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ClownSauce: I have already answered this but will do so again just for you. Here it is: a 25,000 dinar note today is worth $25; a 25 dinar note tomorrow is worth $25. The difference is TIME; today and tomorrow will be separated by the RV. The point of the article is not the "number", but the "purchasing power". Today, 25,000 dinars will buy $25 worth of stuff; after the RV, 25 dinars will buy $25 worth of stuff. That is why Saleh can say that the purchasing power will remain the same. Please re-read what this thread started with one more time, OK? Steve

This is truly amazing to me. On this thread of 41 blogs we have 4 or 5 who have all heard the same thing yet only Mac posted what he had heard. Why is that? And how come I haven't heard this? Oh, wait, I live in the middle of nowhere; right, nevermind! I think this is all good, personally, and it just MAY mean there is a glimmer of truth to it. I know that sonny1, med, Adam (supposedly, I'm not VIP), and others are all saying this is the weekend. Oh, we also have the Dubai people who say it has already started! Who knows? I love rumors! I don't usually write about them, but I still take them in and relish the possibilities they invoke. Let's all just hope this little sparkler has enough heat to light up Iraq over the weekend! Go RV! Steve

For some reason I have been having trouble opening any imf.org links. This has been for over a week now and is very frustrating. Could one of you please copy the article and paste it here so that I may read it? Thanks. Steve

After I posted this I was afraid that it might be misunderstood. Here is a better way to understand what I was writing. Let's say that the RV is going to happen tonight. Today the 25,000 dinar note is worth $25. Tomorrow, after the RV, the 25 dinar note will be worth $25. Therefore there is no change in value between the 25,000 dinar note today and the 25 dinar note tomorrow. What I then went on to say is that the only way this can happen is to have the RV tonight at 1000 times today's value. Now what I did NOT say, since I was only talking about the "sameness in value' issue, is that the 25,000 dinar note TOMORROW after the RV will be worth $25,000. Had I added that I would have been straying from the point of "sameness in value" that was in the article. So, the RV will increase the value of the dinar, creating a strong currency, according to Saleh. In doing so the old 25,000 dinar notes will also get "strong" and, after the RV will be worth a lot MORE than the new 25 dinar note, 1,000 times more. It is important to notice that the context is not placed on the old notes but instead is placed on the buying capacity of the new 25 dinar note. It does not change from the old 25,000 dinar note. Saleh's point is that the people will not lose buying power. As it turns out, should the RV be anything over 1,000 to 1, then the new 25 dinar note will actually have MORE buying power than the old 25,000 note. Based on Zubaidi's statement that the RV would be "one dollar, or more than", I suspect that the RV will be over a dollar, and therefore that the local people will see an immediate increase in the buying power of the new 25 dinar note over the old 25,000 note. Steve

