Posted 10 July 2012 - 12:12 AM
Okay everyone; here goes!
Without meaning to present this as some academic and juvenile discourse, I’d like to start with the basics. For those who prefer a more precise definition, I am certain that Wikipedia can quite easily accommodate you.
We all know that CURRENCY is a medium of exchange for goods and services, and is issued by governments as legal tender to be used as such. These governments are also required to honor the face value of their currency whenever it is presented to the issuing Central Bank for exchange or redemption.
As such, these Central Banks are tasked with managing and regulating all of the currency in circulation to insure its stability and economic strength, which is no easy feat.
I digress momentarily to focus on the word RESERVE. Most, if not all of us have visited a restaurant or similar place where people gather, and noticed tables or seating that has been set aside and designated as reserved (RSVP). Usually, they are the best seats in the house; maybe near a picturesque window, next to the stage, in a quiet corner, or other special feature that sets them apart from all the rest.
If you are like me we almost never get such special perks, and often wonder who the lucky folks happen to be, or worse, we envy them their good fortune and/or connections.
So, when we put the two words together; RESERVE and CURRENCY, WE HAVE BEFORE US A VERY INTERESTING, and I dare say, DYNAMIC CONFLUENCE IN TERMINOLOGY!
In its most basic form RESERVE CURRENCY is the stuff we have in our wallets and purses, in our bank accounts or pillows and mattresses. We have it put away, in reserve, for use at a later point in time. We don’t however include our lottery tickets, store coupons, IOU’s from friends and family members, our gold and silver coins, our precious art collections, our rare automobiles, stamp or firearms collection, rare books, rare coins, property deeds, or anything else we hold to be valuable to us.
The reason for this is NOT because such other things hold no value, but because they hold no LIQUID value; meaning they cannot be easily and quickly converted to currency.
On a much broader scale, in the world of finance companies and governments also have in their possession RESERVE CURRENCY. Their reasons for doing so are no different than our own; for use at a later point in time. The greatest difference between them and us is mostly in the amounts or volumes they hold compared to the much smaller amounts we have on hand.
In most instances these large entities hold reserve currency to insure that they are solvent, and can afford to do the types of business that they choose to conduct. By this I simply mean that for example if our banks want to lend us money, they must have a certain amount of reserve currency on hand to balance out the amounts they are allowed to loan. Just think of the disaster that would ensue if our banks actually had little or no real currency, and were making loans nonetheless. By the way, such conditions are being discovered lately in many places, both here in the USA and internationally, and the cumulative effects are becoming frightening to some, if not most who are aware of it. The current LIBOR scandal comes to mind for those of you following it.
Now, to address the question posed in the header; should reserve currency matter to us?
As owners of Iraqi Dinar we hold in our possession the legal tender of the country of Iraq as issued by their Central Bank (CBI). Although I understand from prior posts here that we were and are able to purchase it in the USA as a result of Presidential Executive Order 13303, my own personal review of that order has failed to uncover actual wording that substantiates that claim. However, I do know that whatever the reason is or was, it allowed us to occupy a unique position in the global scheme of things financial.
I say this because what we own and possess is actual currency in force and of a value that must be honored by CBI whenever it is presented for redemption or exchange. Of course, the value it holds now is of little consequence beyond what little we may lose to exchange it now. But, I bring our attention to the many publicly stated claims of the Central Bank of Iraq that one of their goals is to make their currency a RESERVE CURRENCY OF THE WORLD!
I don’t know about you, but to me that is a most powerful and bold statement to make, especially coming from a small, war-torn country. After all, there are countries far better off financially, politically, and in almost every other category we could imagine, that have not ever attained the status of having their currency held in reserve.
So, if we just give that thought a moment to settle in, what could Iraq possibly mean by making such an outrageous statement in the first place? I certainly don’t believe for even one minute that to become a reserve currency all a country needs to do is proclaim it, and watch as every other country agrees with them, and begins storing and stockpiling their currency in reserve. Could they in fact be declaring to the world that they are ENTITLED to become a reserve currency for some reason unknown to us?
If so, there certainly must be some other more elaborate mechanism in place to make such a thing occur. Of course, I make no claim to knowing what that might be, or whether my speculation has a shred of truth to it, but that is exactly why I posed the question, while speculating on just what this all means for us who hold the Iraqi Dinar.
While it is a fact that Central Banks set a particular value for the currency they issue into circulation, the greater truth is that it is those who actually use it that are really placing the value upon it. I illustrate my point using time as my example:
Throughout the USA Daylight Savings Time is recognized and acknowledged by all but the States of Arizona, Indiana, and Hawaii. When it comes time to move our clocks forward an hour in the spring, all of the citizens of the remaining 47 States do so without hesitation. The other 3 States continue with the Standard Time as if nothing had occurred.
By doing so its State governments and its citizens are proclaiming that they value the Standard Time over Daylight Savings Time, and there is nothing anyone else can do about it. Thus, time is recognized differently by the citizens and State governments of the same country, the USA, without there being any form of protest or disruption of activities and events. Time means the same to each citizen, but depending on where you happen to be within the USA, you shall use the value placed upon it based on that location.
Moving back to the subject of RESERVE CURRENCY, what I would like to propose is that what we are in the midst of is an event unprecedented in the history of modern times, and as such we are strategically positioned to become beneficiaries of it in ways we are yet to imagine, that is as long as we hold on to our Iraqi Dinar.
I have no idea what route this event will take, or how long it shall take to occur, but if what the CBI has stated more than a few times is accurate, they are expecting their currency to attain a status it has never acquired before ever among the world’s centers of finance. My speculation, plainly and simply, is that the CBI has been putting the countries of the world on notice that their currency should be valuable enough to be held in reserve, along side those of current reserve currencies of the world. Who or what entities must agree with their assertion remains to be seen.
Now, having held your interest thus far, I stick my neck out even farther by postulating the following:
I believe that we are waiting NOT for Iraq to change the value of their currency up, down, or moderately in either direction, but instead waiting for those countries who will agree, or already have agreed to hold their currency in reserve, to correspondingly place the value upon it that they are willing to initially hold it as. Thus, if you are a Frenchman, Canadian, German, British, American, or other holder of the Iraqi Dinar, and wish to exchange it for that corresponding currency, then its exchange value will be set and honored by that country’s Central Bank.
The Central Bank of Iraq has also said many times that their currency held outside its borders shall remain outside of Iraq, as reserves.
I know this may sound preposterous to some, but I just thought it might make sense in all of the confusion and misinformation that we endure here most of the time lately.
Whether my theory holds water and turns out to be correct, the larger issue for us who wait and hold on, is that I believe the outcome will be profitable to some degree, small or large.
Please don’t go out and buy any more based on this diatribe. I’m only speculating.