Parliament receive financial models for the new currency cash

[Carrello]

Parliament receive financial models for the new currency cash

07/21/2012 0:00 BAGHDAD -

Al Sabah announced the Finance Committee in the House of Representatives that it received financial models for the new currency by the Central Bank. A member of the Commission secretary Hadi Abbas's (Center Brief for the Iraqi Media Network) that "his committee received financial models by the Central Bank, which amounted to a class (25) dinars, and class (50) dinars and (100) BD and (200) dinars." And that "these models viewed by the members of the Finance Committee and officials at the Ministry of Finance and Central Bank".

He added that "the Finance Committee recommended that the Central Bank formally switched to wait in the currency in January of 2013 and be replaced in the middle of next year in the month of July there will be even more of a study by the officials to change them." And announced that the Finance Committee earlier that all the parties involved in the study of the project to delete the three zeroes from the Iraqi currency approval and there have any objection and the central bank announced earlier that the project to delete the three zeroes from the Iraqi currency will carry the country from the country of trillions to billions. "

My link

[mr john]

Trillions to billions. Neg me if you want but that sure as heck sounds like a lop.

[Cole Pruitt]

Screams at the top of my lungs, "Someone please tell me what this means!" :/

[Maggie123]

Screams at the top of my lungs, "Someone please tell me what this means!" :/

Thank You Miss Carrello

UM... Cole Pruitt Calm Down

Nobody knows what this means.

Many will follow with what they "think" it means... but we just can't know until all is said and done.

IMHO they absolutely have to put out lower denoms either way.

Thats all I know. Hope that helps.

[bamagirl]

Thank You Miss Carrello

UM... Cole Pruitt Calm Down

Nobody knows what this means.

Many will follow with what they "think" it means... but we just can't know until all is said and done.

IMHO they absolutely have to put out lower denoms either way.

Thats all I know. Hope that helps.

That's the way I see it too... we won't know until we know!

[Double R]

It means the smaller notes will absorb the value of the larger notes, as has been stated many times before. Trillions to billions means the mass of cash moves from 30 trillion or so to 15 billion. There are numerous articles that have stated this that have been presented in the last year.

[JWJW11]

That's the way I see it too... we won't know until we know!

and that's when we will know:)

[Carrello]

Trillions to billions. Neg me if you want but that sure as heck sounds like a lop.

Quantity has nothing to do with unit measure of value. You know, quality n.ot quality.

[TonyDownTheShore]

He added that "the Finance Committee recommended that the Central Bank formally switched to wait in the currency in January of 2013 and be replaced in the middle of next year in the month of July there will be even more of a study by the officials to change them."

Either this is a smoke screen or this story will be changed a few more times before the middle of next year, thanks Carrello.

[TheArtistFormallyKnownAs]

All I know is if I say Autumn you think Fall ,If I say Tomato you think Tomato.

If I say LOP Shabs thinks Propaganda.

[keepmwlknfny]

Trillions to billions. Neg me if you want but that sure as heck sounds like a lop.

SHHHHH!!! Your not allowed to state the obvious!!!

[SocalDinar]

Quantity has nothing to do with unit measure of value. You know, quality n.ot quality.

GM CARELLO

Thanks for the article

We know they are reducing the money supply and the rate is not correct

Why are they so vague (trillions to billions) why not say 33 trillion to 33 billion?

Why are the auctions so large day after day.? IMO this is key

Quantity and Quality as you put it are both undetermined

CBI and SHABS still playing the game and they are pretty damn good at it

Go SHABS

[rw.sutton]

Screams at the top of my lungs, "Someone please tell me what this means!" :/

I dont think, they are going to spell it out for us, as plain as this. A lot of the articles that are coming out, leave a question in your mind, these days. Im to the point, What happens, let it happen, I refuse to let these articles, move me, one way or the other, if this blessing should happen to find me, Great, if not, I keep working..

[rockfl9]

Social dinar::: You ask why are the daily auctions so big ???