Assuming that I have been able to get the gist of this article, let me make a few comments as to the import of it for our understanding. First we need to see that what is being presented here is an open dialogue regarding the stated purpose of the CBI to remove the large denominated notes from the Iraqi economy. The argument has two sides, the CBI which is defending the program and critics who are questioning the timing and efficacy of the program. Saleh is the major proponent of the program as we have seen from the beginning, and he is standing firm in his statement which is consistent with previous statements. He is also firm in clarifying that this plan of the CBI will go through, even if it takes a little longer than originally scheduled. In particular we see here that Saleh has stated that the process will reduce the money supply of Iraq from 23 trillion dinars back to 25 billion dinars. This is extremely important because it proves that they know what they are doing and that Iraq will be able to afford the revaluation of the dinar at a level of $1 or more. Paragraph three is particularly important to understand. I am reproducing it here for ease of access: Saleh told (Voices of Iraq) that "there is no need to rush the process at the moment but at the same time it is required because the subject of reform will not change the value of the currency, except to make the bills smaller." He stressed that Iraq "During the next few years, according to the new development plan, will raise its oil production, and resources will increase significantly.” He added, “and we therefore need a strong currency and low [denomintated notes] at the same time, [thereby making them] easy to handle. " I have underlined what I believe are the two key elements in this paragraph. They need to be taken together as a part of this unified thought of Saleh. If taken separately we could easily get confused. In the first part he says that the reform will “not change the value of the currency” and that it will lead to smaller bills replacing the large ones only. On the surface this sounds exactly like a lopping, However, from the last underlined portion we see that this is not the case, since he concludes by saying that Iraq needs a “strong currency” with low denominated notes. We can now understand that the meaning of the first part is that the “current” value of a 25,000 dinar note and the “new” value of a 25 dinar will not change the value of the currency. In other words, they are both worth about $25. This means that the exchange rate must grow by 1000 times for this to happen, since the article makes clear that they are not “substituting” a new currency for an old one as has been done in Bolivia, Turkey, Venezuela, and elsewhere. Now we can understand the meaning of the phrase “strong currency” at the end of the paragraph. Again, being consistent with all of the previous articles from the CBI, the meaning is clear. Now the remainder of the article deals with the views of the critics of the plan. The players are not easily identified. We have “the economic advisor to the Prime Minister Abdel Hussein.” He is the one who feels he plan is too progressive and “in vain”. He is most likely Abdul Hussain, a member of the Prime Ministry Council under Prime Minister Maliki. Therefore the article would have been more clear in stating it this way: "the economic advisor to the Prime Minister Maliki, whose name is Abdel Hussein." We also have Ferry Anbuge who apparently works within the CBI. His statement is mainly that he does not see any benefit to the people in the CBI plan. Further, he says that inflation is caused by inequities in economic growth and questions how removing the large notes will resolve that issue. Finally a businessman named Al-Aradi is also included in the interview. While he was not opposed to the idea he wanted to stress that educating the people about how it will work is paramount to having it work properly and to also avoid any black marketing schemes that might arise. To summarize: Saleh defends the CBI position on the upcoming “action plan” against his critics, further clarifying that the plan will involve a raising of the value of the IQD to a “strong currency” while at the same time, over a possibly longer period, removing the large denominated notes from circulation, thereby bringing the money supply back in line with what it was in 1980, and also thereby shoring up the new stronger currency. This clearly means that there will be an RV and that the redenomination is what make take a “longer period of time”. Steve

I hope that I have been able to

Abdul Husain Al Anbaki is most likey the person named in this article. He is a member of the Prime Ministry Council under the Prime Minster, Maliki. Therefore when the article states "economic advisor to the Prime Minister Abdel Hussein", it means "the economic advisor to Maliki, whose name is Abdel Hussein." I have made a stab at retranslating this difficult document. I have elected to present it in a new thread so that it will be easy for all to find rather than bury it here some 30 blogs below the original article. Please refer to it in the new thread and add comments as you feel led to do so.

I have to admit that FP-Mark is a great sport! Enough already! What a hoot! Next thread.

beau777: beau, oh beau; I have already given an analysis of this article where I said that it was part "official" and mostly "opinion". FP and I have even bantered on it a bit, I believe (our discussions seem to be spreading and I can't recall them all). Bottom line is this, for me: stick with official documents and you won't go wrong. xe.com is NOT official, by any stretch. Discount it, then throw it out. That is what I did. Steve

The Unofficial LOP vs. RV Voter Poll! I think in the interest of preserving history that it is time for us all to take a stand. Therefore I would like to see a

Hey, FP I know your name now! Steve

You guys are too quick for me; what a short thread! I thought it was fun anyway. How about you? Steve P.S. Wait until the next one.......

FP: I think we might be better serving our listeners if we took this one piece at a time. If the CBI has stated that it intends to "remove the large notes from circulation" then we should be able to agree that 25 trillion dinars will disappear. Would you agree to that? Now, admittedly, the introduction of smaller notes will add back to the money supply (still sticking only with "currency" here), but at a rate that is 1/1000th of that which is being removed. So, I'd like you to agree with me that the "currency" in circulation will fall from 25 trillion dinars to 25 billion dinars. If so, then we can proceed. This is, incidentally, obvious, and is based on your own statements. So I hope we are on the same playing field to this point. Once we agree on this point then we can move into the "netherworld" of electronic money. Steve

Wha tisa ninteres tingphen omeno nabout thisin vestmen tist hattwope oplecanre ad thesam esenten ceand notes eeth at thepla insen seisright the reinf ront oft hem. Steve

