Iraqi Bank Reserve Requirements

[20MillionDinar]

Straight from the CBI: http://www.cbi.iq/do...policy_en_f.pdf

4th Paragraph Down: The Central Bank of Iraq (CBI) has been recasting its operational relationship with banks in order to develop market based instruments of monetary policy and to facilitate the development of the market for the new MOF securities. Banks will no longer be required to hold MOF securities equal to 10 percent of total deposits (now contained in the reserve requirement regulation). The CBI will no longer buy or sell the existing MOF securities at the initiative of banks. In addition, the existing overdraft and advance facilities of the CBI have been closed and will be replaced by the new standing lending and deposit facilities just adopted by the CBI Board. The new reserve requirement regulation will go into effect in either October or November. The CBI may at its discretion buy or sell MOF securities with banks in a competitive auction as required for monetary policy purposes (so called “open market operations”). The details of all of these changes are explained below.

Reserve Requirement: (4th Page Down)

The CBI’s reserve requirement, confirmed as recently as December 12, 2003, is really three separate requirements in one Instruction. It requires banks to maintain frozen deposits with the CBI, which are currently 20% of their current/demand deposit liabilities of the previous month, 5% of their savings deposit liabilities, and 2% of their time/fixed deposit liabilities. In addition, the Instruction also contains two additional, basically unrelated requirements to hold MOF securities of at least 10% of banks’ total deposit liabilities and vault cash of at least 5% of total deposit liabilities. These required reserves are not remunerated. The Reserve Requirement Instruction is addressed by CBI’s Board of Directors to the Statistical and Research Department and the Credit and Banking Control Department. The report from banks in compliance with the Instruction is addressed to the Accounting Department.

Open Market Operations: (last paragraph of last page)

The CBI can influence bank liquidity (excess reserves) and thus short term interest rates by buying and selling government securities. Selling such securities to the market from the CBI’s own holding would drain liquidity from the banking system (by reducing bank’s balances in their reserve accounts with the CBI). Buying them from the public would increase banks’ liquidity (i.e., their reserve account balances). Such open market operations (OMO) would provide an important second instrument (along with the foreign exchange auctions) of active liquidity management. Various strategies for the use of OMO are possible. The CBI might, for example, choose to provide for desired long-term monetary growth through the accumulation of foreign exchange reserves. The monetary effect of higher or lower rates of foreign exchange reserve growth resulting from interventions to stabilize the exchange rate could be sterilized with OMO. Otherwise OMO would be limited to stabilizing bank liquidity and keeping short-term money market interest rates within the tunnel of the CBI’ Credit and Deposit facility rates. OMO will generally by undertaken on an auction bases with banks. Such auctions will look very much like the foreign exchange auctions now being conducted.

http://www.iraq-businessnews.com/tag/cbi/page/3/

Posted on 01 September 2010. Tags: Banking & Finance, CBI, Required reserve rate

Starting September 1, the Central Bank of Iraq (CBI) has announced it will be reducing the required reserve rate (RRR) from 20% to 15%. As this move frees up an additional 5% of deposits for the banks to lend out, you might think it would be positive for loan growth and stimulative for the economy as a whole. In fact, however, from a macro point of view it is likely to be a non-event.

At the moment, the required reserve ratio simply isn’t a binding constraint on bank lending. As of the end of March (the last reported month for this data), the system-wide excess reserves to deposits ratio came to 57%. (See chart. Data is from the CBI website–www.cbi.iq.) Unless this percentage has fallen dramatically since then, the banks are sitting on more cash than they know what to do with, which means that the only effect of the RRR cut will be to reclassify a portion of their reserves from ‘required’ to ‘excess’.

This reclassification itself, however, is positive for bank earnings because excess reserves earn interest at a rate of 4% (2 percentage points below the CBI policy rate) while required reserves are unremunerated. From the point of view of the banks, it’s as if their loan books grew overnight by an amount equal to 5% of (reservable) deposits, with a spread of 4 percentage points on the new loans. (The spread is the difference between a bank’s deposit and lending rates. As the “new loans” in this case increase interest revenue without increasing interest expense, it’s as if they were funded with non-interest-bearing deposits.)

