Question about IDQ

[armondtoth]

If FP or someone could answer this question I would appreciate it. It is stated that Iraq has 43 Trillion betwen M1 and M2 and they would like to have that down to 25 billion. IMHO even if they RV at 3.00 it doesn't increase the IDQ in circulation to 129 trillion. So if they just wanted to get currency down to 25 billion all they have to do is RV it to get people to turn it back in. Right

FP I respect your input and if you could explain this I would appreciate it cause everone is making it more than what it seems.

[keepmwlknfny]

thats exactly how it looks to me....or at least one way to get a ton of their currency out of circulation because they know a huge amount of it held by us small investors will be exchanged right back in WHEN they revalue....making it easier to "destroy" the larger bills if thats what they plan on doing with them...but either way it would be getting them out of circulation which is what they are trying to accomplish with the introduction of the smaller denominations....if they devalue the worth of the 000 bills then what is going to push people to exchange them or turn them in?? NOTHING....at least to me i wouldnt give a ****...haha they would be worthless anywayz so whats the point in going through the hassle of exchanging them?

[armondtoth]

That is kinda what I was thinking

[Fi3ry_Ph03n1x]

If FP or someone could answer this question I would appreciate it. It is stated that Iraq has 43 Trillion betwen M1 and M2 and they would like to have that down to 25 billion. IMHO even if they RV at 3.00 it doesn't increase the IDQ in circulation to 129 trillion. So if they just wanted to get currency down to 25 billion all they have to do is RV it to get people to turn it back in. Right

FP I respect your input and if you could explain this I would appreciate it cause everone is making it more than what it seems.

Armond: Thanks for the respect and the question. I think you hit it right on the head as far as an important part of Iraq's money.

As you stated, Iraq has somewhere around 43-46 trillion dinar. You also stated correctly that an RV would not increase that to 129 trillion. The reason is simple... instead of thinking about the money supply in terms of trillions, think about it in terms of how much you own. We'll say for example that you have 40x 25,000 notes. That's 1 million dinar. If it RV'ed to 3:1, you wouldn't all of the sudden have 3,000,000 IQD in your pocket, it would just be worth more. The money supply stays the same... just the value of the money increases. Good observations.

Taking it one step further: Joe Iraqi takes his 25,000 IQD note to the bank and turns it in to the teller for deposit into his account. Does anyone think that that piece of paper goes into a drawer in the back of the bank labeled, "Iraqi, J.", and that he can come back to the bank and get that exact same piece of paper back? Of course not. It is handed out to another customer who withdraws 25,000 IQD, put into the vault, or sent back to the CBI. But if the note is sent back to CBI, does Joe Iraqi's account balance drop by 25,000? No way! He still has the value of the money in his account, no matter where that note ends up. This deposited money is part of M2, so no matter where the piece of paper ends up, the value of that money remains in the money supply.

If he pays a merchant for gasoline and then uses the tank of gas up, the commodity (gas) is used, but the money is still in the merchant's pocket.

In our case (foreign investors holding hard currency... which doesn't include me), dinar are deposited at the bank and exchanged for US dollars. They either end up at the Federal Reserve, or being traded internationally between banks for other currency. But the point is that their value doesn't cease to exist simply because they get deposited somewhere.

This makes it seem like the money supply never changes. This also is not true. The money supply can be expanded or contracted, but it is far more complicated than the CBI reclaiming 25,000 notes. It happens more slowly over time through the increase and decrease of prime rates (interest rates set by the central bank). When interest rates go up, people borrow less money so less gets injected into the economy. When interest rates are low, people borrow more money from the bank so more gets added to the money supply.

FP

[armondtoth]

Armond: Thanks for the respect and the question. I think you hit it right on the head as far as an important part of Iraq's money.

As you stated, Iraq has somewhere around 43-46 trillion dinar. You also stated correctly that an RV would not increase that to 129 trillion. The reason is simple... instead of thinking about the money supply in terms of trillions, think about it in terms of how much you own. We'll say for example that you have 40x 25,000 notes. That's 1 million dinar. If it RV'ed to 3:1, you wouldn't all of the sudden have 3,000,000 IQD in your pocket, it would just be worth more. The money supply stays the same... just the value of the money increases. Good observations.

Taking it one step further: Joe Iraqi takes his 25,000 IQD note to the bank and turns it in to the teller for deposit into his account. Does anyone think that that piece of paper goes into a drawer in the back of the bank labeled, "Iraqi, J.", and that he can come back to the bank and get that exact same piece of paper back? Of course not. It is handed out to another customer who withdraws 25,000 IQD, put into the vault, or sent back to the CBI. But if the note is sent back to CBI, does Joe Iraqi's account balance drop by 25,000? No way! He still has the value of the money in his account, no matter where that note ends up. This deposited money is part of M2, so no matter where the piece of paper ends up, the value of that money remains in the money supply.

If he pays a merchant for gasoline and then uses the tank of gas up, the commodity (gas) is used, but the money is still in the merchant's pocket.

In our case (foreign investors holding hard currency... which doesn't include me), dinar are deposited at the bank and exchanged for US dollars. They either end up at the Federal Reserve, or being traded internationally between banks for other currency. But the point is that their value doesn't cease to exist simply because they get deposited somewhere.

This makes it seem like the money supply never changes. This also is not true. The money supply can be expanded or contracted, but it is far more complicated than the CBI reclaiming 25,000 notes. It happens more slowly over time through the increase and decrease of prime rates (interest rates set by the central bank). When interest rates go up, people borrow less money so less gets injected into the economy. When interest rates are low, people borrow more money from the bank so more gets added to the money supply.

FP

Thanks for the Reply FP puts it more in perspective.