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READ!!!...Iraq Dinar...Went from Fixed to Floating Exchange...


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I don't!

Read this: I posted this in one of my previous threads, it might help you understand WHY we don't want it pegged to the US dollar!

As we know the Iraqi Dinar is now held at a "program" exchange rate as specified by the International Monetary Fund of 1170 dinars per US dollar at the Central Bank of Iraq. However, there is not yet a set international exchange rate and so international banks do not yet exchange Iraqi dinar. The exchange rate available on the streets of Iraq is around 1200 dinars per US dollar.

Typically, a government wanting to maintain a fixed exchange rate does so by either buying or selling its own currency on the open market. This is one reason governments maintain reserves of foreign currencies. If the exchange rate drifts too far below the desired rate, the government buys its own currency in the market using its reserves. This places greater demand on the market and pushes up the price of the currency. If the exchange rate drifts too far above the desired rate, the government sells its own currency, thus increasing its foreign reserves.

The main criticism of a fixed exchange rate is that flexible exchange rates serve to automatically adjust the balance of trade. When a trade deficit occurs, there will be increased demand for the foreign (rather than domestic) currency which will push up the price of the foreign currency in terms of the domestic currency. That in turn makes the price of foreign goods less attractive to the domestic market and thus pushes down the trade deficit. Under fixed exchange rates, this automatic rebalancing does not occur.

Governments also have to invest many resources in getting the foreign reserves to pile up in order to defend the pegged exchange rate. Moreover a government, when having a fixed rather than dynamic exchange rate, cannot use monetary or fiscal policies with a free hand. For instance, by using reflationary tools to set the economy rolling (by decreasing taxes and injecting more money in the market), the government risks running into a trade deficit. This might occur as the purchasing power of a common household increases along with inflation, thus making imports relatively cheaper.

Additionally, the stubbornness of a government in defending a fixed exchange rate when in a trade deficit will force it to use deflationary measures (increased taxation and reduced availability of money) which can lead to unemployment. Finally, other countries with a fixed exchange rate can also retaliate in response to acertain country using the currency of theirs in defending their exchange rate.

The belief that the fixed exchange rate regime brings with it stability is only partly true, since speculative attacks tend to target currencies with fixed exchange rate regimes, and in fact, the stability of the economic system is maintained mainly through capital control A fixed exchange rate regime should be viewed as a tool in capital control. A speculative attack in the foreign exchange market is the massive selling of a country's currency assets by both domestic and foreign investors. Countries that utilize a fixed exchange rate are more susceptible to a speculative attack than countries utilizing a floating exchange rate.This is because of the large amount of reserves necessary to hold the fixed exchange rate in place at that fixed level. Nevertheless, if a government chooses to maintain a fixed exchange rate during a speculative attack, they risk the chance of severe economic depression or financial collapse.

A speculative attack has much in common with cornering the market as it involves building up a large directional position in the hope of exiting at a better price. As such, it runs the same risk: a speculative attack relies entirely on the market reacting to the attack by continuing the move that has been engineered, in order for profits to be made by the attackers. In a market that is not susceptible, there action of the market may, instead, be to take advantage of the change in price by taking opposing positions and reversing the engineered move. This may be assisted by aggressive intervention by a central bank, either directly through very large currency transactions or through raising interest rates, or by activity by another central bank with an interest in preserving the current exchange rate. As in cornering the market, this leaves the attackers vulnerable.

The above tells us that Iraq has extremely large reserves due to the fact that they need to keep their exchange rate stable as it is pegged to the US dollar They do this through their currency auctions. Now, if the IMF (which seems to be the ones who are responsible for keeping them on the fixed exchange rate) allowed the Iraqi Dinar to float then what could happen is the CBI could purchase Iraqi Dinars at their currency auctions and "destroy them" or withdraw them from circulation. This in turn places greater demand on the market and pushes up the price of the currency. Also, if they were not on the fixed exchange rate then they wouldn't have the need for so much extra currency as they wouldn't have to "prop up" or "suppress" their currency on a day to day basis like they have to do now.

Another problem being stuck on this fixed exchange rate is that an automatic balancing of trade doesnot occur. When a trade deficit occurs, there will be increased demand for the foreign (rather than domestic) currency which will push up the price of the foreign currency in terms of the domestic currency. That in turn makes the price of foreign goods less attractive to the domestic market and thus pushes down the trade deficit. This is what has been happening in Iraq for quite some time. The demand for and excessive use of the US dollar in Iraq is actually making the IQD worth less because of the lack of demand. This also makes foreign goods (imports) less attractive pushing down the trade deficit. A"flexible exchange rate" serves to automatically adjust the balance of trade.

