I present the following to obtain thoughts from those who understand Macro Economics better than I. I thought of two possible scenarios. I am sure there are many many more. The following is very simple, and probably way too simple. Yet it may show a concept of what the GOI is facing. There are many issues. These issues include not only the exchange rate between the USD and the dinar, but:
1. Exchange rate/impact to all of the other current and future trading partners (countries),
2. Will the future dinar be strong or weak as far as buying a loaf of bread in Iraq (will it take 3 dinar to buy a loaf or 3000?)
3. Since oil may be the largest export for Iraq for years to come, how to adjust the value of the dinar to maximize a strong economy inside Iraq...is, how to help the common man
4. Human factors...People are not use to buying a loaf of bread with a denomination that has alot of zeros behind it. It makes it "seem" more expensive.
5. How to "work" in this world economy? Iraq must consider the current accepted practices and rules of trade that exist. Foreign trades must be "fair" to the GOI, the people of Iraq and the foreign trading partner...many issues here
6. Other issues that are impacted include the stock markets, inflation, tax revenue for the GOI, national debt, trade deficits, tourism....
so here are two scenarios:
SCENARIO NUMBER ONE
THE RV RESULTS IN ONE US DOLLAR = 1000 IQD (The WEAK Dinar SCENARIO)
Let's assume that a barrel of oil cost the US $100
To purchase one barrel, the US converts $100 to dinar at 1:1000 so that Iraq receives 100,000 dinar ($100 X 1000 = 100,000)
Iraq gives the US the barrel of oil and now has 100,000 dinar
But one needs to consider how much a dinar will buy in the country of Iraq.
If that loaf of bread still costs 3000 dinar, then question is: Is it "fair to" or "work for" all parties that a barrel of oil is the same value as 33 loaves of bread? (100,000 dinar divided by 3000dinar/loaf = 33 loaves)
Maybe or maybe not, but note how there is a relationship between foreign trade and the Iraqi citizen buying groceries
SCENARIO NUMBER TWO
THE RV RESULTS IN ONE US DOLLAR = 1 IQD (The STRONG Dinar SCENARIO)
Let's assume that a barrel of oil cost the US $100 (This price should stay the same as in Scenario One in order for Iraq to stay competitive with the current world price of oil)
To purchase one barrel, the US converts $100 to dinar at 1:1 so that Iraq receives 100 dinar ($100 X 1 = 100)
Iraq gives the US the barrel of oil and now has 100 dinar
But one needs to consider how much a dinar will buy in the country of Iraq.
If that loaf of bread now costs 3 dinar (because the dinar is now strong), then note how the question of: Is it "fair to" or "work for" all parties is the same. That barrel of oil is still the same value as 33 loaves of bread (100 dinar divided by 3dinar/loaf = 33 loaves)
So this is just one of the issues to be considered. If a loaf of bread now costs 3000 dinar, then how does the GOI have a free enterprise economic system and transition to a price structure where a loaf of bread costs only 3 dinar? (Scenario Number Two)
Again, I do not understand much of this. To the experts I ask:
Could either Scenario work?
Is one more feasible than another?
What am I overlooking?