The RRR cut is thus neutral for the economy—it won’t lead to an increase in lending—but a plus for the banks, who are effectively getting a stealth capital injection from the CBI.

Edited August 7, 2011 by 20MillionDinar

[20MillionDinar]

"Islamic Law Banking" or "Full Reserve Banking"

http://www.iosminare...mic_banking.php

http://en.wikipedia....reserve_banking

Full-reserve banking, also known as 100% reserve banking, is a banking practice in which the full amount of each depositor's funds are kept in reserve, as cashor other highly liquid assets. In other words, funds deposited are not lent out by the bank as long as the depositor retains the legal right to withdraw the funds on demand.^{[citation needed]}

A few proposals have been made where 100% reserve could be combined with investment accounts, where a saver could entrust their money with a bank for investment in the full-reserve equivalent of time deposits or savings accounts, which in a full reserve system would represent loans made to the bank rather than deposits.^[1] This would allow banks to continue to act as an intermediary between investors and borrowers.^{[citation needed]}

Full-reserve banking was practiced historically by the Bank of Amsterdam and some other early banks but was displaced by fractional reserve banking after 1800.^[2]Proposals for the restoration of full-reserve banking have been made by various economists.^[3][4][5] However, proposals for full-reserve banking are generally ignored by mainstream economists.^[6]

Reserve ratio

The reserve ratio of all banks operating in such a system would be 100%, making the deposit multiplier equal to one (1xM=M). This contrasts with fractional-reserve banking, in which the bank would hold only a fraction of all client deposits as reserves with the remainder used to supply loans and create credit.^{[citation needed]}

Some advocates believe that full-reserve banking should only apply to demand not fixed loan deposits.^[31] The distinction that full reservists make is that demand deposits such as checking and some modern savings accounts are available for immediate use by the owner of the account, whereas a traditional savings account is restricted.^{[citation needed]}

^{Current examples}

^{There are currently no examples of full reserve banking with an established history of operation. However, a variety of organizations aspire to provide full-reserve banking or claim to do so.}

^{[edit]Islamic banking}

^{In theory, Islamic banking is often synonymous with full-reserve banking, with banks achieving a 100% reserve ratio.[39][40] In practice, however, this is not the case, and no examples of 100 per cent reserve banking are observed. According to Islami Bank Bangladesh:[41]}

The fractional reserve system versus 100% reserves would have different policy implications. Under the former system, banks would have the ability to draw profits on funds that they have exerted no productive effort. Such earning is against the original spirit of Islamic banking. One solution may lie in the

nationalization

of commercial banks, which has already occurred in most of these countries. As regards the latter, we have a fair amount of theoretical insight from the western literature but do not have any valuable empirical observations on the operations of 100% reserves even in countries that have adopted Islamic banking. These Islamic banks are still operating under fractional reserve system. Hence, the operation of monetary policy under 100% reserves system needs further research.

There you have it folks: Iraq DOES NOT follow or practice Islamic Banking. They do not require banks to have a 100% deposit to reserve ratio. They operate using "Fractional Reserve Banking" practices.

Edited August 7, 2011 by 20MillionDinar

[TQueezy]

So, basically... it doesn't matter really that they have 30trillion dinars in cash in circulation, as they're going to re-denominate and the actual value won't change and instead will be absorbed in the switch, allowing them to chalk that up to the invisible "reserves" that aren't accounted for with physical or actual funds, thereby allowing any value of exchange rate increase, up to the insanely quoted $13 to 1iqd that I've seen tossed around... so much for the LOPsters arguments.

[matlok12]

Thanks 20mil for the post!!! Very good read

[only 1-25k dinar]

So I take it this is good news??? Sorry for my ignorance!

[Rossenbos]

This is fantastic news! The missing piece of the puzzle. 20million dinar will go the nomen est omen route :-).

Well done sir. A +1 for you.

This has been one of the key arguments of the vinegarpissers and with that out of the window, I'm keen to learn what their line of thinking will be now.

Thanks dude!

