizza back if you give me some of that American pizza"....Iraq says ok....sure...this is borrowed pizza anyways let me give you a slice.....Iran looks over and says...man...we don't have any US pizza over here either! That looks great since i'm under sanctions give me some of that! I'll trade you back your Iraqi pizza if you give me some of that US pizza. Iraq says sure....and gets the pizza back. Iraq starts putting US pizza stores in their country. People want to trade their iraqi pizza for the us pizza because it's better (Right Now). Before too long those tiny pieces of Iraqi pizza start to add up to form large wedges and the Iraqi pizza starts to become fairly shaped back to its original size. I believe that's what Iraq is doing...it might not have been what they planned, but they are getting their dinar back. By the time they get off of their dirty float and issue new currency....the old currency will hopefully be worth more than .10c. I did some research on the "two currencies" and spoke to my foreign currency dept. While she said it's "very rare" for a country to do this...it has been done in the past...BUT they must get another swift code in order to do this. So far Iraq hasn't registered for one that she could see. Do they have time to do this? Sure...is it possible they will leave both currencies in tact and have two rates? Sure...reason being that they might get enough of their currency back that they don't need a redenom to force the currency up. When they Revalue their currency they know they will receive quite a bit more...so only time will tell....we do know that Iraq is having a dollarization problem so the good news here is that A. we know they are using dollars over dinars. B. Iran and Syria are under sanctions...the US dollar is more valuable so of course they will trade dinar for dollars. C. Shabibi stated sometime ago (I think I remember right) that the physical dinar has went from 9 trillion to 5 trillion (could be wrong on my numbers but it dropped some trillions).

[SWFloridaGuy]

The million dollar question is (no pun intended) is..."How much physical currency is out there?" It's a question that can't be answered, because I doubt even Iraq knows. Some naysayers
constantly post "well Iraq stated they have this much" blah blah blah...Iraq says a lot of things that are BS. If they've reduced their money supply like I think they have, we will see a lesser rate
on the older dinar than the new dinar. They will disable the dirty float to be IMF compliant and the money supply based on that time frame will be more than likely what we cash in at which is where
Adam gets around .10c. Hopefully it's a lot more...like Saudi Arabia...maybe it will be .33c. I would assume most of their currency is in electronic form which can be converted to bills but guess what?
They don't need it due to their dollarization problem, so I would assume they would destroy the excess electronic money to further reduce their money supply. Think about it...the more of the money supply
you can get down currently, the better the value of your currency once it revalues...and even more when you redenominate. If we had a pizza (representing Iraq's backing) and cut it into tiny pieces and said ok...."you guys dig in." Well let's say...Syria says "nope...I want US pizza it taste better, I'll trade you my pizza back if you give me some of that American pizza"....Iraq says ok....sure...this is borrowed pizza anyways let me give you a slice.....Iran looks over and says...man...we don't have any US pizza over here either! That looks great since i'm under sanctions give me some of that! I'll trade you back your Iraqi pizza if you give me some of that US pizza. Iraq says sure....and gets the pizza back. Iraq starts putting US pizza stores in their country. People want to trade their iraqi pizza for the us pizza because it's better (Right Now). Before too long those tiny pieces of Iraqi pizza start to add up to form large wedges and the Iraqi pizza starts to become fairly shaped back to its original size. I believe that's what Iraq is doing...it might not have been what they planned, but they are getting their dinar back. By the time they get off of their dirty float and issue new currency....the old currency will hopefully be worth more than .10c. I did some research on the "two currencies" and spoke to my foreign currency dept. While she said it's "very rare" for a country to do this...it has been done in the past...BUT they must get another swift code in order to do this. So far Iraq hasn't registered for one that she could see. Do they have time to do this? Sure...is it possible they will leave both currencies in tact and have two rates? Sure...reason being that they might get enough of their currency back that they don't need a redenom to force the currency up. When they Revalue their currency they know they will receive quite a bit more...so only time will tell....we do know that Iraq is having a dollarization problem so the good news here is that A. we know they are using dollars over dinars. B. Iran and Syria are under sanctions...the US dollar is more valuable so of course they will trade dinar for dollars. C. Shabibi stated sometime ago (I think I remember right) that the physical dinar has went from 9 trillion to 5 trillion (could be wrong on my numbers but it dropped some trillions).

Thanks for the post Amos.

[tedro]

It must be late in the day.............I think I missed something in reviewing Jackster's analogy. SWFlorida guy makes a lot more sense.

[caz1104]

It's anybody's guess,and I like SWFG's.

Edited by caz1104, 21 June 2012 - 02:00 PM.

[jackster]

It must be late in the day.............I think I missed something in reviewing Jackster's analogy. SWFlorida guy makes a lot more sense.

What do you not understand? Seriously. I was typing on the fly, so I might have miffed on something.