I neglected to make a very salient point and that is this: the higher the RV amount, the faster that the large denom notes will come into the CBI and be destroyed. This should definitely be taken into consideration when dealing with the "affordability" question for the IQD. I would not be surprised to see the money supply fall to less than $30 billion within only a few months of the RV. Steve

Thanks, FP, for some new questions! Here are the questions and my response; How exactly does a central bank use their monetary instruments to increase and decrease money supply? There are two ways to increase or decrease a money supply. The first way is to print or destroy currency. We have seen that it is the intention of the CBI to destroy currency. I cannot imagine that there is anyone on the forum who will miss this point: destroying bills lowers the amount of currency in circulation, thereby lowering the total money supply. This is very basic. The second way to affect money supply is through what is called monetary policy. This policy affects the deposits in the banks that FP was referring to. If the reserve bank (CBI) has a liberal monetary policy it makes it possible for the banks to lend against the deposits of its clients for a minimal cost (interest rate). Another way to affect the amount of depositors money that gets invested by banks is by placing higher “reserve requirements” on the banks. Both FP and I have already noted that most countries in the world use what is called a “fractional reserve requirement” system. This means that if, for example, a bank holds $1 million in deposits and has a 10% reserve requirement, they can lend out another $9 million on those deposits for investments. The affect of this is to increase the “electronic” component of a money supply. Currently Iraq has a very restrictive policy on this and requires either 100% reserves (thanks to Chaper 7) or nearly that amount. This has a severe dampening affect on investment lending. In the case of Iraq, then, the money supply is controlled by the amount of actual currency, and the amount of electronic currency. We have seen that the intention of the reserve is to eliminate all large denominated notes. Since that consists of nearly ALL notes in existence, the reduction will approach 25 trillion dinars before the end of this year. At the same time, however, the CBI will introduce smaller denominated notes to allow commerce to continue. Using the CBI’s own numbers we will expect them to produce 1/1000th the amount in small notes as existed in large noted. Therefore, by the end of the year the money supply of physical currency should be around 25 billion dinars (1/1000th of 25 trillion). This is consistent with what would occur in a LOP, as FP has so adroitly pointed out. Furthermore, this amount, according to his calculations, is consistent with a revalued value of the currency at $2.60 per dinar. I completely agree with FP on this matter. As the economy completes the adjustment from a “physical currency” situation and enters into a more “electronic currency” situation through banking and investment by the banks in various projects we should see the “hidden” money supply increase. I am confident that the CBI is not only aware that this is necessary but that it also will welcome this growth in the money supply. In short, after the large denom notes are withdrawn, the money supply will fall precipitously to 25 billion from 25 trillion dinars. Then as fractional reserve banking begins it will rise in proportion to the growth of the economy through electronic banking. Historically, how quickly can a money supply be expanded or reduced, while still maintaining a stable economy? I am not familiar with the history of banking or revaluations enough to give other than one specific example on this issue. That example is Germany after WWI. The currency was so hyperinflated that people would cash their payroll check and then take a wheelbarrow of money to the market to buy groceries. The solution was to LOP the value dramatically while at the same time increase the ability of the reserve banking system to handle this. This was an extreme situation. The same has occurred in some African nations recently, where the money supply was dropped by up to 10 zeros in a matter of months in order to bring stability. None of these situations, however, is similar to what we will see in Iraq. Iraq is in complete control of its money supply. Furthermore it has told the press exactly what it intends to do and how long it will take to do it (about 9 months, as of now). I see no reason, given the control that the CBI has had on the currency for the last 5 years, to believe that they will lose control for the next 9 months. In other words, I expect that they will do what they say they will do and have no reason to believe otherwise. Steve

DavidNelson: this is an important lynch pin document. Thanks for providing it. If and when necessary I will refer to it. I had alluded to the historic value of the IQD and used Zubaidi as my source, but now I will use yours if I return to the topic. Thanks! Steve

I had no idea; thank you K98knight for finding this. Had I known you would have been first on the list! I relish reading your finds daily. Saves me so much time I can't even tell you! Thanks, buddy, I really do appreciate it! Steve

