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SWFloridaGuy (8-3-2012)

SWFloridaGuy

By SWFloridaGuy,
in Dinar Rumors

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SWFloridaGuy Newbie

SWFloridaGuy

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8-3-2012 SWFloridaGuy: I want to start by saying RV, RD, RI, I have no clue. I can only hope for the best. We continue to see the GOI stratagem toward reform (which would be the optimal solution for investors). The more I study macroeconomics, the more I understand the Lopsters argument. If you solely look at historic large currency appreciations, even a 20% increase, runs the risk of having negative long term effects. A 100,000% increase is not even something regarded as possible by most economists. The macroeconomic effects of "appreciation shocks" differ between developed and developing countries. Iraq is a developing country despite the fact that they have functioning (somewhat) branches; Executive, Presidency Council (one president and up to three vice presidents); CoM (PM, 3 deputy PMs, and 30 cabinet ministers), Legislative-(COR) consisting of 325 members and the Judicial (Supreme Court appointed by the PM and confirmed by the CoR). The differential effects appear particularly pronounced with regard to the external balance that deteriorates more persistently in developing countries. Export growth takes a stronger hit in developing countries, but is counterbalanced by stronger domestic growth. However, what the Lopsters fail to recognize is the fact that Iraq is a very unique situation. The value for the IQD is still there. Iraq was devalued due to a war strategy (have yet to see proof from a Lopster that it wasn't) and the U.S. has been in control of the reconstruction from the start. I believe Iraq will revalue and the real questions are - how high, when and by what mechanism? Several incremental adjustments (to get us to 1 to 1 initially) would be what I prefer. That would ensure that the large notes retain their value.

If they go to 1 to 1 initially or just higher, that would be something the world has never seen and the best case scenario. Eventually, I think Iraq will have the strongest currency in the M.E. but only over time. The IQD is a pegged currency, not one that is actively traded. The CBI sets the value, as they did from 1189 to 1166. What I would prefer to see is a move to 1000 (between Sept - January) prior to on par with the USD. Iraq has to have a stable and improving economy and manageable monetary supply in order to improve their purchasing power. Let's not forget all the debts that have been forgiven in conjunction with corporations, foreign governments, banks and powerful organizations that have all chipped in to aid in Iraq's reconstruction, in order to reap the benefits themselves. The IQD is a very unique economic situation that has come along during at a very desideratum time in history. Foreign governments, corporations, banks and organizations have invested heavily into Iraq, putting their money where their mouth is. Iraq is a unique situation, therefore the rules do not apply. However, let's not simplify this. Iraq must choose between capital mobility, monetary policy autonomy, and exchange-rate stability. Nominal appreciation must lead to sustained real appreciation. The definition of a large exchange rate event comprises a 10% (or larger) appreciation of the nominal effective exchange rate over a two-year window (or less), leading to sustained real effective appreciation. In the past 52 years there have been 25 episodes of large nominal, real appreciations and revaluations. There were 14 cases of "appreciation shocks" that occurred not as a result of discretionary policy action, but were linked to the appreciation of the anchor currency under pegged exchange rates. What we believe Iraq will accomplish is a 100,000% increase. That is unprecedented but possible under these circumstances (just my opinion). That's why we are all here. This is a unique situation and we were all lucky enough to recognize that.

No country has ever accomplished what Iraq is about to. I cannot prove that the IQD will revalue, nor do I think it's fair to require such proof of others. Economic policy is influenced by international capital markets and foreign central banks and I certainly don't pretend to know the motives behind those that would influence either. I can only speculate that this RV is how the GOI will reassert monetary sovereignty, dedollarize and give the citizens confidence in the national currency. Establishing their credibility is also a major factor, not only with their own citizens but also with international capital markets. If Iraq is truly predestined to become a respected borrower and location for private investment in the eyes of global capital markets, then they would take the necessary preparatory steps (which we believe we have been witnessing) to achieve that. These foreign central banks that have invested so heavily into the reconstruction of Iraq will prosper and Iraq's debts will be paid. Democratic governments RD in response to hyperinflation. Authoritarian governments RD in the presence of civil conflict. Neither of these conditions describe Iraq. Their inflation is decreasing, not increasing. Inflation fell to o 5.8%. Iraq’s Ministry of Planning said that inflation in Iraq for the period from June 2011 to June 2012 has been running at 5.8%, which was down from the 6.2% reported in May, and the 6.7% in April. I believe once the zeros are removed from the IQD, the large notes will retain their value. Locally the currency will be exchanged at branches of the Rafidain and Rasheed banks. Iraq got to where they are today with a lot of help. The formerly mentioned entities assisted in the reconstruction of Iraq in order to benefit from the CBI once they instituted the framework for a functioning monetary policy that achieves stability. Iraq is a unique situation, something the Lopsters fail to grasp. However, I recognize that both scenarios are possible and leave it up to you to decide. In closing, my research has led me to believe that this investment is solid. This is just my opinion, which may or may not be correct.

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SWFloridaGuy Newbie

SWFloridaGuy

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I very rarely post here anymore, but with your thoughts, I simply had to say WOW and thanks. You add so much, not just to DV, but the whole dinar community.

