Popular Post TrinityeXchange Posted March 6, 2015 Popular Post Report Share Posted March 6, 2015 (edited) Hello again my friends. Let's have a discussion on how we quantify value in the IQD in a very simplified way. There is a well respected and accepted economic principle called the "Quantity Theory of Money". Simply put, the theory states that there is a direct relationship between the quantity of money in an economy and the level of prices of goods and services sold. The equation goes like this: MV=PT or M(money supply) [x] V (velocity) = T(avg price of good and services [x] volume of goods and services) for the sake of keeping the explanation simple we will call T - goods and services throughout this write up Let's break the equation down in english - For a defined window of time, the amount of printed money multiplied by the average number of times the money changes hands equals the total goods and services at average price. When there are changes on one side of the equal sign, there must be changes on the other side of the equal side. Change in goods and services directly effects money supply, velocity or both. Please continue no further until that is clearly understood. Quickly we can recognize a few scenarios from this direct relationship: When goods and services boom, there must be a significant rise in either money supply, velocity (number of times the money changes hands) or both in order for the equation to stay equal/balanced. When money supply booms, if goods and services stays the same, there must be a reduction in velocity When money supply booms and velocity stays the same, there must be a resulting boom in goods and services When velocity of the currency booms, and goods stays the same, money supply must be reduced I could continue on drawing up scenarios with this equation but I believe I gave enough examples to help highlight the direct relationship between opposite sides of the equal sign. Should we accept this respected theory as a means to compute value, what do we see Iraq doing? We know for fact that Iraq has significantly reduced its Money Supply. We watched much of this happen through the auction process where the CBI purchased IQD with USD. We have seen reports from the CBI that the notes in circulation has been reduced to 4 Billion with a goal to get to 1 Billion. We might assume that the velocity of the money is up from articles of currency been worn out through overuse. We know that the GOI and CBI are working to boost privatization on a massive scale which will significantly increase the volume of goods and services in the economy. We know that as the volume of goods and services increases, the monetary policy of Iraq is to PREVENT inflation (increasing money supply). My friends I hope we are all able, from this simple means of measurement, to see that the IQD is intended to gain value....significant value. The only thing standing in the way of realizing the real value of the currency is the presence of the USD. Eventually we will see the time when foreign investment into the country will demand a true foreign exchange market where the foreigner's money will be exchanged into IQD in order to execute business in the country resulting in boosting the country's volume of goods and services. The only thing we really have to watch for at this point that will work adverse to our hope is 1) Reduction in the nation's security 2) Anything denoting that Iraq begins increasing/inflating the money supply. As of today however, these two indicators are either being addressed (1) or the exact opposite (2). Now, I bet more people are happy to read about the 50 note being removed from the economy. That alone should have given the dinars you hold a boost in value! Be blessed my friends. Edited March 6, 2015 by TrinityeXchange 24 Link to comment Share on other sites More sharing options...
Saintsfan Posted March 6, 2015 Report Share Posted March 6, 2015 https://encrypted-tbn0.gstatic.com/images?q=tbn:ANd9GcRufVGmuUQiBgij1oAvketA9SlEI_V7SD10ZX6Jd2xJnGX3Bsga Thank you TX. Link to comment Share on other sites More sharing options...
djgabrielie Posted March 6, 2015 Report Share Posted March 6, 2015 Thank you Trinity for the explanation. Link to comment Share on other sites More sharing options...
Freedomwish Posted March 6, 2015 Report Share Posted March 6, 2015 Mucho gracias, keeping the faith!! Link to comment Share on other sites More sharing options...
George Hayduke Posted March 6, 2015 Report Share Posted March 6, 2015 Makes sense. 1 1 Link to comment Share on other sites More sharing options...
boosterbglee Posted March 6, 2015 Report Share Posted March 6, 2015 Thanks Again Trinity! Link to comment Share on other sites More sharing options...
1lucdog Posted March 6, 2015 Report Share Posted March 6, 2015 Thank you Link to comment Share on other sites More sharing options...
MyLadiesDaddy Posted March 6, 2015 Report Share Posted March 6, 2015 (edited) Wow, see even a dumb azz truck driver can learn something new everyday. LMAO Oh and thanks for taking the time to teach us Professor Trinity Edited March 6, 2015 by ladyGrace'sDaddy 3 2 Link to comment Share on other sites More sharing options...
