Bama Post on Currency Chatter - 7/23/10

[Trimark]

I saw the following two posts on another site about the reduction of the money supply and potential rate. They are quite interesting so I thought I would post them here. The first post explains the rationale of Bama's theory. In the second post, sxmas puts it in plain English.

Post #1 from Bama on another site - 7/23/10

Let's see....to understand what they may mean when they say "reduce the money supply from 26 trillion dinar (26,000,000,000,000) to 25 billion dinar(25,000,000,000)" requires a few assumptions. For starters, we haveto assume they are only discussing the paper currency currently or formerly incirculation. Next, we have to assume that both amounts have nothing to do with the exchange rate, but represent the actual number of dinars incirculation. Lastly, we have to assume when they say "deleting the three zeros" they are referring toremoval of the dinar notes with denominations of 25,000 IQD, 10,000 IQD, 5,000IQD and the 1,000 IQD.

With those assumptions in place, here is what we can conclude must be completed to accomplish the goal of reducing the physical money supply:

1. Removal of the vast majority of physical currency. ( In order to reduce from 26 trillion to 25 billion, 99.99% of the currency must be removed). To make is simple, divide 25 billion by 25 trillion and you will see that 25 billion is .001% of 25 trillion. It has been reported that between 70% and 90% has already been removed. That which has been removed to date is the currency that comes through the Iraqi banking system and can be converted to electronic currency or other wise taken off the market. What about the other 7trillion IQD (roughly the 26% not yet removed)? Why has that not been taken out of circulation? It turns out that 7 trillion IQD is the amount that is estimated to be held by investors and foreign governments. In other words, they would need to have all speculators as well as foreign governments return the IQD that is currently being held for investment purposes.

2. Either completely move from an 80% cash economy to a 100% electronic economy, or introduce paper currency to replace what has been removed from circulation.

A developing / emerging economy will cease to function when trying to make a transition to a cashless society without a long and extensive campaign to educate the local citizens. If the goal is removal of the 000's by the end of 2010 as the article sates, we are left to assume that some new paper currency must be on the way. (We have heard the rumors of small denominations for some time now that are waiting to be introduced into the system). The arrival of new, smaller denominations into the currency system would by necessity be combined with an increase in the value of the existing currency as well as a reduction in the price of existing goods and services. For instance, a new pair of shoes that now is priced at 105,300 IQD ($90 US) would be priced at 80 IQD (using a new value of $1.12 per 1 IQD). Salaries would be adjusted, phone bills would be adjusted, pensions would be adjusted,etc, etc.

3. A society of 30 million people can not function on a physical money supply of 25 billion dinars.

If we assume that the average household runs on cash and the average Iraqi household earns between $600 and $800 per month, then we can logically say that 25 billion IQD at the current rate will not meet the needsof an 80% cash based society. (30 million Iraqi people using 25 billion cash equals 833 IQD per person per month, which at current exchange rates is roughly $.71 US). Assuming there are 6 people per Iraqi family as reported in the World Health Organizations’ 2006/2007 Iraq Family Health Survey, the 25 billion IQD in circulation would stretch to 5000 IQD per month per household, or roughly $4.30 per household per month. Either way,there simply will not be enough cash to run the economy.

Given the above, we can conclude that if in fact the money supply is decreased from 26 trillion IQD to 25 billion IQD, a new value must be assigned to the remaining 25 billion in circulation. The current supply of 26 trillion IQD at an exchange rate of $.00086 to 1 IQD has a nominal value of $22,360,000,000 ($22.3 billion). Assuming the CBI intends to keep the purchasing power for the Iraqi citizens’ unchanged, then a new exchange rate of $.89 would have to be implemented in order for the 25 billion IQD to have the same value of $22,360,000,000 US. This does not mean the exchange rate can not be higher, however, this is a neutral rate given the stated goal of decreasing the physical supply of money.

While we have all seen the rates $.86, $1.49, $3.22, and $3.86 floating around, it is difficult to pin down what the actual rate may be. Logic dictates something above a dollar is in order, but the intent of the CBI/GOI/UN/US/IMF folks can not be gauged. The purchasing power of the Iraqi citizen could be increased with a much higher rate, allowing for an increased standard of living and most likely a decrease in violence. Only time will tell of course, but if the article is to be believed, we can be encouraged that an increase in the value of the IQD is coming sometime prior to the end of 2010.