Now, on top of all of this they also need to worry about "speculative attacks" which could be cause by speculators and foreign investors. Yes, this is very possible, especially with a country worth so little bit. $60 Billion USD, this market is easy to corner if you think about it. A couple of major corporations, foreign financial institutions, and major investors could EASILY corner this market should they choose to do so! However, this may be assisted by aggressive intervention by a central bank, either directly through very large currency transactions or through raising interest rates, or by activity by another central bank with an interest in preserving the current exchange rate. As in cornering the market, this leaves the attackers vulnerable.

I personally believe that somebody (USA) has an interest in preserving the current exchange rate. This would leave any potential attackers vulnerable. I don't care who says US is not holding massive amounts of Dinar, I say they are for this exact reason. This market would be easy to corner UNLESS Iraq is being assisted by the US through very large currency transactions. If you think this is impossible then think again! Just because you can't find proof that the US is holding tons of dinars, think about this. It is almost common sense!

Overview:

1) There is excessiv eamounts of Dinar which is needed at this time to maintain the fixed exchange rate system. This is a major reason for the over inflated money supply.

2) If the Iraqi Dinar is allowed to float then that would allow them to withdraw and destroy trillionsof dinar immediately. This in turn creates greater demand for the IQD currency and drives up value. Also, being an internationally recognized currency using a flexible exchange rate puts the currency on the FOREX market giving the currency more liquidity and trade volume is increased substantially! A flexible exchange rate also helps to automatically balance trade.

3) Speculative Attacks: Why hasn't the Iraqi market been cornered? Why hasn't any major corporations, financial institutions, or even governments tried to corner this market? Or have they....? It is very possible that the same entity (USA) who could cause the biggest speculative attack on Iraq be the ones who are preventing this from happening through very large currency transactions as there is a major interest in preserving the current exchange rate. Something to think about folks...

You make a good point 20 MD.. maybe that is why ever since December the US Treasury Dept has been buying up 1 million dinars a day and still doing it. Im not a trader or have any knowledge in trading but in your opinion wouldnt that be helpful in a counter attack to any entity trying to corner the market? Obviously the US has some plans for the long haul with all they have been and are still doing in Iraq. Such as leaning on who I think is one of the people holding everything up in parliment. I think you know who I'm talking about? It has been said through a few articles that his reign is coming to an end. Either M is going to play ball and be a nice guy allowing for equal power in the govt.. or he is gone. That simple so either way at the National Conference I would hope to see alot of deals worked out like Erbil, HCL, Trade etc.. what are your thoughts? Nate

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I invest for the long haul. I think over the next decade (and it is, of course, speculation) that Iraq will become stable, that its natural resources will benefit the country, and the currency will become more valuable. I'm hoping for a 20 percent to 30 percent return over that period. I believe Iraq to be a good investment, but they have a long way to go. It's extremely interesting watching the struggles within the country and will be interesting watching them resolve their problems and prosper. But it's not as interesting to watch their growth without some skin in the game, which is why I buy currencies.

I see where you are coming from but if you are looking for a 20%-30% return in your dinar investment you would have to be holding digital currency as in having a Warka account. Fact is, when you purchased your dinars (if you bought physical dinars) you have paid a high premium close to 35% above market rate.

Now, realistically, you would need to see a 70% return on your investment to break even. WHY? Because when you cash in you will be hit with another exchange fee + the spread. Let's give you the benefit of the doubt and say that when you cash in the dinar is internationally recognized and you don't have to pay an exchange fee, just the spread. You would still need to see a 40% increase in the IQD to break even. Do you see what I'm getting at?

Let's say you have Dinar in a Warka account. Unless you have invested $10k US (or more) in the dinar you probably won't see much profit even if the IQD increases by 30%. Why? Because you paid an international wire fee to fund the warka account, and then to withdraw from Warka you will be paying close to $50 or so.

So if you bout only 1 Million Dinar in a warka account you still spent $50 on your wire and will spend another $50 to wire it back to the US. That is 10%. So now your 30% return is now 20%...

Lastly, let's look at inflation in the good 'ol USA: We are averaging about 7% per year for inflation. That means every year your money is decreasing in value about 7%. So over a decade you have lost 70% of your purchasing power but you have gained your 30% on the IQD investment assuming you didn't pay ANY fees whatsoever... Doesn't seem too profitable to me.