Deb45 Posted March 6, 2015 Report Share Posted March 6, 2015 Prof T, Thank you so much for helping us out here. I know you probably sit there and shake your head at some of the comments you see on here that are lacking in knowledge. Thanks for taking the time every now and then and enlightening us. I for one, appreciate it greatly and rely on your posts to get a better grasp on what the news of the day is. I look to Yota to get the info to us, and you to explain it. Your dinar student 5 2 Link to comment Share on other sites More sharing options...
davis411 Posted March 6, 2015 Report Share Posted March 6, 2015 Prof T, Thank you so much for helping us out here. I know you probably sit there and shake your head at some of the comments you see on here that are lacking in knowledge. Thanks for taking the time every now and then and enlightening us. I for one, appreciate it greatly and rely on your posts to get a better grasp on what the news of the day is. I look to Yota to get the info to us, and you to explain it. Your dinar student wish i had a dinar student, they cook well and i am starving Link to comment Share on other sites More sharing options...
BJinMontreal Posted March 6, 2015 Report Share Posted March 6, 2015 Awesome explanation Trinity ... And I didn't need to do any figuring or guzintas ... 3 Link to comment Share on other sites More sharing options...
FlyHi Posted March 6, 2015 Report Share Posted March 6, 2015 (edited) Thanks TrinityX for reminding us of Fishers equation. It's a simple view of how money supply affects inflation. Let's say in LaLa Island in the Pacific they use Clam Shells for their Money Supply (M) is 120. They normally trade 10 canoes each year (T=10). The money supply is spent twice each year (thus V=2) Now assuming Total Goods and Services are the same year after year. what would happen if Money Supply is doubled. Let's first establish a base year. MV = PT Hence 120 x 2 =P x 10 Thus P = (120 x 2)/10= 24 Clams/canoe Now if M is doubled Then, (120 x 2) x2 = P x 10 Thus 480 = P x 10 Hence P= 48 so the price of canoes double...an inflationary effect. Please note this Fisher equation is an expression of a country's economy or GDP Both sides of the equation represent the economy but express it in a different way (Tautology = saying same thing twice in different words) Simplistically, doubling the Money Supply (M) doubles the size of the economy (GDP) However, in this example the Real GDP (the size of the Goods and services 'T') didn't double, just the nominal GDP (the monetary value of the GDP increased) Any printing of money by the CBI increases inflationary pressure if the other factors are not stimulated (business confidence and willingness to invest etc) We note that Abadi and CBI are trying to change emphasis and stimulate the business sector while stopping printing IQD as the continue to draw it in. so what Trinity says is true.... it has to impact the true value of the IQD which is artificially being held low. Hence the talk of some Guru's speculating that they need to come out with a moderate or low new rate and then let the Supply and Demand drive the value of the IQD via a float Thus endeth the lesson Edited March 6, 2015 by FlyHi 8 Link to comment Share on other sites More sharing options...
jeepguy Posted March 6, 2015 Report Share Posted March 6, 2015 p ? what does p stand for -----> profit ? ..... 240 =`s 24 claims or 2o canoes 120 claims = 10 canoes ,,,, 240 x 2 -- 2 again 480 40 canoes ... and 8 claims ............. ??????? uhhhh no wonder I made it well out side of a class room sure glad I were born Purdy 4 Link to comment Share on other sites More sharing options...
FlyHi Posted March 6, 2015 Report Share Posted March 6, 2015 P = is the Average Price Level so glad you were born Purdy! 1 Link to comment Share on other sites More sharing options...
wbuse984 Posted March 6, 2015 Report Share Posted March 6, 2015 Nice posts and very informative... to both TrinityX and FlyHi... :soon: :soon: 4 Link to comment Share on other sites More sharing options...
stealthwarrior Posted March 6, 2015 Report Share Posted March 6, 2015 Fantastic! should be a permanent post. 2 Link to comment Share on other sites More sharing options...
