Enoch8 responding to Highlander and Proteus

[Darin]

For me I dont see how it wouldnt fix both of those issues.....I want to see how a RD just simply would not work in this situation as much as the next guy but have yet to stumble across anything substantial to indicate that....

I base my opinion on the idea that a re-denomination creates a lack of incentive to convert back to using USD on a daily basis.

If your an average Iraqi, you may not switch your ways to a revenue neutral event.

Honestly, why would you convert your ways just because a currency lacks 3 zeros? What sort of incentives will the CBI create to get their citizens to start using IQD over USD?

Simply put, one major hold-up is a lack of convertibility outside of Iraq.

And if the people don't necessarily change their ways and still continue to use USD, the businesses will have to hold & carry USD to help do business with the people.

What really changes? Nothing, other than a lack of 3 zeros..

So accounting may be easier, or adding/subtracting becomes less of an issue. But that I can only see being beneficial on a large scale, not so much small.

[Darin]

1987:

Population: 16,278,000 people

Circulation: 25 Billion (25,000,000,000)

USD Value of Circulation: $80 billion (80,000,000,000)

Present Day:

Population: 32,000,000

Circulation 32 trillion (32,000,000,000,000)

USD Value of Circulation 27.52 Billion (27,520,000,000)

1987:

IQD per person: 1,535.82

USD value per person: $4,945.32

Present Day:

IQD per person: 1,000,000

USD value per person: $860

The above numbers indicate the "what if" every dinar was divided out into all citizens and what that amount would be. Than using the exchange rate, it is decided what the USD value of the holdings per person would be. So for example, in 1987/1988 an average Iraqi may hold 1,535.82 dinars which equals a USD value of $4,945 dollars. Present day, if all dinars were divided out, each citizen would hold roughly 1 million at a US value of $860 dollars.

Lets say they re-denominate through the removal of 3 zeros. Now their target is to reach a per value as the 1987 #s indiciated above per person ($4,945). They would have to take the current rate 1170 and multiply it times 5.75.

So remove 3 zeros:

1.17 (or 0.86)

multiply it by 5.75

You get 4.945

That is without including inflationary factors, costs of living increases, foreign investments & investors, the substantial increase of production of oil & its cost per barrel, and the future of the economy as it progresses forward.

Something to chew on.

[Highlander]

1987:

Lets say they re-denominate through the removal of 3 zeros. Now their target is to reach a per value as the 1987 #s indiciated above per person ($4,945). They would have to take the current rate 1170 and multiply it times 5.75.

So remove 3 zeros:

1.17 (or 0.86)

multiply it by 5.75

You get 4.945

That is without including inflationary factors, costs of living increases, foreign investments & investors, the substantial increase of production of oil & its cost per barrel, and the future of the economy as it progresses forward.

Something to chew on.

Darin this is awesome! I did have a little different thought i wanted to throw out there into the mix. They did say they wanted to return the value they held in the 80's. So if we were to toy with the exchange rate of .86 and then somehow through exchange ratios on the notes each citizen ended up holding about 5750 dinar when this is done that would also equal $4945 US dollar value per person. Then if you add in inflationary factors and so on as Enoch was pointing out in the original post of this thread you suddenly have a greater need for more than 27 billion dinar being available to the country of Iraq.

My thought is only different in that I think they can return that same value with a lower rate and a favorable exchange ratio like what they did for the Swiss dinar. One swiss dinar received 150 new dinar. I am not suggesting that this would be the ration but simply to demonstrate that ratios can and do occur in monetary changes in countries. In fact several countries have gone this route. France, Russia, Germany, Argentina. Each one did a little something different but the common factor was the a designated amount of wealth was allowed to transfer to the people in the process.

[Way2WyrD]

Some great work folks thanks.

[keepmwlknfny]

I base my opinion on the idea that a re-denomination creates a lack of incentive to convert back to using USD on a daily basis.

If your an average Iraqi, you may not switch your ways to a revenue neutral event.

Honestly, why would you convert your ways just because a currency lacks 3 zeros? What sort of incentives will the CBI create to get their citizens to start using IQD over USD?

Simply put, one major hold-up is a lack of convertibility outside of Iraq.

And if the people don't necessarily change their ways and still continue to use USD, the businesses will have to hold & carry USD to help do business with the people.

What really changes? Nothing, other than a lack of 3 zeros..

So accounting may be easier, or adding/subtracting becomes less of an issue. But that I can only see being beneficial on a large scale, not so much small.