May people dont really under stand the auction...It goes like this ... GOI/MOF takes in dollars from sales of oil and other resources. The CBI is Iraqs banker so it must trade those dollars into dinar. They are selling the dollars to get dinar to fund operations ( this is call the current account) The banks that buy the dinar service the businesses that must import goods . Remmember dinars are not worth anything except in Iraq ! In the end the goods paid for with dollars will be sold for dinar in the local market.. In the end it is a wash . Usually no gain, no loss.

[ftruck7]

I dont think, they are going to spell it out for us, as plain as this. A lot of the articles that are coming out, leave a question in your mind, these days. Im to the point, What happens, let it happen, I refuse to let these articles, move me, one way or the other, if this blessing should happen to find me, Great, if not, I keep working..

You mean they are not going to tell us that they are going to make us money?

Why not??

Please tell me that they would not lie about this. :P

[GotSix]

Social dinar::: You ask why are the daily auctions so big ???

May people dont really under stand the auction...It goes like this ... GOI/MOF takes in dollars from sales of oil and other resources. The CBI is Iraqs banker so it must trade those dollars into dinar. They are selling the dollars to get dinar to fund operations ( this is call the current account) The banks that buy the dinar service the businesses that must import goods . Remmember dinars are not worth anything except in Iraq ! In the end the goods paid for with dollars will be sold for dinar in the local market.. In the end it is a wash . Usually no gain, no loss.

Which auction are you talking about oh but I do like the part where you state "In the end it is a wash" & "Usually no gain, no loss".....that is one huge assumption on your part my friend

[rw.sutton]

You mean they are not going to tell us that they are going to make us money?

Why not??

Please tell me that they would not lie about this.

they would not lie about this,,,

[Carrello]

they would not lie about this,,,

and you're probably not pregnant.

Edited July 22, 2012 by Carrello

[rockfl9]

Gotsix::: Talking about the CBI daily auctions..YES the GOI spends ALL the dollars that come in. Showed budget overruns for 10 years.. So they have DEBT. That debt is almost 2 years of cuurent level of oil income .. So they have learned to tap into the future ...

Edited July 22, 2012 by rockfl9

[SocalDinar]

Social dinar::: You ask why are the daily auctions so big ???

May people dont really under stand the auction...It goes like this ... GOI/MOF takes in dollars from sales of oil and other resources. The CBI is Iraqs banker so it must trade those dollars into dinar. They are selling the dollars to get dinar to fund operations ( this is call the current account) The banks that buy the dinar service the businesses that must import goods . Remmember dinars are not worth anything except in Iraq ! In the end the goods paid for with dollars will be sold for dinar in the local market.. In the end it is a wash . Usually no gain, no loss.

Currency is of value if people are willing to trade for it, doesn't matter what country its in.

since we can not see the actual CBI accounts we are all guessing as to what these auctions mean.

The CBI has auctioned off Aprox $3.7 Billion more USD this year to date than last year 2011 January to July 22

Thats Aprox 4.3 Trillion IQD .

These numbers are off CBI site http://www.cbi.iq/documents/CBI_FOREIGN_EXCHANGE_AUCTIONS.pdf

With the US pullout imports should have declined this year.

sure seems like they are reducing the money supply to me.

You are correct I really don't understand these auctions but trying to educate myself everyday. Your opinions are appreciated.

Go Shabs!

Edited July 22, 2012 by SocalDinar

[rw.sutton]

and you're probably not pregnant.

Hey brother, ne told me to please tell him, so I politely told him..

[rockfl9]

Socialdinar::: I hope yyou accept my description of the purpose of the auctions , Because it is fact.

Yes , it is possible for a financial institution to take a position to buy and hold dinar. I am certain the UST does not and US FED regulated banks do not .. Could they service customer requests for dinar ,sure if it is worth their effort, just as they would for any other currency. Would they be obligated to buy it back????? I dont know?/

Oil imports increased , so did spending . They are rolling over $100Mil in 1 yr notes at 5.8% . Why would they do that if they had the $ to at least reduce the amount?