TrinityeXchange Posted March 6, 2015 Author Report Share Posted March 6, 2015 (edited) in case any are confused by the equation, here is a little more explanation. There are variations of this equation. MV=PT MV=T MV=P(y) and perhaps some other variations of the equation exist where: M = Money Supply V = Velocity of Circulation (the number of times money changes hands) P = Average Price Level T = Volume of Transactions of Goods and Services regardless of which equation is used, it all means the same thing and the purpose is this: Essentially, the theory's assumptions imply that the value of money is determined by the amount of money available in an economy. An increase in money supply results in a decrease in the value of money because an increase in money supply causes a rise in inflation. As inflation rises, the purchasing power, or the value of money, decreases. It therefore will cost more to buy the same quantity of goods or services. Edited March 6, 2015 by TrinityeXchange 4 Link to comment Share on other sites More sharing options...
sxsess Posted March 6, 2015 Report Share Posted March 6, 2015 Trinity, Breitling speaks of money supply & velocity often with regards to economic prosperity. Thanks for your articulate and simplified write-up on this subject, it is greatly appreciated. 2 Link to comment Share on other sites More sharing options...
caz1104 Posted March 6, 2015 Report Share Posted March 6, 2015 JeepGuy, "sure glad I was born Purdy"...................."twang" (in my best Peter Sellers impersonation while walking thru a nudist camp and seeing nude beautiful women with a guitar as a frontal cover-Pink Panther) Uhhhh TMI and that reference may be a little too old for most here at DV 3 Link to comment Share on other sites More sharing options...
MyLadiesDaddy Posted March 6, 2015 Report Share Posted March 6, 2015 in case any are confused by the equation, here is a little more explanation. There are variations of this equation. MV=PT MV=T MV=P(y) and perhaps some other variations of the equation exist where: M = Money Supply V = Velocity of Circulation (the number of times money changes hands) P = Average Price Level T = Volume of Transactions of Goods and Services regardless of which equation is used, it all means the same thing and the purpose is this: Essentially, the theory's assumptions imply that the value of money is determined by the amount of money available in an economy. An increase in money supply results in a decrease in the value of money because an increase in money supply causes a rise in inflation. As inflation rises, the purchasing power, or the value of money, decreases. It therefore will cost more to buy the same quantity of goods or services. OH OH OH, I know, I know, Professor Trinity. LMAO SUPPLY AND DEMAND. 3 Link to comment Share on other sites More sharing options...
TrinityeXchange Posted March 6, 2015 Author Report Share Posted March 6, 2015 thank you my friends for your kind responses OH OH OH, I know, I know, Professor Trinity. LMAOSUPPLY AND DEMAND. can't nobody clown you like family. thanks for the love LGD. 1 Link to comment Share on other sites More sharing options...
Nelg Posted March 7, 2015 Report Share Posted March 7, 2015 Thanks. Wish I had had finance when I was in college. Didn't. Experience can be a mean and ruthless teacher! I'm learning a great deal from these forums. 2 Link to comment Share on other sites More sharing options...
TrinityeXchange Posted March 7, 2015 Author Report Share Posted March 7, 2015 (edited) my good friend Markinsa raised a contradictory point to this opinion piece, which i wholeheartedly welcome, and invited him to move it into the public for us all to dialogue over. until he does i want to dig up an article that is very revealing on multiple levels (see highlighted portions below). now that we see with better eyes the economic plans taking place today, reading this article from 2013 begins to make a lot more sense. i encourage everyone to re-read the article and very slowly so that it is understood what members from the Economic Committee are saying and how they are in conflict with what the Finance Committee believes. After that the final remarks by Saleh is what I believe we are actually seeing take place today: "There are many encouraging positive factors to reform the currency management system," he said, also noting that the deletion of zeros "does not only involve changing the design of the currency. It implies changing the economic system in the country in general." and oh so right you were Mr Saleh! this is why the CBI continued to hold off on currency reform because the entire economic system would have to be reformed.....and that is what we are seeing today; the move to a new exchange regime and a market economy. anyhow, i need to keep my point short and focused. i want to touch on the money supply as it pertains to the equation MV=T. I think it is VERY telling what Shayya remarks in the article: "The Iraqi currency is weak, and the money supply has amounted to multi-trillions because of the existence of these useless zeros," he said. "The country will witness a significant increase in oil revenues, financial earnings and high budgets. Thus, we need to print new banknotes, as estimated by the Central Bank." "Iraq would need about 9 billion banknotes in the event of applying the deletion of zeros. Iraq today is