How the pieces continue to Fit Together The following three comments come from UN Resolution 1859, adopted in December of 2008 at the request of Nuri Al-Maliki who had send a letter to the UN requesting extention of DFI protection on 12/7/2008:

Dinarded

Thank you Drox for allowing that this may not be a lop. I may convert you yet! Let’s look at the single quote that has Turkey mentioned in it. Here it is: “According to an official source at the ministry The proposal to raise three zeroes from the currency will be in accordance with the right monetary policy is not gradual, as happened in Turkey and this policy will raise the monetary value of the Iraqi currency and will of the Iraqi dinar Strength of cash against all currencies.” I will come back to this quote at the end of this post. First I want to thank for his link to the great article on redenomination of currencies in underdeveloped and developing countries. I’d like to just paste a few of these quotes here with, hopefully, short comments. We start with the “Abstract”: “I find, not surprisingly, that inflation is an important predictor of redenomination. Redenomination also is related to political variables, including governments. time horizons, the governing party.s ideology, the fractionalization of the government and legislature, and the degree of social heterogeneity.” Iraq does NOT fall in the inflation category but MIGHT fall in one of those highlighted above. “These redenominations generally involve reducing the value of the currency by a factor of ten. For instance, in January 2005, Turkey replaced its currency (the Lira) with the .New Turkish Lira. (YTL), with a conversion rate of one million old lira to one new lira. Here we see two things: Turkey REDUCED the value of the Lira by a factor. Second, the Lira was “replaced” with the New Turkish Lira. This is not happening in Iraq. In Iraq the dinar is the dinar is the dinar. There is NO replacement involved. “Currency redenomination also can be a means by which governments attempt to reassert monetary sovereignty. If citizens lose confidence in the national currency, they may begin to use foreign currencies, particularly those with greater prestige. This may be both a psychological and an economic blow to the government: with widespread foreign currency substitution (or, more extremely, full dollarization), the central bank no longer controls the money supply, rendering it unable to provide lender of last resort functions (Cohen 2004).” Clearly this situation above does NOT apply to Iraq. The Dinar has been held stable for 15 months by the CBI. It is TOTALLY in control. “if citizens are confident that the new Turkish lira will hold its value, they may be willing to shift from using euros and dollars to using lira.” So we see that dollarization was a problem in Turkey and that Turkey was having trouble contolling the exchange rate. Again, this is NOT the case in Iraq. Now this is a long article and I won’t go any farther in it, although I clearly could. The point I want to make is that the situation in Turkey is no where near the situation in Iraq. I could point out at least 6 other ways in which it is totally different. Therefore we need to go back to the original quote from the CBI and see just how the Turkish situation might be referred to. Here again is the quote: “According to an official source at the ministry The proposal to raise three zeroes from the currency will be in accordance with the right monetary policy is not gradual, as happened in Turkey and this policy will raise the monetary value of the Iraqi currency and will of the Iraqi dinar Strength of cash against all currencies.” We know from above that the situation is essentially NOT like Turkey. So we need to see if this statement is in line with that reality. Indeed it is. The statement says “the monetary policy is not gradual, as happened in Turkey”. Therefore we can see that the “context” is limited to the DIFFERENCE between Iraq and Turkey. Finally, then, we cannot compare the Turkish situation to the Iraqi situation since our only quote that uses the word Turkey refers to a difference in circumstance and not a similarity. Steve

FP - Very well stated for your case my friend! While I clearly do not agree with you I applaud you for being sound in your reasoning and not infammatory in any manner. At the same time, however, I can also be pleased with kkjk who obviously agrees with my position. You certainly can't fault me for recognizing my fans, right? Now to the matter at hand. I will deal only with one issue since if I can make this point the remainder of your argument falls. You have stated that the money in circulation cannot be reduced by a bank. In this you are absolutely correct, since the notes turned into the bank become deposits for the people who exchanged them. However, and I know you know that this is true, money supply is increased or decreased all the time in various countries. So the simple question to ask is this: who increases or decreases a money supply? That answer in the case of Iraq is the CBI. The banks transfer their large denom notes to the CBI. What has the CBI stated that it will do with these notes? Here is there statement from 2/6/2010, which we have all seen on my Chronology post: ”Salih said by the end of 2010 the new banknotes will be fully introduced while the old banknotes will be gradually removed from circulation." Now Salih is in the CBI and is making an official statement that the old banknotes will be gradually removed from circulation. Translation: the money supply of Iraq will be reduced by the elimination of these notes. This is exactly HOW reserve banks lower money supplies: they take the notes out of circulation. This is also why money supply is defined as "bills in circulation". When the "bills in circulation" are removed the money supply is reduced. I have argued earlier that you made a great point about your LOP theory and that it can be used to prove that the money supply will be reduced from 25 trillion dinars to 25 billion dinars. However, I have also argued that the process is not a LOP since the RV occurs first and then the large noted are removed over the next 9 months, effectively reducing the money supply back to the reasonable and sustainable level which, by your own admission, could be at much as $2.60 per dinar. I welcome your response on this. Steve