I'm not trying to sound rude but if you are really hoping for a 20%-30% return on your investment then you are sadly mistaken. I am pretty sure everybody holding dinar did not buy in to make 20%-30% in 10 years....LOL There are plenty of other investment vehicles paying much much more than that without half the risk.

Hope this helps!

Edited by 20MillionDinar
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I know you didn't ask me, but I will say, nonetheless, that I believe all the talk this week about the National Conference may just be cover for the announcement of all those things at once. :D

It is possible however many articles lead to saying the disputes within the blocks will be coming to an end and ever since April i have been closely watching the articles for that and other matters within the banking system. As well as the oil contracts and trade agreements being made. Infrastructure and essential networks being completed all within this time frame. So it is a very exciting time watching the birth of this nation from ground up. So much great information and many who offer their input as well. A great time to learn for sure. so either way it works out is fine by me. I would have to say that it would just be nice to see this ride finally come to an end! Then the next study would be the ISX. Thanks for your comment. Nate

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The Dinar is not floating. It is tied at the hip to the Usd. The CBI is firmly in control of the exchange rate.

Sorry, you are wrong. Before you write, try doing your homework. When the IQD is released from the program rate..it is treated like any other currency.

Not arguing with your theory about the technicality of what you said, however, my curiosity has the betterment of me. You have been accused of being a Lopster, and several other things others have said, So I guess the ultimate question that myself and probably others want to know is (and I preface it with the fact that no-one really knows) is what you think is going on, or more specifically, where do you think the dinar will be 1 month from now, 1 year from now, and 5 years from now, relative to the USD?

He really has no idea, just sitting behind his computer stirring the pot.

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Don't even get me started...............you have no credibility with me what so ever dude......I've been reading your crap for way to long.

hey dont you mean 364...1/2 ..............credibility is a state of mind ............STROKER .........O i mean STRYKER laugh.gif,...........I have had enough of all of yalls crap .............so you will now see the new RANDALL

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You make a good point 20 MD.. maybe that is why ever since December the US Treasury Dept has been buying up 1 million dinars a day and still doing it. Im not a trader or have any knowledge in trading but in your opinion wouldnt that be helpful in a counter attack to any entity trying to corner the market? Obviously the US has some plans for the long haul with all they have been and are still doing in Iraq. Such as leaning on who I think is one of the people holding everything up in parliment. I think you know who I'm talking about? It has been said through a few articles that his reign is coming to an end. Either M is going to play ball and be a nice guy allowing for equal power in the govt.. or he is gone. That simple so either way at the National Conference I would hope to see alot of deals worked out like Erbil, HCL, Trade etc.. what are your thoughts? Nate

Hi Nate,

Thank you for the response. My thoughts are that the UST is holding Iraqi Dinar whether on or off the books that is irrelevant. They are holding probably at least 4-5 Trillion Dinars so that speculative attacks can not happen. It would be pretty easy for an entity whether corporate or government to create a speculative attack on Iraq's country as it is only valued at about $60 Billion! This is tiny...

Even if the ONLY reason the US got involved was to secure future Oil sales and contracts, it would still be in their interest to not let any one entity corner the market, otherwise, it was all for nothing. So whether or not the US is holding Dinars for a potential RV doesn't matter, there is still a major possibility that we are holding Dinars to prevent any sort of speculative attack which could threaten our interests in the oil...

As far as Maliki playing ball or not. I am not sure...

As far as the National Conference goes. I am not sure... I wish I did!

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20mil, I'll make a few bucks over 10 years,which is a decent return for a hobbiest. I've been doing this for a long time (I'm 61). You win some and you lose some. As a group, we do pretty big buy-ins and spread the risk.

To each his own! Best of luck with your ventures. At least if it is a hobby you are having fun regardless if you lose or win. Can't go wrong if you keep that mindset.

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Hi Nate,

Thank you for the response. My thoughts are that the UST is holding Iraqi Dinar whether on or off the books that is irrelevant. They are holding probably at least 4-5 Trillion Dinars so that speculative attacks can not happen. It would be pretty easy for an entity whether corporate or government to create a speculative attack on Iraq's country as it is only valued at about $60 Billion! This is tiny...

Even if the ONLY reason the US got involved was to secure future Oil sales and contracts, it would still be in their interest to not let any one entity corner the market, otherwise, it was all for nothing. So whether or not the US is holding Dinars for a potential RV doesn't matter, there is still a major possibility that we are holding Dinars to prevent any sort of speculative attack which could threaten our interests in the oil...

As far as Maliki playing ball or not. I am not sure...

As far as the National Conference goes. I am not sure... I wish I did!