[drlewis]

I've made quite a few arguments and never once mentioned Islamic banking law, because there's simply no need, there are plenty of other proofs as to why the IQD can't RV to 0.86+ USD. It simply doesn't matter whether they follow Islamic banking law, they still can't do it.

WHY NOT?

[20MillionDinar]

Thanks 20mil for the post!!! Very good read

You are very welcome. I just wanted to debunk one more false rumor flying around the Dinar World.

So I take it this is good news??? Sorry for my ignorance!

I believe this is good news. It proves otherwise when people say "Iraq needs to back their currency by 100% cash reserves." Which is now proven false, and the document is provided by the CBI. So yeah, straight from the horse's mouth!

They do not follow or practice Islamic Law banking / 100% Full Reserve Banking. Period!

I've made quite a few arguments and never once mentioned Islamic banking law, because there's simply no need, there are plenty of other proofs as to why the IQD can't RV to 0.86+ USD. It simply doesn't matter whether they follow Islamic banking law, they still can't do it.

GT5Junkie - I just created a thread under the "Opinions, Perspectives... area"

Have a look

http://dinarvets.com/forums/index.php?/topic/78760-smart-cards-e-payment-will-decrease-currency-in-circulation/

[only 1-25k dinar]

Thank you for explaining! +1 for you!!! I will get the hang of this site yet

[Rome M]

I like this

[only 1-25k dinar]

Well back to the state of confusion as what GT5Junkie has posted, does make sense.

[20MillionDinar]

Because something is only worth what someone is willing to pay for it. And you have a better chance of convincing the bank that the $12.00 in your checking account can buy a new car, than Iraq has to convince the world that their 59 trillion dinar M2 is worth 51 trillion (at 0.86 RV) USD.

The only way a big RV is possible is if the CBI is flat out lying about their M2, by a factor of a thousand or more. Which they wouldn't do. If their M2 was really 59 billion instead of 59 trillion they wouldn't be trading them at 1170/USD. Why would they lie in order to make their currency seem practically worthless if the end result would be foreign currency speculators making billions or trillions off their oil supply? Not possible.

The E.U. is (collectively) the most productive "country" on earth. Their GDP is about 16 trillion. They have an M2 of about 7.5 trillion Euros, or around 11 trillion USD. That's the entire E.U. That's a lot of countries, with a lot of assets, and a lot of productivity, as evidenced by their GDP.

Iraq has a GDP of around 80 billion or so. I may be off by 10 or 15 billion, and it depends by which measure you look at, but 80 billion is close enough and makes the math easy. That means the E.U. has a GDP that's about 200 times that of Iraq. TWO HUNDRED.

Now, we all know that currencies aren't really backed up by tangible assets any more. I mean, that's why people are saying this news is "good news" because they're saying Iraq can do whatever they want since they don't have to follow Islamic banking law, they can use fractional banking and make their currency whatever they feel like. Which is more or less true. Any country can decide to peg their currency to some other currency and SAY that it's worth whatever they want. That's exactly what Saddam did 10 years ago.

The problem is, that you can peg it to whatever you want, but in order for it to be really BE that value, you have to get everyone else to BELIEVE it. Ford can decide tomorrow that a Focus is worth 10 million USD, and price them as such, but unless they can actually get people to buy them for 10 million USD, they're not really worth that, are they? Currencies are exactly the same way. You can peg it to whatever you want, but unless you convince other countries to actually trade with you at that rate, it's just like Ford saying a Focus is worth 10 million. As I said, that's what Saddam did, and, no surprise, there weren't any takers. Their currency wasn't publicly tradable. Not only was it not tradable outside the country, even inside the country it didn't really trade at that rate, reports that I've seen say that it traded as if it were worth about 10 cents, not over 3 dollars. Saddam not only couldn't get outsiders to believe his BS, he couldn't even get his own citizens to believe it! Yet years later, after EVEN MORE inflation, the gurus are trying to get YOU to believe it? Crazy!

Anyway, back to Iraq vs. the E.U. An RV of 0.86 USD per dinar = an M2 of 51 trillion. That means their total of cash and "cash like" (electronic currency, check accts, savings accts, money market accts, etc) is 51 trillion USD.

