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Hello again my friends. Let's have a discussion on how we quantify value in the IQD in a very simplified way. There is a well respected and accepted economic principle called the "Quantity Theory of Money". Simply put, the theory states that there is a direct relationship between the quantity of money in an economy and the level of prices of goods and services sold. The equation goes like this: MV=PT or M(money supply) [x] V (velocity) = T(avg price of good and services [x] volume of goods and services) for the sake of keeping the explanation simple we will call T - goods and services throughout this write up Let's break the equation down in english - For a defined window of time, the amount of printed money multiplied by the average number of times the money changes hands equals the total goods and services at average price. When there are changes on one side of the equal sign, there must be changes on the other side of the equal side. Change in goods and services directly effects money supply, velocity or both. Please continue no further until that is clearly understood. Quickly we can recognize a few scenarios from this direct relationship: When goods and services boom, there must be a significant rise in either money supply, velocity (number of times the money changes hands) or both in order for the equation to stay equal/balanced. When money supply booms, if goods and services stays the same, there must be a reduction in velocity When money supply booms and velocity stays the same, there must be a resulting boom in goods and services When velocity of the currency booms, and goods stays the same, money supply must be reduced I could continue on drawing up scenarios with this equation but I believe I gave enough examples to help highlight the direct relationship between opposite sides of the equal sign. Should we accept this respected theory as a means to compute value, what do we see Iraq doing? We know for fact that Iraq has significantly reduced its Money Supply. We watched much of this happen through the auction process where the CBI purchased IQD with USD. We have seen reports from the CBI that the notes in circulation has been reduced to 4 Billion with a goal to get to 1 Billion. We might assume that the velocity of the money is up from articles of currency been worn out through overuse. We know that the GOI and CBI are working to boost privatization on a massive scale which will significantly increase the volume of goods and services in the economy. We know that as the volume of goods and services increases, the monetary policy of Iraq is to PREVENT inflation (increasing money supply). My friends I hope we are all able, from this simple means of measurement, to see that the IQD is intended to gain value....significant value. The only thing standing in the way of realizing the real value of the currency is the presence of the USD. Eventually we will see the time when foreign investment into the country will demand a true foreign exchange market where the foreigner's money will be exchanged into IQD in order to execute business in the country resulting in boosting the country's volume of goods and services. The only thing we really have to watch for at this point that will work adverse to our hope is 1) Reduction in the nation's security 2) Anything denoting that Iraq begins increasing/inflating the money supply. As of today however, these two indicators are either being addressed (1) or the exact opposite (2). Now, I bet more people are happy to read about the 50 note being removed from the economy. That alone should have given the dinars you hold a boost in value! Be blessed my friends.- 47 replies
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