"Open market operations" are monetary policy tools that affect directly the monetary base; the monetary base can be expanded or contracted using an expansionary policy or a contractionary policy, but not without risk.
The monetary base is typically controlled by the institution in a country that controls monetary policy. This is usually either the finance ministry or the central bank. These institutions print currency and release it into the economy, or withdraw it from the economy, through open market transactions (i.e., the buying and selling of government bonds). These institutions also typically have the ability to influence banking activities by manipulating interest rates and changing bank reserve requirements (how much money banks must keep on hand instead of loaning out to borrowers).
The monetary base is called high-powered because an increase in the monetary base (M0) can result in a much larger increase in the supply of bank money, an effect often referred to as the money multiplier. An increase of 1 billion currency units in the monetary base will allow (and often be correlated to) an increase of several billion units of "bank money". This is often discussed in conjunction with fractional-reserve banking banking systems.
So now we know there are monetary tools that affect directly the monetary base. Monetary Base are the notes & coins that are in circulation. The monetary base can be expanded or contracted using two different methods.
First Method: "Expansionary Policy" (Expanding / Printing More Money)
http://en.wikipedia....monetary_policy
"In economics, expansionary policies are fiscal policies, like higher spending and tax cuts, that encourage economic growth.[1] In turn, an expansionary monetary policy is monetary policy that seeks to increase the size of the money supply. In most nations, monetary policy is controlled by either a central bank or a finance ministry." We already know how a country can "expand" their monetary base / currency in circulation. They print more money. This is exactly what Iraq has done ever since 2003 when they released the new IQD's and put them into circulation. I believe they started with about 6 trillion Dinars back in 2003 but for arguments sake we will stick with the facts. In 2004 IndexMundi states that they had 10,244,220,000,000.00 Iraqi Dinars in circulation. That is a little over 10 trillion dinars.
http://www.indexmund...acts/iraq/money
Now we know that the CBI has the ability to "expand" and has in fact "expanded" their monetary base from 10 trillion Dinars to 30 trillion Dinars in a matter of 4 years! That is a lot of printing...
Second Method: "Contractionary Policy" (Contracting / Decreasing Money in Circulation)
http://en.wikipedia....monetary_policy
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.
Folks, I have created 3 threads this morning and all of them I personally feel are VERY IMPORTANT.
First Thread Titled: "Iraqi Bank Reserve Requirements" http://dinarvets.com...79This particular thread has debunked the false rumors floating around accusing Iraq of following the Islamic Banking Law, which they do not. This means that they do not follow 100% Full Reserve Banking.
Second Thread Titled: Smart Cards / E-Payment Will Decrease Currency in Circulation" http://dinarvets.com...31 I explained how moving to E-Payment such as the Smart Card can and will significantly decrease the amount of currency in circulation over time. This method will depend on consistent power through the country in order for the banks and ATM's to work....they obviously need electricity (thanks Dalite for the reminder) The Iraqi citizens will also need to build faith and trust with the different banks in order for this to work. Educational Campaigns could do this for them in a matter of weeks or maybe months.
Lastly, Thread Titled: "Open Market Operations aka "Currency Auctions" This PROVES that the currency auctions can (if not already) bring in tons and tons of Iraqi Dinars which will then be destroyed. This effectively destroys a country's Money Base aka Currency in Circulation.
I have provided tons of links and facts for the naysayers or for those who base their decisions off of logic and reasoning. I'm not sure if this is possible but I think a MOD should "Pin" this thread because it proves that a significant RV is possible. It proves all of the "naysayers / LOPsters" wrong. The biggest argument (which is valid and played a huge role in all of this) is the amount of currency in circulation. Well this thread proves that by using Contractionary Policy the CBI can decrease the Money Base (currency in circulation) through Open Market Operations which also can be referred to as Currency Auctions.
Thank you for taking the time to read through this.
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