Now, back to what's been said in this thread. They're saying they don't have to back their currency with a physical, tangible asset, they can do fractional banking (like the E.U.) and back it by their ability to pay debt. Their ability for you to take your Euro (or your dinar) and get some other currency for it, or get a TANGIBLE asset for it (like gold, or silver, or whatever). The RVers will be happy to confirm this for you, it's talked about a lot on this site and is a big deal in the news lately. The USD (and the Euro) are based on the ability to pay debt. It's true, neither the US nor the E.U. have 10 trillion worth of gold, or silver, and X-Boxes, or whatever, in a vault somewhere. So what tells you whether or not a country has the ability to pay debt?

The GDP does. That gauges a countries productivity (obviously). A country with a GDP of 3 dollars can't pay much debt. A country with a GDP of 16 trillion dollars can pay a LOT of debt. This is no different than you or I's personal finances. If I make 150 grand a year, I can get a pretty big loan on a house. If you make 15 grand a year, you can't. Because (again, obviously) the banks see how much money you're making and figure you're good for the dough. You'll be able to pay the interest. You'll be able to pay off the principal. Their evaluation of your ability to pay debt is reasonable.

Currencies that aren't backed by tangible assets basically work the same way. The E.U. is stable, has enormous productivity, doesn't have that many euros in circulation (only 7.5 trillion), so their currency is worth quite a bit. People think they can pay their debts, their money is good, and rightly so.

Now look at Iraq. Iraq doesn't have a big GDP. They aren't really very productive. They aren't stable. And they have HUGE amount of their currency in circulation (59 trillion, straight from the CBI).

Anyone with half a brain, isn't going to have a lot of confidence in Iraqs ability to pay. And at a 0.86 RV, their currency would be worth almost FIVE TIMES that of the entire E.U. (51 trillion for Iraq vs. 11 trillion for the E.U.).

Oil you say? No. Lots of countries have oil. Look at the M2 of Saudi, or Venezuala, hell look at Canada. As I said, 0.86 makes Iraqs currency worth five times that of the entire E.U. In order to get their GDP up to E.U. levels they'd have to extract and sell 160 billion barrels of oil a year (16 trillion divided by 100 USD/barrel = 160 billion barrels). They'd run through their entire oil reserve in ONE YEAR.

Obviously not possible. Sorry, an RV to 0.86 (or anywhere near it, really) isn't going to happen. Even an RV to 8.6 CENTS is completely impossible.

All of your reasoning is based off of the fact that there is too much currency in circulation, right? This is why I tried to direct you to another thread that I created earlier: http://dinarvets.com...in-circulation/

Read through that, keep an open mind (if that is possible) and let me know your thoughts. If Iraq can decrease a significant amount of currency that is in circulation then they will have positioned themselves for a higher RV. I mean, that is your entire argument right? GDP vs Amount of currency in circulation

[Primma]

Why is the Kuwait dinar worth $3.00 US then???

[20MillionDinar]

Why is the Kuwait dinar worth $3.00 US then???

What it really boils down to is how much currency (M1) a country has in circulation as well as total money supply (M2):

KUWAIT:

M1 as of 2008 - http://www.indexmund...ts/kuwait/money (roughly 4.3 billion kuwaiti dinars in circulation)

M2 as of 2008 - http://www.indexmund...and-quasi-money (roughly 22 billion total money supply)

IRAQ:

M1 as of 2008 - http://www.indexmund...acts/iraq/money (roughly 31 trillion iraqi dinars in circulation)

M2 as of 2008 - http://www.indexmund...and-quasi-money (roughly 37 trillion Iraqi Dinars total money supply)

So I believe that the key to getting a significant RV would be to decrease Iraq's currency in circulation. They probably have tons of ways to go about doing this, however, I only know of a few. I have created a post showing one way they could go about doing this: http://dinarvets.com...31entry611831

I will create another post showing another way Iraq could go about decreasing their currency in circulation. Give me about 30 minutes or so.