Excellent point 20mil ! Great response! Rich

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When the IQD is released from the program rate..it is treated like any other currency."

Say the CBI floats the Dinar. That means the exchange rate is no longer pegged to the dollar. Its value is controlled purely by what the market determines it is worth. How does it benefit you who are holding hard Iraqi currency if you are not living in Iraq?

Edited by lotsofdinar
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When the IQD is released from the program rate..it is treated like any other currency."

Say the CBI floats the Dinar. That means the exchange rate is longer pegged to the dollar. Its value is controlled purely by what the market determines it is worth. How does it benefit you who are holding hard Iraqi currency if you are not living in Iraq?

Foreign Currency is exchanged in almost any bank around the entire USA...you pay a small exchange fee (way less than the dinar dealers are charging might I add) but it is money.

There is more to it then saying "its value is controlled purely by what the market determines it is worth." That is only partially true. The true value lies in what the CBI could then do once they decide to let their currency float.

There is excessive amounts of Dinar which is needed at this time to maintain the fixed exchange rate system. This is a major reason for the over inflated money supply.

If the Iraqi Dinar is allowed to float then that would allow them to withdraw and destroy trillions of dinar immediately. This in turn creates greater demand for the IQD currency and drives up value. Also, being an internationally recognized currency using a flexible exchange rate puts the currency on the FOREX market giving the currency more liquidity and trade volume is increased substantially!

It really doesn't get any clearer than this. If they move to a flexible exchange rate system aka "let it float" then there would be tons of benefits. I just listed the main benefits above, it pretty much sums it up.

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Sorry, you are wrong. Before you write, try doing your homework. When the IQD is released from the program rate..it is treated like any other currency.

He really has no idea, just sitting behind his computer stirring the pot.

What do you mean by this?

All the guy is pointing out is that the CBI can change the rate against the dollar depending on their financials, but that it doesn't mean that they are now a floating currency.

Iraq has never had a floating currency. It has always had a fixed value, first to the British pound and then to the USD. Saudi Arabia, UAE, Bahrain and Oman are perfect examples of countries whose main source of income is petroleum that keep their currency pegged to the currency their petroleum is priced in. Even Kuwait's currency is based on a basket of currencies and does not float.

lotsofdinar is not stirring any pots, just pointing out what is and what isn't. It's just that some people don't want to hear it. :lol:

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If the Iraqi Dinar is allowed to float then that would allow them to withdraw and destroy trillions of dinar immediately. This in turn creates greater demand for the IQD currency and drives up value."

Once its floated, the amount of dinar they have is a small part of the market forces that determine the value. There is a little over a trillion USD in circulation in the U.S. But that has almost nothing to do with the value of our currency in the market.

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What do you mean by this?

All the guy is pointing out is that the CBI can change the rate against the dollar depending on their financials, but that it doesn't mean that they are now a floating currency.

Iraq has never had a floating currency. It has always had a fixed value, first to the British pound and then to the USD. Saudi Arabia, UAE, Bahrain and Oman are perfect examples of countries whose main source of income is petroleum that keep their currency pegged to the currency their petroleum is priced in. Even Kuwait's currency is based on a basket of currencies and does not float.

lotsofdinar is not stirring any pots, just pointing out what is and what isn't. It's just that some people don't want to hear it. :lol:

This is true, but like I said before, when has Iraq ever been a democracy? For that matter, when has any other Middle Eastern country been a democracy? Never...

We are in un-chartered times.

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If the Iraqi Dinar is allowed to float then that would allow them to withdraw and destroy trillions of dinar immediately. This in turn creates greater demand for the IQD currency and drives up value."

Once its floated, the amount of dinar they have is a small part of the market forces that determine the value. There is a little over a trillion USD in circulation in the U.S. But that has almost nothing to do with the value of our currency in the market.

Iraq is a cash based economy. Half of their entire M2 is CASH or M1. The US has an M1 money supply of a little over 1 Trillion Dollars for an M2 of about 13 trillion...

Big difference!

Also, the USD is the world's reserve currency which has almost everything to do with the value of our currency in the market.

Bottom Line: If trillions of Dinar were removed from circulation it would have a HUGE impact on the value of the IQD, that is extremely obvious...

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Bottom Line: If trillions of Dinar were removed from circulation it would have a HUGE impact on the value of the IQD, that is extremely obvious... "

It's not obvious to me. Remove trillions of dinar from circulation and you would still have a small, unstable country with only 60 billion USD in reserves and a lot of oil underground, the income from which they plan to use over time to run and build their own country, not to back their currency or make speculators rich.

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