Why don't they just float the Dinar?

[Tripphood]

Rocks don't float. The IQD is worth a bag of rocks.

You are wrong. 1 million IQD is worth about $1000 USD, hardly a bag of rocks.

[Darin]

They can't even get the citizens to pay the CBIs rate of the dinar.....the market rate has always been higher then the programmed rate.....until the demand for the dinar dramatically increases, letting the dinar float would be a disaster.....

Floating the dinar would not be a good thing unless it was internationally traded at the same time. The current market vallue within the country is much lower than the actual CBI rates. Thus, giving the information we have on hand that the dinar value would drop if it were to float. But the main X-factor, is that we have to consider those that would buy-in (based upon an international level of exchange). So, it could possibly float and be a good thing for external investors, but the instability of itself may be a bad thing internally. I would imagine that the CBI is more concerned about internal versus external in the stability and growth of the country. An example would be, a company or business may be weary on when to purchase products for imports & sell products for exports based upon the current standing of value of the dinar. The fluctuations could cause those companies to be weary that the value would be profitable or not as profitable based upon the current standing. Countries that are normally heavy on importing (normally Oil-producting/exporting countries) tend to have to import a lot of goods. When we consider the trade balance, when including oil sales, Iraq would be in a surplus. But, if we subtract out oil we are no longer looking at a surplus. I

When the country can hit a trade balance that favors a surplus without factoring in oil sales, the country will be doing quite well for itself. With precious metals & other materials recently being farmed, this time may not be too far off. As infrastructures are being rebiult and the private sector is growing, the need for importing won't be so high. In due time, the country itself will be quite wealthy as they become self-sufficient on their own all while still making "Large" profits from their oil sales. But in this day & age, everything tends to move at a snails pace. I believe we could look back about 2-3 years and think that the country alone would already be exporting more oil/crude than they currently do upon their projections. But that is likely due to bottle necking issues that preventing them moving ahead at full speed.

Now back to the internal demand for dinars... What factors in why the USD is more preferred over dinars? Is it stability? Is it really because accounting the values of USD is easier than dinar? Or is it simply because that they know USD is generally in demand internationally and easily traded? I know if I were to live in that country and did not believe in any increase of value of the dinar I would prefer the use of USD over dinar (especially if I felt the need to ever flea the country for survival). Running to Europe with my millions of dinar would not necessarily do me to well knowing that trading it for USD could take time and its not like most European countries just accept dinars as payment..

[zigmeister]

Well that is the catch isn't it....internationally traded.

[umbertino]

Well that is the catch isn't it....internationally traded.

Will it ever get there? That's the Trillion Dinar question.

Edited December 11, 2012 by umbertino

[skitealwedrop]

Well that is the catch isn't it....internationally traded.

Yep! Good catch, Zig.

[Goodlife]

LOL.....good luck with that! She rambles off nonsense just like her savior without understanding it.....

That comment was unwarranted and insulting. No need for it .

[boomer113189]

http://www.youtube.com/watch?v=3w4jx9Hpjzw

that youtube video is only talking about the euro currency not global currencys around thew world

You are wrong. 1 million IQD is worth about $1000 USD, hardly a bag of rocks.

1 million iqd is only worth 858

[Highlander]

Here are a few links to IMF documents and a couple of quotes from those links to try and help people understand what it takes to move to a float from a fixed rate. So why can't Iraq just float their currency?

You decide.

Operating a flexible exchange rate regime works well

only when there is a sufficiently liquid and efficient

FX market for price discovery. A well-functioning FX

market allows the exchange rate to respond to market

forces, helps minimize disruptive day-to-day fluctuations

in the exchange rate, and facilitates exchange rate

1Appendix I provides a more detailed summary, drawing on

IMF (2004a and 2004b). The fixed-to-float framework was

endorsed by the IMF’s Executive Board in 2004, which reiterated

that no single exchange rate regime is appropriate for all

countries at all times (also see Eichengreen and others, 1998; and

Mussa and others, 2000, on exchange rate issues).