Post #2 from sxmas on another site - 7/23/10

Here is one way to gauge the rate: Kuwait's curent money supply (M3 - money circulating in the economy) is 25 billion dinars with a value of $87 billion US. Saudi Arabia has a current money supply valued at $217 billion US. The United Arab Emarites have a current money supply valued at $163 billion US. Iraq has a current money supply valued at $22 billion US. As Iraq removes currency and reduces the amount in circulation to 25 billion dinars, those dinars must have a value of somewhere between $22 billion (value of current supply) and $217 billion (Saudi Arabia has 5 million less people than Iraq but 10 times the money supply). Using those numbers, a range for the new rate could be from $.89 ( to keep the value the same is USD) to $8.68( to match the value of Saudi Arabian currency). A reasonable expectation is a rate that increase the value of Iraq's supply of currency to $80 to $90 billion, which would be $3.20 to 3.60, which would be a median range for the M3 (current money in circulation) of other Gulf Countries.

Clarification from Bama:

Just a quick clarification: I am not saying the value of any currency of the above mentioned countries is $.89 or $8.68. I was merely making a point that in order for Iraq to have a money supply that is equal to those other countries money supply as stated in USD, then a rate of $.89 to $8.68 would be in order. I am NOT saying $8.68 is what is to be expected. That is just an example of how big the money supply is of Saudi Arabia.

[cgbrown]

Thanks for your post.

[inmemoryofrob]

Very Interesting, indeed!

[Doc31]

Thanks for the post

[lgraham]

Trimark.......Now that was good! Thanks for this post. You are on a roll now.

Lgraham

[ronron]

Nice and Easy to Understand...

Nice and Easy to Understand...

[fsavahge]

Very interesting read, simply put and very well thought. CONGRATULATIONS ON THE EXPLANATION!

[RICK C]

Appreciate all the time & Effort it took to put together such a clear piece. Lets hope we all get to see this thru,

[Trimark]

You're all very welcome. I think Bama and sxmas did a really nice job of putting everything together.

One thing that's interesting to me about Bama/sxmas' numbers is that they are using $217 billion as the top reserve range for the gulf countries with that reserve figure belonging to Saudi Arabia, but as doc31 and lgraham posted on another thread here the reserve amount in Iraq's NY account is estimated in the range of $375.78 billion although it could be much higher. What's great about that for us is that is just the amount in their NY reserve account! That doesn't include the money that the CBI has made by selling dinars or any of their frozen accounts/gold/etc.

Here's the link to that thread:

http://dinarvets.com...5#ixzz0rlgzcw4n

[DTH]

Question is when will It RV ?

[Kimjackie]

Thanks for this post, helps to understand it a little more. GO RVVVVVVVVVV

[doubleyouiniraq]

I saw the following two posts on another site about the reduction of the money supply and potential rate. They are quite interesting so I thought I would post them here. The first post explains the rationale of Bama's theory. In the second post, sxmas puts it in plain English.

Post #1 from Bama on another site - 7/23/10

Let's see....to understand what they may mean when they say "reduce the money supply from 26 trillion dinar (26,000,000,000,000) to 25 billion dinar(25,000,000,000)" requires a few assumptions. For starters, we haveto assume they are only discussing the paper currency currently or formerly incirculation. Next, we have to assume that both amounts have nothing to do with the exchange rate, but represent the actual number of dinars incirculation. Lastly, we have to assume when they say "deleting the three zeros" they are referring toremoval of the dinar notes with denominations of 25,000 IQD, 10,000 IQD, 5,000IQD and the 1,000 IQD.

With those assumptions in place, here is what we can conclude must be completed to accomplish the goal of reducing the physical money supply:

1. Removal of the vast majority of physical currency. ( In order to reduce from 26 trillion to 25 billion, 99.99% of the currency must be removed). To make is simple, divide 25 billion by 25 trillion and you will see that 25 billion is .001% of 25 trillion. It has been reported that between 70% and 90% has already been removed. That which has been removed to date is the currency that comes through the Iraqi banking system and can be converted to electronic currency or other wise taken off the market. What about the other 7trillion IQD (roughly the 26% not yet removed)? Why has that not been taken out of circulation? It turns out that 7 trillion IQD is the amount that is estimated to be held by investors and foreign governments. In other words, they would need to have all speculators as well as foreign governments return the IQD that is currently being held for investment purposes.

2. Either completely move from an 80% cash economy to a 100% electronic economy, or introduce paper currency to replace what has been removed from circulation.