To the iraqi citizen they would most likely see it differently.....its like if the US came out with a totally new one dollar bill and you could now buy a gallon of gas with one of those or you could use the old dollar bill and pay 3 something dollars for that same gallon of gas. Would that not make the new one dollar bill more attractive to you because of its purchasing power??

Seems the dollarization issue is fixing itself with all the turmoil and smuggling going on in Iran and Syria is it?

Yota posted an article talking about how there is actually a lack of. USD circulating in the markets......

[Darin]

To the iraqi citizen they would most likely see it differently.....its like if the US came out with a totally new one dollar bill and you could now buy a gallon of gas with one of those or you could use the old dollar bill and pay 3 something dollars for that same gallon of gas. Would that not make the new one dollar bill more attractive to you because of its purchasing power??

Seems the dollarization issue is fixing itself with all the turmoil and smuggling going on in Iran and Syria is it?

Yota posted an article talking about how there is actually a lack of. USD circulating in the markets......

And in time, that is likely to surpass and the in-country demand for USD will surpass the demand for IQD.

It is a value neutral event, which means really no incentive to convert from using IQD over USD. Just because 3 zeros have been omitted, would not magically make it appear as if the IQD buys 'more.'

For those that fit that mentality, it may simply be equally met with those that felt that their wealth was lost and use USD over IQD. It becomes a wash so to speak.

It is still a lack of convertibility that may deter some from using IQD. Ease of trade with foreign people will drive the demand for USD over IQD imo.

A great incentive alone would be to make the IQD better in terms of a trade able currency.

[keepmwlknfny]

And in time, that is likely to surpass and the in-country demand for USD will surpass the demand for IQD.

It is a value neutral event, which means really no incentive to convert from using IQD over USD. Just because 3 zeros have been omitted, would not magically make it appear as if the IQD buys 'more.'

For those that fit that mentality, it may simply be equally met with those that felt that their wealth was lost and use USD over IQD. It becomes a wash so to speak.

It is still a lack of convertibility that may deter some from using IQD. Ease of trade with foreign people will drive the demand for USD over IQD imo.

A great incentive alone would be to make the IQD better in terms of a trade able currency.

If there is no incentive to use a higher valued dinar through a RD, then how would there be an incentive to use it more with a RV at the same rate??

End result, both having a higher purchasing power....so whats the difference when you take the 000 bills out of the equation? None really.....

So your saying then if a new 1 dollar bill came out that could buy the same amount of goods as an old 10 dollar bill you would not think your buying more for less???

[jupitergirl]

For me I dont see how it wouldnt fix both of those issues.....I want to see how a RD just simply would not work in this situation as much as the next guy but have yet to stumble across anything substantial to indicate that....

Keep, Enoch put this out late last year maybe this answers your question....

Post Enoch8 on Sun Sep 18, 2011 1:41 pm

Looks like the overall sense of this, might be simply put, that the economy and inflation has nothing to do with the amount of Dinars in circulation, put that dollarization and the peg to an inflating USD is largely the problem.

One main point is to consider.... at 1170 with 30 Trillion IQD (as reported by CBI), that is only about $26 Billion Dollars worth of currency.

Iraq possesses, (according to their own records and IMF), only about 20% of that total, roughly speaking, about 7 Trillion IQD and about 23 Trillion is not held by or even own by Iraqis..... and about 80% of their economy is based on USD and other currencies.

It was reported by CBI , that this practice is costing about 8% of the GDP, due to a non recognized National Currency..... largely caused by the costs to convert to other currencies..... and that might not include additional accounting inconveniences, due to the low value and number of zeros.

It is obvious, that there are 4 main things that need to happen to solve this problem.

1. The Currency has to be tradable internationally, so the costs of import and exporting non oil goods is not draining 8% of the GDP, which is inflationary, all by itself.

2. GOI policies that were based on 'Nationalization' and Government Regulatory practices of the former regime, that are oppressive to the private sector.... meaning the Revolutionary Command Counsel Laws..... must be repealed.... (which they are actively doing, BTW).

3. The prices of goods must be decreased and the National Currency value must be increased.

4. The use of USD and Euro internally, in the markets, is inflationary and is currency manipulation, which all by itself holds the people in poverty.

Now..... here are the problems to solve.

The Basis years of Iraq, are represented by the last fair representation of an average Iraq economy, according to the Ministry of Planning Feasibility Studies..... was 1988..... which is a fair assessment of the last year of a healthy economy, before the Saddam restrictions destroyed the economy.

This year seems to reflect the health of the economy, in the prior years.

In those years, the amount of IQD in circulation was about 25 Billion IQD and the country held most of that, value in either IQD or Petro Dollar wealth.