Thanks again SWFG...

Thanks buddy, I try. Sure wish I knew more. I have my bad days and good days like everyone else. I figure no matter who we feel is pulling the strings, the only way to gauge progress is by following the preparatory steps taken by the GOI, CBI, Council of Ministers, Finance Committee, etc. If they are moving forward, perhaps so is our investment.

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umbertino Grand Master

umbertino

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The more I study macroeconomics, the more I understand the Lopsters argument. If you solely look at historic large currency appreciations, even a 20% increase, runs the risk of having negative long term effects. A 100,000% increase is not even something regarded as possible by most economists.

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SWFG.... I do appreciate your intellectual honesty.

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Dalite Newbie

Dalite

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The more I study macroeconomics, the more I understand the Lopsters argument. If you solely look at historic large currency appreciations, even a 20% increase, runs the risk of having negative long term effects. A 100,000% increase is not even something regarded as possible by most economists.

End Quote

SWFG.... I do appreciate your intellectual honesty.

Umbertino,

I very much agree with the much-deserved praise in the area of intellectual honesty.

I tried to introduce that concept last year, but was nagged for each letter of the term.

It is fresh to see folks being honest with themselves. If you can't be honest with your self; it becomes all to easy not to be honest with others.

Again, thanks for giving praise, where praise is due.

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hunz2 Newbie

hunz2

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8-3-2012 However, what the Lopsters fail to recognize is the fact that Iraq is a very unique situation. The value for the IQD is still there. Iraq was devalued due to a war strategy (have yet to see proof from a Lopster that it wasn't) and the U.S. has been in control of the reconstruction from the start. I believe Iraq will revalue and the real questions are - how high, when and by what mechanism? Several incremental adjustments (to get us to 1 to 1 initially) would be what I prefer. That would ensure that the large notes retain their value.

From the central banks website.

1990 - 2003

After the Gulf War in 1991, and due to the economic blockade, the previously used Swiss printing technology was no longer available. A new, inferior quality notes issue was produced. The previous issue became known as the Swiss dinar and continued to circulate in the Kurdish region of Iraq. Due to excessive government printing of the new notes issue, the dinar devalued quickly, and in late 1995, US$1 was valued at 3,000 dinars.

http://www.cbi.iq/index.php?pid=History

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TimS Newbie

TimS

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SWFG.....nice post, I like your numbers and yet even though you know a 100,000% increase in value is not logical...you still think it can happen???? You say Iraq is in a unique position, I agree.....here's my problem with a HUGE RV and it is a problem for most of the lopsters, too....I'm going to keep this in very simplistic terms, If Iraq's currency had been devalued as a result of them invading Kuwait, then they made nice and switched to a democracy...I could see how they could go back to pre-invasion values and we would all be VERY happy with our new found wealth. BUT the issue here is Iraq created new money....not only did they print new money, they printed 1000 times more dinar than they took out of circulation. You can run the math all day, every which way......you can talk about fractional banking....you can talk about the PLAN....and you can talk about the US and how our government prints money everyday with nothing to back it, so certainly Iraq can do the same.....and at the end of the day you will not be able to realistically believe that if Iraq RV's their 27 trillion dinar to a dollar, the value of world currency will double or triple overnight and Iraq can sustain such a rate?

Irag has 30 million people, divided into 3 major groups who all hate each other, don't trust each other as far as they can throw one another and have been willing to kill eack other for the last 2000 years.....and if you read the paper or watch the news, you will see they are still killing each other today with the same zealousness, and for the same reasons....rel[igious differences, power, control and money. Nothing has changed. You cannot compare Iraq to the US or any other civilized economic power....oil and gas aside, they have no government stability that would allow confidence to get to the point that anyone will trust them to do business from day to day. JMHO B)

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umbertino Grand Master

umbertino

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Umbertino,

I very much agree with the much-deserved praise in the area of intellectual honesty.

I tried to introduce that concept last year, but was nagged for each letter of the term.

It is fresh to see folks being honest with themselves. If you can't be honest with your self; it becomes all to easy not to be honest with others.

Again, thanks for giving praise, where praise is due.

Agreed and thank you Dalite.

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Dalite Newbie

Dalite

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From the central banks website.

1990 - 2003

After the Gulf War in 1991, and due to the economic blockade, the previously used Swiss printing technology was no longer available. A new, inferior quality notes issue was produced. The previous issue became known as the Swiss dinar and continued to circulate in the Kurdish region of Iraq. Due to excessive government printing of the new notes issue, the dinar devalued quickly, and in late 1995, US$1 was valued at 3,000 dinars.

http://www.cbi.iq/index.php?pid=History

]

***********************

Disclaimer:

I am not a lopster, as there is no financial tool or instrument known as a lop. The term is a brilliant example of Social Engineering, designed to deflect efforts to research a ReDenomination. Also, I learned a long time ago to never say never

********************************

The General Tant Interview offers great insight:

Tant Interview

Q: What was the nature of the Iraqi banking system? Did the Central Bank have branches throughout the country? Could you explain how the banking system worked?