[WaitinginAL]

Because something is only worth what someone is willing to pay for it. And you have a better chance of convincing the bank that the $12.00 in your checking account can buy a new car, than Iraq has to convince the world that their 59 trillion dinar M2 is worth 51 trillion (at 0.86 RV) USD.

The only way a big RV is possible is if the CBI is flat out lying about their M2, by a factor of a thousand or more. Which they wouldn't do. If their M2 was really 59 billion instead of 59 trillion they wouldn't be trading them at 1170/USD. Why would they lie in order to make their currency seem practically worthless if the end result would be foreign currency speculators making billions or trillions off their oil supply? Not possible.

The E.U. is (collectively) the most productive "country" on earth. Their GDP is about 16 trillion. They have an M2 of about 7.5 trillion Euros, or around 11 trillion USD. That's the entire E.U. That's a lot of countries, with a lot of assets, and a lot of productivity, as evidenced by their GDP.

Iraq has a GDP of around 80 billion or so. I may be off by 10 or 15 billion, and it depends by which measure you look at, but 80 billion is close enough and makes the math easy. That means the E.U. has a GDP that's about 200 times that of Iraq. TWO HUNDRED.

Now, we all know that currencies aren't really backed up by tangible assets any more. I mean, that's why people are saying this news is "good news" because they're saying Iraq can do whatever they want since they don't have to follow Islamic banking law, they can use fractional banking and make their currency whatever they feel like. Which is more or less true. Any country can decide to peg their currency to some other currency and SAY that it's worth whatever they want. That's exactly what Saddam did 10 years ago.

The problem is, that you can peg it to whatever you want, but in order for it to be really BE that value, you have to get everyone else to BELIEVE it. Ford can decide tomorrow that a Focus is worth 10 million USD, and price them as such, but unless they can actually get people to buy them for 10 million USD, they're not really worth that, are they? Currencies are exactly the same way. You can peg it to whatever you want, but unless you convince other countries to actually trade with you at that rate, it's just like Ford saying a Focus is worth 10 million. As I said, that's what Saddam did, and, no surprise, there weren't any takers. Their currency wasn't publicly tradable. Not only was it not tradable outside the country, even inside the country it didn't really trade at that rate, reports that I've seen say that it traded as if it were worth about 10 cents, not over 3 dollars. Saddam not only couldn't get outsiders to believe his BS, he couldn't even get his own citizens to believe it! Yet years later, after EVEN MORE inflation, the gurus are trying to get YOU to believe it? Crazy!

Anyway, back to Iraq vs. the E.U. An RV of 0.86 USD per dinar = an M2 of 51 trillion. That means their total of cash and "cash like" (electronic currency, check accts, savings accts, money market accts, etc) is 51 trillion USD.

Now, back to what's been said in this thread. They're saying they don't have to back their currency with a physical, tangible asset, they can do fractional banking (like the E.U.) and back it by their ability to pay debt. Their ability for you to take your Euro (or your dinar) and get some other currency for it, or get a TANGIBLE asset for it (like gold, or silver, or whatever). The RVers will be happy to confirm this for you, it's talked about a lot on this site and is a big deal in the news lately. The USD (and the Euro) are based on the ability to pay debt. It's true, neither the US nor the E.U. have 10 trillion worth of gold, or silver, and X-Boxes, or whatever, in a vault somewhere. So what tells you whether or not a country has the ability to pay debt?

The GDP does. That gauges a countries productivity (obviously). A country with a GDP of 3 dollars can't pay much debt. A country with a GDP of 16 trillion dollars can pay a LOT of debt. This is no different than you or I's personal finances. If I make 150 grand a year, I can get a pretty big loan on a house. If you make 15 grand a year, you can't. Because (again, obviously) the banks see how much money you're making and figure you're good for the dough. You'll be able to pay the interest. You'll be able to pay off the principal. Their evaluation of your ability to pay debt is reasonable.

Currencies that aren't backed by tangible assets basically work the same way. The E.U. is stable, has enormous productivity, doesn't have that many euros in circulation (only 7.5 trillion), so their currency is worth quite a bit. People think they can pay their debts, their money is good, and rightly so.