[KamelKeeper]

Thanks for the post Amos.

Ditto! Thanks Amos.

[RRSport]

It must be late in the day.............I think I missed something in reviewing Jackster's analogy. SWFlorida guy makes a lot more sense.

Please discuss in detail what you feel are the points that make more sense than Jacksters post or is it the classic we read and agree with want we want to believe?

[zul]

Again, it boils down to how much money they really need to function today.
If we take 1988 ( 24 yrs ago) as their equilibrium year, they functioned with 25 billion dinar at an exchange rate of 3.2USD ( total worth to 80 billion USD (roughly). BUT that was when they had abt 18 milion population and the price of oil around 17 dollar per barrel ( *good indicator for inflation rate since then*)

Now...they have 31 million people and the price of oil is hovering around 80 dollar/barrel. Common sense tells me, they needed more than just 30 billion dinar @ 0.86 US (if they were to LOP).

Edited by zul, 22 June 2012 - 02:23 AM.

[Darin]

Again, it boils down to how much money they really need to function today.
If we take 1988 ( 24 yrs ago) as their equilibrium year, they functioned with 25 billion dinar at an exchange rate of 3.2USD ( total worth to 80 billion USD (roughly). BUT that was when they had abt 18 milion population and the price of oil around 17 dollar per barrel ( *good indicator for inflation rate since then*)

Now...they have 31 million people and the price of oil is hovering around 80 dollar/barrel. Common sense tells me, they needed more than just 30 billion dinar @ 0.86 US (if they were to LOP).

I like where your heads at...
If we use the idea of oil as an indicator of global inflation, we would see that the value of their money supply that was once work $80 billion USD should now equal roughly 375 billion (80/17* their $80B). Now factor in the population increase 31/18 * 375 = roughly 645 Billion US value of money supply.
What that boils down to basically is a 10x's your investment if they were to value upon that theory. We're not including numerous other factors that may play a large role such as increase living expenses, more demand for goods, etc. etc.

Its hard to believe they hold trillions upon trillions of IQD when their people are also using USD and prefer it in some instances. If trillions upon trillions do exist, where is it being used/spend/stored?
Think about how the common lopper makes the argument they can't R/V due to such an inflated $ supply of dinar.... Than they argue against how a R/V can't happen because the people have no real spending power due to a poverish country. Factor in USD usage within that country and you'd have to end up scratching your head wondering where all the dinar is. Is a large portion become digital? Stored in vaults? Held by foreign banks? Held by speculators across the world?

Here's another scenario to think about. The CBI didn't like it when USD was leaving their country as neighboring sanctioned countries were exchanging their IQDs.... But wouldn't either a R/V or R/D cause a similar issue? Any significant rate change whether it be lop or r/v will end up with a run on the bank with old notes. Unless the CBI decides to not honor foreign held notes completely. Imagine the fuss that would cause with businesses, banks, and speculators.

To view this in a way of an analogy.... The CBI has a poker hand & is showing their poker face.. Are they bluffing? Are they attempting to manipulate? Or are they actually being straight up honest? I think a R/D could be a simple neutral exchange process but why the road block..? These are questions that will take forever to find answers to.

[BigJake]

I'm hungary, I think I'll order a pizza for breakfast!!!!!!

[zul]

I like where your heads at...
If we use the idea of oil as an indicator of global inflation, we would see that the value of their money supply that was once work $80 billion USD should now equal roughly 375 billion (80/17* their $80B). Now factor in the population increase 31/18 * 375 = roughly 645 Billion US value of money supply.
What that boils down to basically is a 10x's your investment if they were to value upon that theory. We're not including numerous other factors that may play a large role such as increase living expenses, more demand for goods, etc. etc.

Its hard to believe they hold trillions upon trillions of IQD when their people are also using USD and prefer it in some instances. If trillions upon trillions do exist, where is it being used/spend/stored?
Think about how the common lopper makes the argument they can't R/V due to such an inflated $ supply of dinar.... Than they argue against how a R/V can't happen because the people have no real spending power due to a poverish country. Factor in USD usage within that country and you'd have to end up scratching your head wondering where all the dinar is. Is a large portion become digital? Stored in vaults? Held by foreign banks? Held by speculators across the world?

Here's another scenario to think about. The CBI didn't like it when USD was leaving their country as neighboring sanctioned countries were exchanging their IQDs.... But wouldn't either a R/V or R/D cause a similar issue? Any significant rate change whether it be lop or r/v will end up with a run on the bank with old notes. Unless the CBI decides to not honor foreign held notes completely. Imagine the fuss that would cause with businesses, banks, and speculators.

To view this in a way of an analogy.... The CBI has a poker hand & is showing their poker face.. Are they bluffing? Are they attempting to manipulate? Or are they actually being straight up honest? I think a R/D could be a simple neutral exchange process but why the road block..? These are questions that will take forever to find answers to.