They are also looking at floating 20 yr bonds... Why? They need the $ for development.. A true "investor " must be willing to wait.

So it boils down to Iraq needs to fund more out-go than it has income for at least the next 5-10 years . CBI's charter is to see that life on the streets in Iraq gets better . AND if he stays SHABS will do that!!!!

Please no bashing .. willing to discuss facts.. If I'm wrong I can accept it gracefully.

[Carrello]

and you're probably not pregnant.

It was a joke folks; "probably not" as in not conclusive, true, reliable, or smoke, like 99% of the Iraq news. Geez.

Hey brother, ne told me to please tell him, so I politely told him..

It's sister.

Edited July 22, 2012 by Carrello

[keepmwlknfny]

Currency is of value if people are willing to trade for it, doesn't matter what country its in.

since we can not see the actual CBI accounts we are all guessing as to what these auctions mean.

The CBI has auctioned off Aprox $3.7 Billion more USD this year to date than last year 2011 January to July 22

Thats Aprox 4.3 Trillion IQD .

These numbers are off CBI site http://www.cbi.iq/do...GE_AUCTIONS.pdf

With the US pullout imports should have declined this year.

sure seems like they are reducing the money supply to me.

You are correct I really don't understand these auctions but trying to educate myself everyday. Your opinions are appreciated.

Go Shabs!

The Foreign Exchange Auction In Iraq (CBI)

Middle East Economic Survey

VOL. XLVIII

No 18

2-May-2005

The Foreign Exchange Auction In Iraq

By Simon Gray

Simon Gray is Adviser, Markets and Financial Infrastructure, Centre for Central Banking Studies (CCBS), Bank of England. During his secondment to the Coalition Provisional Authority (CPA) in Baghdad, he was Senior Advisor to the Central Bank of Iraq. He wrote this article for MEES.

The Central Bank of Iraq (CBI) introduced a foreign exchange auction on 4 October 2003, just under a fortnight before the start of the currency exchange (which replaced the old banknotes, and ran from 15 October to 15 January 2004). The timing was to a large extent dictated by that of the currency exchange, but the underlying need reflects Iraq’s position as a major oil-exporting country.

Background

The government’s revenue is predominantly in US dollars, from oil sales. To this extent, Iraq’s position is similar to that of many countries in the region. And in common with many countries in the region, its expenditure is largely in domestic currency, in this case Iraqi dinar. The Ministry of Finance therefore needs to sell dollars for dinar.

Typically, a Ministry of Finance with foreign currency revenues will sell surplus foreign exchange (it will use some for the purchase of imports for government projects etc; and may keep some in a separate oil stabilization fund) to the central bank; and the central bank will on-sell dollars to the market, via the banking system. Under a fixed exchange rate regime – and many oil-exporting countries in the region operate such a policy – it is clear at what rate the Ministry should sell to the central bank. The central bank can then on-sell, at the same rate, whenever banks request dollars. Prior to the war, Iraq operated a fixed exchange rate regime (albeit with a hopelessly non-market exchange rate), supported by exchange controls. But post war, the central bank was not in a position to operate a fixed exchange rate regime, and in any case did not want to lock into the exchange rate prevailing at the time. 1

From the end of the war though summer 2003, the exchange rate was purely market-determined – the market in question being a street market for physical cash in three main locations in Baghdad. But the Ministry and central bank did not need to make use of this market, as official expenditure at that time was mostly in US dollar bills.2 From October, things had to change. Once the currency exchange was under way (from 15 October), it was clearly important – if only from a political point of view – for the government to make disbursements in the new Iraqi dinar, rather than predominantly in dollars as had been the case since May. This meant that the Ministry needed a reference rate at which it could sell dollars to the central bank; and the central bank needed a mechanism for on-selling dollars to the market.