dealing with 4 billion banknotes," he said. this man says a mouthful in just a few sentences, does anyone else see it? his fear is that there are now too little bank notes in comparison to the GDP. should we place his statement into our "Quantity Theory of Money" equation it would look like this: M (low) x V (high) = T (high) and this is concerning to him because this equation equals a high exchange rate on the IQD. i welcome feedback on this opinion. ----------------------------------------------------------- Iraqi Officials Divided Over Dinar 'Reset' Two Iraqi parliamentary committees monitoring fiscal policy in Iraq have held two contradictory positions on the Iraqi currency “reset” project, which would delete three zeros from the currency. There has been much debate about the project's feasibility and the date of its implementation. Summary⎙ Print Various bodies within the Iraqi government are debating the implications of a move to “reset” the national currency by deleting three zeros from it. Author Omar al-ShaherPosted July 22, 2013 Translator Naria Tanoukhi While the parliamentary Economic Committee believes that the deletion of three zeros from the Iraqi currency would strengthen it, the parliamentary Finance Committee fears that this project would open the door to counterfeit operations. In a statement to Al-Monitor, Mudher Mohammad Saleh, former deputy governor of the Central Bank of Iraq, warned against the consequences of such a step if it is not implemented at the appropriate time. Abdul Abbas Shayya, a member of the Economic Committee in the Iraqi parliament, told Al-Monitor, “Reforming the management of the Iraqi currency now requires the deletion of three zeros. This has been endorsed by the parliamentary Economy and Investment Committee." Shayya, an MP for the State of Law Coalition led by Prime Minister Nouri al-Maliki, added that the Economic Committee "asked the government and the Central Bank to quickly replace the current Iraqi currency with another that is less [in value] by three zeros." "The Iraqi currency is weak, and the money supply has amounted to multi-trillions because of the existence of these useless zeros," he said. "The country will witness a significant increase in oil revenues, financial earnings and high budgets. Thus, we need to print new banknotes, as estimated by the Central Bank." "Iraq would need about 9 billion banknotes in the event of applying the deletion of zeros. Iraq today is dealing with 4 billion banknotes," he said. MP Nahida Daini of Ayad Allawi's Iraqiya List agrees with Shayya, her colleague in the Economic Committee. In an interview with Al-Monitor, she stressed the need to implement the Iraqi currency “reset” project. However, she said that the government fears money laundering operations in the event of the project's implementation. She said, "The Economic Committee last week requested to implement the deletion of zeros from the currency, but the Council of Ministers asked to delay the process for fear of money laundering operations." Daini believes that the government's fears "are mere concerns." She said, "There are regulators in Iraq who can follow up and ensure the integrity of the project." Meanwhile, the parliamentary Finance Committee believes that channelling resources toward ensuring the stability of the local currency exchange rate is better than the deletion of zeros. Magda al-Tamimi, member of the parliamentary Finance Committee, told Al-Monitor, "The delay in deleting zeros from the currency was due to fears of possible fraud operations. The Finance Committee is currently focused on controlling the currency auction," which is carried out by the Central Bank to provide merchants with hard currency necessary for import. Iraq’s fiscal policy has come under criticism due to the fluctuation of local currency exchange rates against global currencies. According to Tamimi, "Iraq is not ready to control the possible currency fraud that may result from the deletion of zeros." The Finance Committee, Tamimi added, "is now working toward controlling the Iraqi currency auction, which is witnessing a significant fluctuation in the exchange rate of the Iraqi dinar against the dollar." "Development is the gateway to strengthening the currency. Thus, raising the value of the dinar is more important than the deletion of zeros," she said. Saleh told Al-Monitor, "The deletion of three zeros from the currency means deleting three grades from the calculation records of the Republic of Iraq. The decision to implement the deletion of zeros next year is very dangerous and risky. This issue must be done at the appropriate time." Saleh added, "We need to reform the currency management and accounting systems in the country in general. This can only be initiated in a new fiscal year." "There are many encouraging positive factors to reform the currency management system," he said, also noting that the deletion of zeros "does not only involve changing the design of the currency. It implies changing the economic system in the country in general." Omar al-Shaher is a contributor to Al-Monitor’s Iraq Pulse. His writing has appeared in a wide range of publications including France’s Le Monde, the Iraqi Alesbuyia magazine, Egypt’s Al-Ahaly and the Elaph website. Edited March 7, 2015 by TrinityeXchange 1 Link to comment Share on other sites More sharing options...