TANT: You had the Central Bank which answered, of course, to Saddam. And whenever he directed, they had to print more money, which was a negative inflationary monetary policy. That was one of the reasons why the currency had to be replaced. There were banks – to get back specifically to your question – there were banks throughout Iraq. Rafidain and Rashid, they owned and operated several hundred state banks. Their headquarters were collocated on the same compound in Baghdad where the Central Bank of Iraq is located. This allowed for very close coordination.  But they owned/operated some 80, 90 percent of the banks throughout Iraq. Then there were some private banks that had branches throughout Iraq as well.

Q: What exactly were Rafidain and Rashid?

TANT: They were the two state banks. Most of the banks – a great, great majority of the banks – fell under their control.

Q: How strong were the state banks' ties to the regime?

TANT: I imagine they were very strongly tied to the regime. They were at the beck and call of Saddam and did anything the regime demanded. They had to. As a result of that, the currency was just devalued in an enormous way. We found that they had two currencies over there, and when you're trying to unify a country, you need to have one currency. That was another one of the reasons why we had to change out the currency.

Q: They had two currencies?

TANT: Yes. The original currency of the country was called the Swiss dinar. The Kurdish area up in the north is where they used that: north of the no-fly zone line. They mainly continued to operate in the Swiss dinar, the original currency.That currency was not replaced, recycled, if you will, and it had a lot more value than the Saddam dinar.

There were some negotiations that went on about how to exchange this currency, and at what rate, for the new dinar. The rate ended up being 150 to one. In other words, in the Kurdish area, when they turned in Swiss dinars to one of the operating banks used during the exchange (and there were about 243 banks used during the exchange), they would get 150 of the new dinar for one of the Swiss dinar. The Swiss dinar basically had three denominations.  

But, in the great majority of the country, they had the Saddam dinar with Saddam's face on it. There were basically only two denominations of that: there was a 10,000-dinar note, which was worth about $5, and there was a 250-dinar note, which was worth about 12.5 cents, 12 cents. The reason its value had dropped so low was because of Saddam’s inflationary monetary policy. In comparison, back in the '80s, before the Saddam dinar came about, the rate of exchange was about $3 to one dinar. But because of Saddam there was now a total upside-down situation where one dollar was worth about 2,300 dinar.

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doctor robbins Newbie

doctor robbins

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Thanks for that post, Dalite.

I imagine they were very strongly tied to the regime. They were at the beck and call of Saddam and did anything the regime demanded. They had to. As a result of that, the currency was just devalued in an enormous way

I think this is where people get confused. They see the word "devalued" and they assume that there was some decree to bring the value down. But I think the context indicates that he was talking about depreciation rather than devaluation which is a result of policy. The word "devaluation" if often used incorrectly when referring to depreciation which is a result of market forces. I think it's also clear that he's not talking about the coalition devaluing the dinar but Iraq's banks under Saddam's control that brought on the depreciation.

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Shelley Experienced

Shelley

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I very rarely post here anymore, but with your thoughts, I simply had to say WOW and thanks. You add so much, not just to DV, but the whole dinar community.

Thanks again SWFG...

I'm on vacation on a borrowed computer, had to sign on to say a big thank you to SWFG for giving us all a great post and Amhvl so nice to see you !!!!

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sandstorm Newbie

sandstorm

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Thanks for that post, Dalite.

I imagine they were very strongly tied to the regime. They were at the beck and call of Saddam and did anything the regime demanded. They had to. As a result of that, the currency was just devalued in an enormous way

I think this is where people get confused. They see the word "devalued" and they assume that there was some decree to bring the value down. But I think the context indicates that he was talking about depreciation rather than devaluation which is a result of policy. The word "devaluation" if often used incorrectly when referring to depreciation which is a result of market forces. I think it's also clear that he's not talking about the coalition devaluing the dinar but Iraq's banks under Saddam's control that brought on the depreciation.

Exactly...........the value didnt change. exchange rate x # of dinar = value. the exchange rate was just spread across more dinar, but the value of the product was the same.

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sxsess Newbie

sxsess

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Thanks buddy, I try. Sure wish I knew more. I have my bad days and good days like everyone else. I figure no matter who we feel is pulling the strings, the only way to gauge progress is by following the preparatory steps taken by the GOI, CBI, Council of Ministers, Finance Committee, etc. If they are moving forward, perhaps so is our investment.

Yes I agree 100% SWFG. Thanks.

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quadkidd1 Newbie

quadkidd1

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To SWFG,

I must say that your approach has its merits and I agree that we as speculators can only guess at the details that emerge from Iraq , the questionable news agencies and Intel as reported from sources ( what ever that really means ). As much is reported or released by one entity or another we can simply make our own assessment as to the meaning of said information. So that is what leads so many to render their own opinions on the topic at hand. I am a realist and can see both sides of the argument ( Lop vs RV ) and after a lot of studying the economics I am as bewildered as ever..... but I DO remain hopefully for a positive outcome and I value and appreciate your opinion!

Thanks for taking the time to inform and even bigger than that, sticking your neck out there where there is much hostility.....

Go RV

Thanks Quad B)

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