A developing / emerging economy will cease to function when trying to make a transition to a cashless society without a long and extensive campaign to educate the local citizens. If the goal is removal of the 000's by the end of 2010 as the article sates, we are left to assume that some new paper currency must be on the way. (We have heard the rumors of small denominations for some time now that are waiting to be introduced into the system). The arrival of new, smaller denominations into the currency system would by necessity be combined with an increase in the value of the existing currency as well as a reduction in the price of existing goods and services. For instance, a new pair of shoes that now is priced at 105,300 IQD ($90 US) would be priced at 80 IQD (using a new value of $1.12 per 1 IQD). Salaries would be adjusted, phone bills would be adjusted, pensions would be adjusted,etc, etc.

3. A society of 30 million people can not function on a physical money supply of 25 billion dinars.

If we assume that the average household runs on cash and the average Iraqi household earns between $600 and $800 per month, then we can logically say that 25 billion IQD at the current rate will not meet the needsof an 80% cash based society. (30 million Iraqi people using 25 billion cash equals 833 IQD per person per month, which at current exchange rates is roughly $.71 US). Assuming there are 6 people per Iraqi family as reported in the World Health Organizations’ 2006/2007 Iraq Family Health Survey, the 25 billion IQD in circulation would stretch to 5000 IQD per month per household, or roughly $4.30 per household per month. Either way,there simply will not be enough cash to run the economy.

Given the above, we can conclude that if in fact the money supply is decreased from 26 trillion IQD to 25 billion IQD, a new value must be assigned to the remaining 25 billion in circulation. The current supply of 26 trillion IQD at an exchange rate of $.00086 to 1 IQD has a nominal value of $22,360,000,000 ($22.3 billion). Assuming the CBI intends to keep the purchasing power for the Iraqi citizens’ unchanged, then a new exchange rate of $.89 would have to be implemented in order for the 25 billion IQD to have the same value of $22,360,000,000 US. This does not mean the exchange rate can not be higher, however, this is a neutral rate given the stated goal of decreasing the physical supply of money.

While we have all seen the rates $.86, $1.49, $3.22, and $3.86 floating around, it is difficult to pin down what the actual rate may be. Logic dictates something above a dollar is in order, but the intent of the CBI/GOI/UN/US/IMF folks can not be gauged. The purchasing power of the Iraqi citizen could be increased with a much higher rate, allowing for an increased standard of living and most likely a decrease in violence. Only time will tell of course, but if the article is to be believed, we can be encouraged that an increase in the value of the IQD is coming sometime prior to the end of 2010.

Post #2 from sxmas on another site - 7/23/10

Here is one way to gauge the rate: Kuwait's curent money supply (M3 - money circulating in the economy) is 25 billion dinars with a value of $87 billion US. Saudi Arabia has a current money supply valued at $217 billion US. The United Arab Emarites have a current money supply valued at $163 billion US. Iraq has a current money supply valued at $22 billion US. As Iraq removes currency and reduces the amount in circulation to 25 billion dinars, those dinars must have a value of somewhere between $22 billion (value of current supply) and $217 billion (Saudi Arabia has 5 million less people than Iraq but 10 times the money supply). Using those numbers, a range for the new rate could be from $.89 ( to keep the value the same is USD) to $8.68( to match the value of Saudi Arabian currency). A reasonable expectation is a rate that increase the value of Iraq's supply of currency to $80 to $90 billion, which would be $3.20 to 3.60, which would be a median range for the M3 (current money in circulation) of other Gulf Countries.

Clarification from Bama:

Just a quick clarification: I am not saying the value of any currency of the above mentioned countries is $.89 or $8.68. I was merely making a point that in order for Iraq to have a money supply that is equal to those other countries money supply as stated in USD, then a rate of $.89 to $8.68 would be in order. I am NOT saying $8.68 is what is to be expected. That is just an example of how big the money supply is of Saudi Arabia.

I won't be greedy; I will accept the 8.68 rate.....

[kingfish]

I read most of the articles and the gibberish on here and I have to say that is one of the best thought out articles I have seen on here yet.

Could have been better if at the end it would have said the RV happened this morning... LOL

Well written and thought out.

Kingfish

[Niko]

I read most of the articles and the gibberish on here and I have to say that is one of the best thought out articles I have seen on here yet.

Could have been better if at the end it would have said the RV happened this morning... LOL

Well written and thought out.

Kingfish

+1 my thoughts exactly

[DCupp]

Thanks for the post! GO RV!!