Without a mechanism to rechannel dollars to the economy, there would have been two consequences:

A shortage of dollars could hit the dinar exchange rate, leading potentially to a very sharp depreciation;

A dollar shortage would also cut off import supply, pushing up prices sharply. (Large amounts of dollar expenditure by the CPA and MoF had, predictably, fed through to a huge increase in imports, as previously suppressed demand could now be satisfied.)

Associating the introduction of the ‘new’ currency with sharp depreciation, cutting of the supply of consumer goods, and a hike in prices for those goods still available would have been disastrous.

An Auction As The Solution

The solution was to introduce a foreign exchange auction. This was kick-started by the CBI selling a small amount of its foreign exchange reserves to the market. Thereafter, the auction rate could be used for MoF dollar sales to the CBI (so that it would be a genuine market rate, rather than something based on a straw poll of street exchanges); and the market could bid for dollars in the auction to meet the level of demand. If demand was excessive, the rate would adjust.

We were aware that, once the new currency was available, the MoF would be selling several hundred million dollars a month to the CBI, and that auctions could easily exceed $10mn a time as the domestic demand generated by government expenditure (payment of salaries, pensions etc) fed though to import demand (since many consumer goods had to be imported), and thus demand for foreign currency. It was important to prepare the market for the auction system, and ideally to have a mechanism up and running, before the amounts became large. This meant starting in early October at the latest.

The full details of the auction need not be covered here. Importantly, several meetings were held with the commercial banks and the non-bank licensed foreign exchange dealers to discuss the mechanics and the purpose of the auction. Three dry runs of the auction were held, to give participants a better feel and ensure the mechanics worked. The first dry run was very messy; but by the end everyone understood not only how to complete bidding forms correctly, but how to participate in the price formation process and learn from the previous auctions.

All the banks and foreign exchange dealers also understood how the CBI would participate. It would look at the volume and price of bids from the market before deciding on its own participation, so that it could choose the cut-off rate. Clearly, no central bank can have full freedom in this: trying to keep the dinar too strong could lead to an unsustainable drain on limited reserves, while trying to hold back appreciation could have an inflationary impact. But at the margin, and for a time, the CBI could influence the rate. Since the market is allowed to participate in the auction in either direction (buying or selling dollars), it is possible that the central bank will not need to participate at all. But in practice there will nearly always be a large net demand for foreign currency by the market.

Banks and licensed foreign exchange dealers were allowed to submit bids directly to the central bank; but the dealers had to accompany their bids by a confirmation from their bank that funds were available to honor the bid, if successful. Settlement is book-entry only, across accounts at the central bank. Most bids are made in the 15-30 minutes before the cut-off time for the auction; and results are published 30 minutes after the close of bidding. Details can be found on the CBI website (www.cbiraq.org). Settlement is same-day. The short time-scale – only possible with book-entry settlement – helps to keep the auction and the rest of the market in line with each other.

The Auction, Exchange Rate Policy And Inflation

The first auction was held on 4 October 2003, and received a single bid, for $20,000. There was some debate about whether to accept it, since it was arguably below the market rate. But the CBI decided it was important to give a positive signal to the banks, to encourage participation in the future, and the bid was accepted. Within a couple of weeks, the bid rate at the auction and the street price – CBI staff went out three times a day to check prices at a range of locations (preferring those where prices were displayed, rather than given in response to a request) – had merged; and volumes were soon close to $10mn3. The majority of Iraqi banks participate regularly.

The CBI has said regularly in the auction result announcements that its aim is to achieve broad exchange rate stability, in order to support domestic price stability. There is no exchange rate target or band. The CBI has been able to meet demand, and there is not enough economic information for the market to take a strong view on what an ‘appropriate’ level of the exchange rate might be, certainly not to push for change in the rate.

But while the ‘right level’ was not clear, the CBI could be confident that excessive volatility was harmful. After the massive shocks to the economy and to society more widely in the previous months, it was important as far as possible to engender an atmosphere of stability – particularly in the early days of the currency exchange, when many Iraqis would see their income switching from dollar cash to new dinars. In any case, in view of the upward stickiness of some prices, it was likely that exchange rate volatility would tend to increase the level of inflation.