Markinsa Posted March 7, 2015 Report Share Posted March 7, 2015 (edited) We know for fact that Iraq has significantly reduced its Money Supply. We watched much of this happen through the auction process where the CBI purchased IQD with USD. We have seen reports from the CBI that the notes in circulation has been reduced to 4 Billion with a goal to get to 1 Billion.[\b] I'm showing Currency Issued Maxed out at an all-time high of 41 Trillion, January 2014. Now in January 2015 it is down to 40 Trillion. I'm not sure where you are getting your numbers, but I have discovered a way to calculate how Iraq calculates “Currency Issued” and based on these numbers, I show the “Currency Issued” has been on the increase since 2004. In a previous post, which I’ve provided below, I discovered that “Currency Issued” can be calculated by using the Financial Indicators Worksheet provided by the CBI. To calculate the total currency issued, you add Currency Outside of Banks to Vault Cash. The Graph below, shows the Currency Issued, Currency Outside of Banks, and Vault Cash. While Vault Cash looks to gradually increase, the Curreny Outside of Banks has gone up significantly since 2004. ________________________________________ Annual Statistical Bulletin Page 16 & 17 Page 17 - Currency Issued = 40,630,036 Million Dinar Page 17 - Currency Outside of Banks = 34,995,453 Million Dinar. Difference = 5,634,583 Million Dinar Page 17 - Total Currency with Commercial Banks = 5,634,583 Million Dinar Page17.xlsx - I exported Page 17 and made some calculations, at the bottom of the table is the Total Note Count for each denomination and an overall Total Note Count on the far right column. Key Financial Indicators = Currency Outside of Banks - Cell DT79 = 34,995 Billion Dinar ID Vault Cash (Note 2) - Cell DT83 = 5,635 Billion Dinar Total: 40,630 Billion Dinar Note:2, The weekly vault cash include the banknote only ( without coins ) As you can see from the links the CBI provides us, we can see, at any time, the Total M0 by adding Rows 79 and 83. I would have loved for you to be right, but in this instance, the CBI numbers don't agree with your numbers. - At the end of 2013, there was 4.5 Billion Dinar Notes in circulation. Judging by the "Currency Issued" at the end of January 2015, which was 40.1 Trillion, I still believe the 4.4 Billion Notes (Revised 03/07/2015 7:20 AM) is a good estimation of what is currently in circulation. The graph above is a indicator that Iraq hasn't been able to reduce the number of notes in circulation in any significant way. I am hoping the majority of the Currency Outside of Banks is Overseas and in other countries and therefore wouldn't have a significant impact on the CBI's revaluation of the Dinar. Edited March 7, 2015 by Markinsa Revised | See calculation in my post below 5 Link to comment Share on other sites More sharing options...
FlyHi Posted March 7, 2015 Report Share Posted March 7, 2015 Trinity, great articles BTW. I enjoy your take on them, especially with regard to too little banknotes with regard to GDP. While I want to agree, it may indeed be wishful thinking as the Fisher Equation is simplistic and assumes stability to predict how another factor will react in a near linear manner. Unfortunately we do not live in a perfect world and the situation is more dynamic and indeed more complicated simply because we are talking of Iraq! In the real world many variables maybe changing at the same time... not just one. So it becomes a "which comes first the chicken or the egg" situation. In other words does the Money Supply change first to effect the economy (GDP) or does the Economy change (read the for told change happening to banking sector and stimulus packages for other areas such as Agriculture, and making Iraq more attractive for investors) cause the Money Supply to react to keep in balance or change in value? Heavy stuff indeed, I think Shabibi had a handle on it but MP's are in over their heads and knowledge level IMO. 3 Link to comment Share on other sites More sharing options...
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