Now look at Iraq. Iraq doesn't have a big GDP. They aren't really very productive. They aren't stable. And they have HUGE amount of their currency in circulation (59 trillion, straight from the CBI).

Anyone with half a brain, isn't going to have a lot of confidence in Iraqs ability to pay. And at a 0.86 RV, their currency would be worth almost FIVE TIMES that of the entire E.U. (51 trillion for Iraq vs. 11 trillion for the E.U.).

Oil you say? No. Lots of countries have oil. Look at the M2 of Saudi, or Venezuala, hell look at Canada. As I said, 0.86 makes Iraqs currency worth five times that of the entire E.U. In order to get their GDP up to E.U. levels they'd have to extract and sell 160 billion barrels of oil a year (16 trillion divided by 100 USD/barrel = 160 billion barrels). They'd run through their entire oil reserve in ONE YEAR.

Obviously not possible. Sorry, an RV to 0.86 (or anywhere near it, really) isn't going to happen. Even an RV to 8.6 CENTS is completely impossible.

My question is WHY....WHY are you here and why do you continue to come back. I think we all get the possiblities with this investment. If you are so certain you are not going to make any money why do you waste so much of your time and efforts on DV? If I was certain I was not going to make any money I would put my resources elsewehere!

[20MillionDinar]

GT5Junkie - This is for you:

Monetary base

Contractionary policy can be implemented by reducing the size of the monetary base. This directly reduces the total amount of money circulating in the economy.

A central bank can use open market operations to reduce the monetary base. The central bank would typically sell bonds in exchange for hard currency. When the central bank collects this hard currency payment, it removes that amount of currency from the economy, thus contracting the monetary base.

Iraq's Currency Auctions They sell U.S. dollars to the banks and receive Iraqi Dinars. This happens ALL THE TIME. When the central bank collects this hard currency payment, it removes that amount of currency from the economy, thus contracting the monetary base. This is our key to a significant RV, PERIOD!

Effectively DESTROY BASE MONEY:

Process

Since most money is now in the form of electronic records rather than cash, open market operations are conducted simply by electronically increasing or decreasing ('crediting' or 'debiting') the amount of base money that the bank has in its reserve account at the central bank. Thus, the process does not literally require new currency. (However, this will increase the central bank's requirement to print currency when the member bank demands banknotes, in exchange for a decrease in its electronic balance.)

When there is an increased demand for base money, action is taken in order to maintain the short term interest rate (that is, to increase the supply of base money). The central bank goes to the open market to buy a financial asset such as government bonds, foreign currency or gold. To pay for this, bank reserves in the form of new base money (for example newly printed cash) is transferred to the sellers bank, and the sellers account is credited. Thus, the total amount of base money in the economy has increased. Conversely, if the central bank sells these assets in the open market, the amount of base money that the buyer's bank holds decreases, effectively destroying base money.

Read more: http://dinarvets.com.../#ixzz1UOVk1NPx

[Rossenbos]

I'm writing this here, so the post jumps up to the top of the News section again. I like it. This is like the Billboard top 100. you reply and it pops up again :-)

[keepmwlknfny]

They do not ALL follow islamic banking....that is correct....but you do understand there is a difference between reserve requirements for state and private banks, which is what this is talking about and then foreign reserves that back the currency....

Good information20 mill....there was articles of the CBI opening a handful of islamic banks as well so it seems there will be a mix of the two.....

[Darin]

Fractional reserve banking exists...

The only difference that we confuse ourselves with the idea & concept is from my understanding they are not allowed to collect interest on what they hold (Due to Sharia law).

[Dalite]

All of your reasoning is based off of the fact that there is too much currency in circulation, right? This is why I tried to direct you to another thread that I created earlier: http://dinarvets.com...in-circulation/

Read through that, keep an open mind (if that is possible) and let me know your thoughts. If Iraq can decrease a significant amount of currency that is in circulation then they will have positioned themselves for a higher RV. I mean, that is your entire argument right? GDP vs Amount of currency in circulation

This seems to be what the discussion factors down to.

If the figures I have seen posted are correct, the ratio currency liability to production is about 49,000:1.