Back then, they didnt even have ISX

[Realdinar]

I like where your heads at...
If we use the idea of oil as an indicator of global inflation, we would see that the value of their money supply that was once work $80 billion USD should now equal roughly 375 billion (80/17* their $80B). Now factor in the population increase 31/18 * 375 = roughly 645 Billion US value of money supply.
What that boils down to basically is a 10x's your investment if they were to value upon that theory. We're not including numerous other factors that may play a large role such as increase living expenses, more demand for goods, etc. etc.

Its hard to believe they hold trillions upon trillions of IQD when their people are also using USD and prefer it in some instances. If trillions upon trillions do exist, where is it being used/spend/stored?
Think about how the common lopper makes the argument they can't R/V due to such an inflated $ supply of dinar.... Than they argue against how a R/V can't happen because the people have no real spending power due to a poverish country. Factor in USD usage within that country and you'd have to end up scratching your head wondering where all the dinar is. Is a large portion become digital? Stored in vaults? Held by foreign banks? Held by speculators across the world?

Here's another scenario to think about. The CBI didn't like it when USD was leaving their country as neighboring sanctioned countries were exchanging their IQDs.... But wouldn't either a R/V or R/D cause a similar issue? Any significant rate change whether it be lop or r/v will end up with a run on the bank with old notes. Unless the CBI decides to not honor foreign held notes completely. Imagine the fuss that would cause with businesses, banks, and speculators.

To view this in a way of an analogy.... The CBI has a poker hand & is showing their poker face.. Are they bluffing? Are they attempting to manipulate? Or are they actually being straight up honest? I think a R/D could be a simple neutral exchange process but why the road block..? These are questions that will take forever to find answers to.

so why do lopsters keep saying at best we will get 3x our return? unless most of the currency is being held by speculators. Like trillions and trillions.

[Darin]

Back then, they didnt even have ISX

Yep... A creation of additional demand.... beyond what they were used to having.
Oh, and another factor to contribute is the change of government from dictatorship to democracy..

And I would argue that most external pushers on the Iraqi subject wish to see democracy a success within that country... So they want it to be a success, not a failure.

[Darin]

so why do lopsters keep saying at best we will get 3x our return? unless most of the currency is being held by speculators. Like trillions and trillions.

The average lopsters uses the current model on how the currency is valued.
The current model is quite simple

Money Supply (Iraqi dinars) * Exchange rate (1166 or 0.00086) = Net Value of Foreign cash reserves (The $60+ Billion the CBI holds to currently back the value of their currency)

For each US dollar or value equivalent the CBI holds in their reserve, they have the possibility of printing or issuing about 1166 or so dinars because they can back that value 100%..
Each dinar in existence is backed by liquid assets.. Liquid assets are assets such as currency that are easily converted.

So, how this works is if for every dinar in existence was exchange at the CBI for another liquid asset, the foreign cash reserves would not go below $0 of foreign cash assets.

The US dollar, and how it is backed, is quite different. It is not backed by liquid assets, as it is actually a note of debt. What this means is if all debts were paid in the U.S., dollars would not exist.
Luckily, the dollar has demand that far outweighs its supply to help maintain the value.

The issue with the dinar is simply getting internal & external demand for the currency... Internal before external is important... But that is a process and also requires a growing infrastructure & economy.
Many things with Iraq are always going to improve:
The amount of oil & natural gas they pump, produce, & export.
The amount of businesses that are created and employ people.
The amount of foreign investments that pour in to take advantage of that.
The amount of other investors that will step in to invest in the country.

Its hard to see a over-night r/v... Ideally I would argue that we may surges in value, but one must really consider this to be a longer-term investment. The lop, as scary as it sounds, reduces the potential ROI % in the long-term. We could simply make 10+ times our money if we held out long enough. A lop would reduce that chance..... I think a gradual growth in value is the simplest solution as the economy grows. If the economy starts to hit a fast-pace growth, it may have to get ahead of the game in the value of their currency. As the value grows, some people will cash-out while others remain. It won't be too damaging to the economy as the internal & external demand supports the value.

I find it interesting how it is somewhat hard for foreigners to invest... I think once many of those restrictions are lifted, the place will blow up with additional potential. It could simply be the greed of Iraqi politicians trying to their own people first in taking advantage of that by letting them get first dibs. Too much foreign businessman running businesses within your country can not be a good thing. They likely prefer their own people first. With that said, that ideal law is one reason why Kurdistan is booming in comparison to Baghdad. They allow land ownership for non-Iraqis. I think their success has some other politicians uneasy on allowing for a similar law because they want to see the same success but have their own people leading those businesses. The imbalance is causing issues, because if they were to allow such a law to exist, numerous people could simply be employed thus increasing spending power. That greed factor alone is a hold-up on reaching success...