Iraq hard cash reserves exceed $60 billion

[k98nights]

APR 10 2012

By Khayoun Saleh

Azzaman, April 10, 2012

The Central Bank has the ability to stave off speculation on the Iraqi dinar which saw its value vis-à-vis the dollar declining in the past two weeks.

The dinar’s depreciation has prompted the Central to intervene by increasing supply of the greenback and withdrawing dinars from the market.

It has forced the bank’s senior officials to give statements to assure markets that the country has massive reserves of hard cash, more than enough to cover the dinars in circulation.

“The dinar is strong and we have tremendous ability to confront bubbles in prices. Our reserves are estimated at $62 billion,” said Central Bank Deputy Governor Mudher Saleh.

Saleh said the Iraqi economy, due to high oil prices and the increase in oil export, was robust.

“Our hard cash reserves are sufficient to cover 120% of the value of local currency in circulation at current exchange rate,” Saleh said.

Demand for the dollar has surged in the past few months. Analysts say the demand has been fueled by sanctions imposed on neighboring Iran and Syria.

Saleh acknowledged that there has been a rise in demand for the dollar in Iraq and that the Central Bank is trying to work out a new mechanism for its sale of hard cash.

He said Iraq’s hard cash comes solely from oil exports and it was important that the authorities took extra care when spending it.

http://www.azzaman.com/english/?p=27

[zigmeister]

I really wonder what is really going on here.

[one2one]

" “The dinar is strong and we have tremendous ability to confront bubbles in prices. "

the dinar is not strong---not even a tradeable currency--on the forex ?---no

[thatoneguy]

Quote: "massive reserves of hard cash, more than enough to cover the dinars in circulation"

Read more: http://dinarvets.com/forums/index.php?/topic/113419-iraq-hard-cash-reserves-exceed-60-billion/#ixzz1rgqZMP91

That is comforting. Dedollarize and RV already. If you do things right, you won't immediately need greenbacks.

[TonyDownTheShore]

It's funny how last year they were saying they had 90 billion dollars in reserve, now it's only 62 ? I'm not buying that.

[Butifldrm]

I really like this statement!

The Central Bank has the ability to stave off speculation on the Iraqi dinar

Read more:

[DetroittoAZ]

This whole article is great. Thanks K98

The dinar’s depreciation has prompted the Central to intervene by increasing supply of the greenback and withdrawing dinars from the market.

It has forced the bank’s senior officials to give statements to assure markets that the country has massive reserves of hard cash, more than enough to cover the dinars in circulation.

[20MillionDinar]

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, as illustrated by the Argentine and East Asian financial crises.

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, the reaction 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.

I think what the original article is stating that the CBI can maintain control of the IQD using their reserves to eliminate the risk of speculative attacks on their currency.