The Rate was $3.22 against the USD and the overall value of the Money Base, was about $80 Billion US.

Oil was only about $15 Per Barrel.

Today, there are 30 Trillion IQD and even IF Iraq held all of that and dedollarized, the value of the Money Base, at 1170 IQD per 1 US, is only about $26 Billion US.

That is only about 30% of the value of the Money Base of 1988, while the price of a barrel of oil is about $90 Per Barrel, (6 times higher than the prices of 1988.)

Note: The Inflation index from that day is shown by MOP and CBI to be about 630%, so the cost of oil is a very good representation of this number..... which is 600%..... only 30% difference.

The population has increased in that time, by about 35%.

So..... here is a way to add up what the actual Money Base would have to be valued at, today, compared to the $80 Billion US value of IQD in 1988, just to maintain the status quo of those days.

Here is how you figure it.

$80 Billion x 1.35 reflects the population increase and therefore demand:

That is $108 Billion US value of needed IQD.

$108 Billion x 630% (108 x 6.3) = $680.4 Billion USD value of the IQD Money Base.

There are only $26 Billion in existence, at 1170, so divide 680.4 by 26 = 26.167.

That means, simply put, that even without considering the fact that there is currently about 2 to 5 times the world demand on IQD (even as an exotic currency), that there was back then..... and the fact that if Iraq is able to hold a sustainable value, there would be many times that demand in the combined factors of demand, by Forex, International Treasuries and Corporations, to hold as Internationa Reserve Currency..... and estimates of that could be 5 to 10 times the current demand.

OK..... let me simplify this a bit.

If they were to simply Redenominate (IE LOP), they would only have a value of 30 Billion IQD at .86, which is only about a $26 Billion US, in IQD Money Money Base value, which is 26.167 times under value, (without factoring additional international demand of as much as 10 to 50 times that demand.

What this shows, is that just in Iraq alone, the demand (just to maintain the status quo), is to have 26.167 times the current value or 26.167 times the amount of currency in circulation..... in Iraq..... not including international demand.

So..... here is a perfect example of what this shows us.

Let us say they do what Turkey, France, Venezuela or Nigeria did.... and just Redenominate.

They would have to either print up 26.167 times as many notes in smaller denominations.... (which is totally absurd...), or they would have to also revalue 30 Billion IQD to 26.167 times the rate of (.00086 x 1000) = $.86 and times that by 26.167 as the exchange rate.

That is $22.50 US per 1 Iraq Dinar.

Now that is just preposterous.

That would still only meet the needs of only Iraq..... not considering international demand added....and still only to meet the status quo of today's existing levels of poverty.

That is just absurd to even consider as being viable..... because without a policy change.... they would suffer continued dollarization, multi currency practices.... and the identical inflationary pressures.... as they have now, without solving a thing..... and would have to do it all over again in 10 years.

Now..... here is one other thing I did not mention. Iraqi average incomes are only about 10 to 20% of their closest neighbors and competitive oil producing nations...... so let us continue this to show what the viable alternative would be to Redenomination.

So far we have shown that just Iraq.... to maintain a level of $4000 per year income averages, would need to have a Monetary Base in IQD value, of roughly $680 Billion which is 26.167 times larger than what exists now.

BUT!!!

Consider that very conservatively, the average Iraqi income would increase to just double in the next 3 to 5 years.

That creates a demand of 1.26 Trillion IQD valued at just $1.00 US.

We have already established, that there is already a demand in the world markets of 5 times that, (even before it is even an international reserve currency.)

That tells us, that there would be a need to have about 6.3 Trillion IQD, currently, if the Value was only $1.00 US.

If it RVs..... we also know.... the goal is to become an international reserve currency.... which would place additional demands of as much as 5 to 10 times that.

Since we are sticking with the conservative numbers.... let's use the smaller number.

6.3 x 5 times additional demand..... = 31.5 Trillion IQD valued at just $1.00 per IQD.

Now.... watch!!!

What was the latest numbers CBI has been reporting, exists in IQD in circulation?

Some have said 30 Trillion and others said about 31 Trillion. CBI is projecting, there would need to be 70 Trillion IQD at the current Exchange Rate within the next 3 to 5 years if nothing is done.

So...... are you getting this? Do you see what this is showing?

You are not getting the full picture from CBI, GOI or the media.

They for a 100% certainty, cannot Redenominate. without increasing the value at least 1000 times.... and would still have to have the existing amount of dinar in circulation..... even at $1.00 .

Do you see?

The economists are basically saying, there is more to it, than simply removal of zeros. That would destroy the economy if they did not replace every single dinar removed from circulation, with another.

Get it? yes

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