Especially in the early days, it was not clear what a ‘normal’ level of day to day volatility might be, since there was no ‘normal’ period to compare with. The chart above shows the daily returns on holdings of new Iraqi dinar, and clearly indicates much more volatility in the early days of the auction, and of the currency exchange, than more recently. Two particular spikes in the chart – in early December and mid January – can be linked to the announcement of Saddam’s capture (when it was not clear what the long term impact would/should be), and the end of the currency exchange, when the trend appreciation of the dinar (arguably starting with Saddam’s capture) led to ‘irrational exuberance’.

In the former case, the CBI made no attempt to stand against the trend, but did help to smooth it by the level and rate of its participation in the auctions. By contrast, the very sharp appreciation of the dinar in early January seemed unwarranted and almost certainly unsustainable; and it was clearly upsetting the market4. On this occasion – on 15 January 2004 – the CBI bought a small amount of dollars at the auction, and indicated that the recent appreciation of the dinar ‘was not supported by any recent political or economic announcements’. In other words, the CBI again avoided taking a stance on the appropriate level of the exchange rate, but merely noted that nothing had changed recently which would justify the very sharp movements in preceding days. This worked, as the chart below indicates.

Similar action in January 2005, just ahead of the national elections, was also undertaken in response to an increase in volatility, but otherwise the market has been remarkably quiet.

Reducing exchange rate volatility, and then supporting a remarkably stable nominal exchange rate since the beginning of 2004, has proved to be a very powerful tool in meeting the CBI’s objective of low domestic inflation (formalized in the new CBI law, dated 6 March 2004). In Iraq, as in many commodity-exporting open economies, there is a rapid pass-through from the exchange rate to domestic inflation. The correlation is bound to be unstable, as it will be affected by expectations, changes in the level of demand (eg reflecting changes in the security situation), changes in the direct costs of importing goods in an unsafe environment, and periodic supply disruptions. But prima facie, there is strong evidence that a stable exchange rate has helped to support price stability.

__________________________________________________ ______________

1. In fact, there were differing exchange rates depending on the denomination of note used (with a difference of 25-30%); and the rate was very unstable.

2. The ID10,000 note was not widely accepted at face value, in part because of (legitimate) counterfeit concerns; and the smaller-denomination ID250 notes (worth around $0.12 at the time) could not be printed fast enough.

3. Within a year of the first auction daily turnover was regularly over $25mn.

4. In the words of a senior official at Rafidain on the evening of 14 January: “The market is going crazy. People are offering 1,000 for the dollar. What are you doing about it?”

http://www.mees.com/....8n18-5OD01.htm

Basically, the USD from oil that comes in to the MOF, is sold/exchanged to the CBI for dinar, then the CBI turns around and sells the USD at the auctions and replenishes the dinar it gave to the MOF....its just a cycle that continues over and over....nothing gets removed from circulation....

[SocalDinar]

Socialdinar::: I hope yyou accept my description of the purpose of the auctions , Because it is fact.

Yes , it is possible for a financial institution to take a position to buy and hold dinar. I am certain the UST does not and US FED regulated banks do not .. Could they service customer requests for dinar ,sure if it is worth their effort, just as they would for any other currency. Would they be obligated to buy it back????? I dont know?/

Oil imports increased , so did spending . They are rolling over $100Mil in 1 yr notes at 5.8% . Why would they do that if they had the $ to at least reduce the amount?

They are also looking at floating 20 yr bonds... Why? They need the $ for development.. A true "investor " must be willing to wait.

So it boils down to Iraq needs to fund more out-go than it has income for at least the next 5-10 years . CBI's charter is to see that life on the streets in Iraq gets better . AND if he stays SHABS will do that!!!!

Please no bashing .. willing to discuss facts.. If I'm wrong I can accept it gracefully.

Thanks,

I'm not here to bash . I'm here to learn.

I am not much of an investor. I do love to gamble though.