Drox: I submitted a "revised" post on this scenario in which I admitted that I had not thought it through properly. I showed, in deference to others such as yourself (you are late in this) that the only consistent way to do the RV was across the board. I further showed that Iraq could afford this since, at most, the average Iraqi family would get about $240,000 in savings. This, I showed is manageable and almost all would remain in banks, who would then lend to investors, and the economy would begin to flourish. This is all in my "revision" post. I have also answered all of your questions in the "Chronology" post. In that post I have again argued that the RV must occur before the removal of the large denom notes. Otherwise there would be no reason for people to turn in the notes. In addition I noted that the article does not say that they will BEGIN the redonomination at the end of the year but instead that it will be "fully introduced" by the end of the year. What this means is that it will END (fully) by the end of the year. This is also consistent with other articles stating the same thing. I would not be so stuck on "RV and then redenomination" had it said something different. But the fact is that the remainder of this article and other statements all place the two in this order. If the order were reversed, then the "redenomination" is a LOP, after which there might be a tripling of the value at some future date. But unlike typical LOP scenarios, the two currencies, "old" and "new" remain legal tender. There is no dinar-A and dinar-B as in Bolivia. Instead there are just dinars. The simple fact is that the statement gives an order for the events. Then it says we are now 50% through the process, which means of the 2 events (RV and large note removal), the CBI is "at the door" on the first part, the RV. This is why I am convinced that it will happen very soon. Finally the second part ends at the end of this year, so it necessarily must BE the second part. Otherwise Maliki's letter to the UN on 12/13/2009 in which he said he would raise the value of the IQD to "international financial standing" by 2009 or 2010 would mean nothing. Finally, while I realize that I write pretty well and can put things into concepts that are more easily understandable, and while I realize that I am labled "professor" and even "Obiwan Kinobe", at the same time I also realize that everyone in this forum is an adult and as an adult they have a responsibility to make up their own minds based on the facts and opinions presented to them. While your caution, Drox, is certainly acceptable and probably should be repeated every now and then, I would hope that you would not expect me to change my methodology just because some "might" be so ignorant as to think that I am a god. If that is the finding of some on this forum then I am sorry for that. I have stated many times that I am not a guru and have no inside knowledge. I have further stated that what I do is "analysis" of official documentation. I have also stated that it flows logically. But I have, finally, also stated, twice now, that I have made mistakes. THEREFORE, I would respectfully suggest that you consider an apology to the forum for suggesting that the members are to "awestruck" to know the difference between what I do and what someone from another site might be doing. I have no horse in the race for praise. I am not a mod and certainly don't have my own site. And finally, I have endured a lot of BS directly from several people on this site during my tenure here, but I have persevered, not because I like to be punished, but because I have been told by the vast majority that my input is valued and welcomed. Kent: I will review previous RVs of currencies and report back to you. I am confident that the IMF has directed and in fact ordered RVs of currencies in the past. tabi: Thank you wholeheartedly for trying to defend me. You have the right idea but have presented it in a way that has led to the confusion and "angst" from several members, as shown here in this thread. Perhaps this will help: when the CBI uses the term "remove the 3 zeros" from the currency it explains itself every time in that the meaning is to remove the large denom notes. Therefore any attempt to LOP zeros from a rate is not consistent with the intent of the statements themselves. It is no more appropriate to talk of moving decimals, either from 1170 to 1.170 or from .00086 to .86 or even to .00000086 (which, incidentally, would be incorrect in any case). IF one were to talk of LOPPING zeros then the zeros get removed, not added to the exchange rate. In your example you have added zeros, not removed them. However, none of this is of any merit, since the phrase, as I have just indicated, does not have to do with the rates but rather with the removal of the large notes. This brings me to the point of the rate. The only places we have mention of "rates" by the CBI or by the Ministry of Finance is in 2007 when Zubaidi specifically referred to a return to the pre-Saddam rate of $3.33 per dinar; and again more recently in 2009 or early this year when he said that the IQD would be raised in value to "1 dollar or more than". None of these statements makes reference to $.86 or $1.17 and it is my opinion that these numbers should no longer be discussed since they come from erroneous thinking on the meaning of the term "remove the 3 zeros". Finally, someone posted several pages back that I made an error in my theoretical discussion of the guy who made 100,000 dinars one week and then made 1,000 the next week. This was a typographic error on my part. I was clearly moving too quickly. The correct second number should have been 100 dinars, as was pointed out. However, you will note that it was not referred to again or used in my analysis, so it does not affect what I have written at all. Had I referred back to it in the remainder of my scenario I obviously would have seen the oversight and corrected it. But I didn't: so shoot me. Steve