The reason the RD discussion builds so much support is a 3 zero RD would reduce this to 49:1; which is acceptable.

It also would reduce any amount in trillions to the same base number in billions; another 3 zero / divide by 1000 operation.

I am in favor of anything that triggers a RV, over a RD, for my on personal benefit, and would love for the CBI find a way to make it happen.

There are always different ways to approach a problem. Some have too many after effects, some seem quite reasonable.

I can lay out a few, based on numbers we know, but could be in dispute as to being the current ones.

The fed model uses the discount rate to balance unemployment against inflation. By changing the rate they can encourage hiring by making borrowing cheaper, or curb rising inflation by making borrowing more expensive.

This kind of action either expands or contracts the money supply.

But, it doesn't turn a 14 trillion debt to a 14 billion debt. It it were possible, Gold wouldn't be seeing speculation at the level of 1700 plus dollars.

The CBI can use many methods of expanding and contracting the money supply to try to maintain balance. That is their job.

But, they are not likely to contract from 30 trillion to their goal of 30 billion by adjusting the interest rate they charge other banks.

All of the other tools provide similar outcomes, but I don't believe that they could employ them to make a 29 trillion nine hundred and seventy billion dinar contraction using everyday Central Bank tools...

I am open minded enough to change my mind; and any example of past utilization on this large of a scale would be a great way to change a lot of minds; but, you have to start with Shabibi. It's his party...

Shabibi has taken nearly 8 years to get the inflation rate both under control, and stable at an acceptable rate.

His 2 concerns, that he always goes back to are security to enable restructuring, and keeping inflation under control.

Fractional reserve banking exists...

The only difference that we confuse ourselves with the idea & concept is from my understanding they are not allowed to collect interest on what they hold (Due to Sharia law).

Darin,

I believe the disconnect is two fold.

Can the CBI employ fractional reserve banking, and does Islamic Banking Law allow their banks to do so.

A central bank cannot resort to fractional reserve banking, as it is their job to back the served banks.

They can market debt instruments to help back liability.

The served banks are allowed to employ fractional reserve banking; if not limited by religious law.

Islamic banks are not allowed to charge interest or utilize fractional reserve banking.

The interest rates posted on the CBI main webpage indicate that it does not follow Islamic law.

[20MillionDinar]

Only 7 out of the 42 commercial banks in Iraq follow Islamic Banking Law:

Islamic banking in Iraq: Law reforms needed to boost growth

http://ifresource.com/2009/05/30/islamic-banking-in-iraq-law-reforms-needed-to-boost-growth/

Posted on May 30, 2009 by Haris Zuberi| 1 Comment Islamic banking in Iraq: Law reforms needed to boost growth

There is huge potential for Islamic finance in Iraq, banking officials said, and the country’s central bank said it was looking at ways to encourage the sector’s growth in response to demands from Islamic banks.

Islamic banks first opened in Iraq in the 1990s and seven of the country’s 42 banks are now Islamic, meaning they comply with Islamic laws prohibiting interest, the trading of debt and investment in some sectors, such as pornography and alcohol.

"There is a great demand for Islamic banks in Iraq. The problem is Iraqi banking law does not differentiate between regular and Islamic banks," Iraqi central bank senior advisor Mudher Kasim said in an interview this week.

"The central bank at the moment is studying a new law for Islamic banks," he added, giving no timeline.

Iraqi society has become more religious since the 1990s, and clerics and Islamist groups wield great influence.

Demand from the world’s 1.3 billion Muslims for investments that comply with their beliefs has soared and assets that comply with Islamic law are estimated to be worth up to $1 trillion.

The central bank’s move is in response to Islamic banks’ requests to loosen broader banking rules on the size and type of investments they can make relative to capital and cash reserves.

The rules are meant to ensure banks are solvent, but Islamic banks derive much of their profits from investments, which are distributed among account holders in place of interest.

Iraqi law restricts investment in real estate, where Islamic banks in the Middle East have concentrated much of their cash in recent years, to no more than 15 percent of capital, Kasim said. He said that was one area of Iraqi banking law under review.

Read the rest …