Kap never walk his own theory....
He said the exchange rate of dinar will increase gradually from 1190:1 to 1:1 over a certain period of time ( 6 months, 1 yr or even 2 yrs).
😎 any exchange rate movement from 1190:1 to 1:1, no matter how 'gradual' they are, no matter which way you are looking at it ~ they are going to be huge, massive & enormous.
And I think Kap needs to understand, the relationship between exchange rate and economic development....
My main problem with his theory is price stability. The very mainstay of CBI policy and existence (not to mention IMF policy as well).
~ How do you maintain price stability if the exchange rate keeps changing on a daily or weekly basis?
~ then there is domestic borrowings. If today (@exchange rate of 1190), a small trader borrows 5 million dinar (abt. 5000 USD) for a period of 12 months.....how much will he be paying back monthly and how much will he be paying back eventually, 5 million dinar or 5,000 dinar?
~ How often will every government Dept and companies in Iraq, will have to adjust their employees salaries (as the exchange rate keeps changing and increasing)?
~ traders changing their prices everyday day? every week?
And jumping onto the bigger issues ~ how do they plan and manage the cost of reconstruction?
~ And how do they purchase their raw materials (when exchange rate is rising)? Do they purchase them now (and pay with more IQDs), or hold it until later (pay with less IQDs).
~ What if every contractor decides to hold until later (until when the exchange rate reach 1:1)? What happens to their reconstruction plan?
~ what if, even the govt decides to hold, as it will more viable to do so economically? Will their economy still be buzzing?
What if everybody then decided to keep their money and not spend them now?
And then...of course, the currency speculators. What do you think they will do when they see the exchange rate of IQD keep rising and rising on forex?
For me, no country will allow these kind of exchange rate uncertainties, hovering over their economies ~ there will be financial chaos.
Iraq and IQD is not yet in open market and based on that point alone, we know that the value of IQD was never at equilibrium/true value, so........to avoid financial chaos (in open market), CBI/Iraq need to price their dinar accordingly and as close to market equilibrium as possible and keep it STABLE from then on (allowing appreciations or depreciations within certain range, just like any other countries in the world).
We are currently waiting for Iraq to re-price their currency (IQD) before taking the next big step to move into open market. And I sincerely hope, 1190 is not their starting point.