Drox: Sorry for the delay in responding to you. I have stated in previous posts that the RV is a precursor to the release from Chapter VII. More specifically I said that I believed that the RV is the “action plan” referred to in Un Resolution 1905 which is the document that will lead to release from Ch VII. Therefore, since the RV occurs before release from Ch VII it is no longer significant to our investment. I do NOT believe that the articles referenced indicate a rate of 1000 dinars equaling 1 dollar. It is more possible that the initial RV rate will be at or near a dollar as is indicated by the phrase from Zubaidi where he said “1 dinar would equal 1 dollar, or more than” (paraphrasing). However it is clear that Iraq can afford a higher value and it is my opinion that they want a higher value. My own leaning is that they will come out somewhere between $1.50 and $2.50 and hold that value until all of the large denom notes are brought in and destroyed. At that point the money supply will have been brought under control again and they will then be able to go to a “managed float” for the exchange rate. I foresee it going up to around $3.50 within 2 to 4 years. The CBI itself has stated that it would “raise the value of the IQD and then remove the large denom notes during the remainder of the year” (again paraphrasing). I am only reporting what they write. The RV comes first, and then over the remainder of the year the large denominated notes are drawn in. This only makes sense and here is why: if you don’t raise the value of the dinar first, why would the people bring them to the bank to exchange them for smaller notes? They wouldn’t. On the other hand, if you raise the value first then the large denom notes aren’t useful in day-to-day business since they are too large; so the people come to the banks to get smaller notes that are more useable in the local markets. Next, the plan has been evolving since 2005 and is now at the “implementation” phase. When the article says that “the bank has completed 50% of a strategy” I believe that it means that we are half way through a 2 step process. The 2 steps are the RV and then the redenomination. Therefore, since they are completed with the first half, the RV is now ready to be implemented any day now. Then the other 50%, namely the drawing in of the large denom notes, will take place during the remainder of the year. The process of drawing in the large denom notes begins immediately after the RV is announced. This is necessary for the following reason: if you raise the value of the IQD to, say, 1:1 then the notes in people’s hands aren’t going to work in the market, the smallest being worth $1,000. Therefore they will HAVE to bring them in for exchange at a bank, at which point the smaller notes will be given them. The article is quite clear that “by the end of 2010 the new banks will be fully introduced.” What this means is that the process, which begins immediately at the RV, will be completed by the end of the year. I have already indicated that the “and then” only makes sense in the manner in which I have presented it, and my expansion on those comments here confirm that this must be the meaning of the phrase. The RV must occur first (giving people a reason to bring in their large bills) and then the removal of the large bills takes place over the next 9 months. I am not involved with the situation in Turkey. However, the article mentions Turkey ONLY in reference to the fact that large denom notes has to be withdrawn from their economy as well. To draw any further conclusions about the relationship between Iraq and Turkey is to go beyond the intent of the statement, in my opinion. Steve

FP