2These are in addition to the role of sound macroeconomic and

structural policies—including fiscal discipline, monetary policy

credibility, and a sound financial sector—which are essential to

maintaining any type of regime, fixed or floating.

risk management. Developing (spot and forward) FX

markets requires eliminating market-inhibiting regulations,

improving the market microstructure (for example,

by allowing risk-hedging instruments, simplifying

FX legislation, or putting in place adequate payment and

settlement systems), and increasing information flows

in the market, while reducing the central bank’s marketmaker

role. Allowing some exchange rate flexibility is a

key step in limiting what is, to some extent, an unavoidable

chicken-and-egg problem: Exchange rate flexibility

requires a deep market and better risk management, but

a deep market and prudent risk management require

flexibility. Providing for a two-way risk is also important,

in fostering better management of risks and minimizing

destabilizing trading strategies (and, thereby, the

risk of disorderly exits)

http://www.imf.org/external/pubs/ft/op/256/op256.pdf

9. Other steps that can be taken to deepen the market and enhance price discovery

include:

• Reducing the central bank’s market-making role, including its quotation of buying

and selling rates, which undercut other market makers. The central bank can foster

market development by reducing its trades with banks (and generally not trade with

non-financial customers at all), limiting the frequency of its interventions to daily or

weekly interventions. By requiring market makers to provide two-way price

quotations and acting as a price-taker (within boundaries) when it enters the market, it

can further limit its role.

• Increasing market information on the sources and uses of foreign exchange and

detailed balance of payments data. It is also essential to develop and divulge

information on a coherent policy framework as a basis for market participants to

develop accurate views on monetary and exchange rate policy, and efficiently price

foreign exchange. Information systems and trading platforms that are capable of

providing real-time bid and offer quotations in the interbank market can also help

market transparency.

• Eliminating (or phasing out) regulations that stifle market activity. Some

important measures would be: (i) abolishing requirements to surrender foreign

exchange receipts to the central bank; (ii) taxes and surcharges on foreign exchange

transactions; (iii) restrictions on interbank trading;8 (iv) limits on price ranges quoted

by dealers; (v) unifying segmented foreign exchange markets (that is linking the

official, interbank, and parallel markets); and (vi) relaxing current and, to some

extent, capital account restrictions to bolster the sources and uses of foreign exchange

in the market.9

http://www.imf.org/external/np/mfd/2004/eng/111904.pdf

What is the capital account?

The capital account in a country’s balance of payments covers

a variety of financial flows—mainly foreign direct investment

(FDI), portfolio flows (including investment in

equities), and bank borrowing—which have in common the

acquisition of assets in one country by residents of another.

It is possible, in principle, to control these flows by placing

restrictions on those flows going through official channels.

Capital account liberalization, in broad terms, refers to

easing restrictions on capital flows across a country’s borders.

This presumably results in a higher degree of financial

integration with the global economy through higher volumes

of capital inflows and outflows.

http://www.imf.org/external/pubs/ft/fandd/2004/09/pdf/basics.pdf

So what does all this mean? Basically that a float will only work if the country can successfully lift its currency restrictions and attract investors into the country and allow residents to invest outside the country. This leads us right back to Chapter 7 with the UN and Article 14 Status with the IMF. Iraq is finding it difficult to find investors with the black eye of chapter 7 still over their heads and with the current set of restrictions they have in place on capital flow. They could attempt to remove those restrictions, as some are suggesting, prior to getting released from Chapter 7 or moving to article 8 compliance with the IMF but the consequences could very realistically cause a heavy outflow of their FX reserves as the money would pour into outside investment and not investment opportunities inside the country. Some countries took as long as 10-20 years to successfully convert to a float and that was without chapter 7 over their heads and without currency restrictions still in place. Of course others have done it in as little as 6 months to a year but again without the burden of chapter 7 or currency restrictions in place and with several years of preparation (which we saw an article from Shabibi last week where he stated that a move to a float takes studies and preparation and the timing was not correct in Iraq at present).

So basically we all need the same thing to happen whether you are looking for a float, an RV, or a redenomination with a favorable exchange rate on the notes. And the first 2 steps to our hopes of making money on this thing called the dinar is Chapter 7 release from the UN and Iraq to remove its currency restrictions and controls and become article 8 compliant with the IMF. This is just my 2 cents on the current debate between a LOP, Float or RV.

[Highlander]

On a side note no country truly free floats it currency. The central banks intervene in the forex market all the time whether it be an actual monetary intervention, such as the swiss and the australians having been doing quite heavily along with many of the smaller markets such as Brazil and Turkey, or through verbal intervention such as the US and Japan have been prone to right now. And lets not forget the quantitive easing that all your major developed countries have been doing which is in fact driving the value of their currencies down.

[DWitte]

It really all depends on what your talking about specifically though profit....

Hey Keep,how come no matter what you write, how you write it or where you write it you get negged so much? Looks to me like there are some nasty neggers out there. Seems pretty senseless to me. I like your opinions. Sometimes. lol

[truthful1]

If they floated the dinar..........thedinar would become evn more worthless. iraqis can still use dollars that they prefer anyway.

how can you people expect a country to float a currency, that their own citizens dont want? There is no demand for it.

people who want iraqs oil can keep paying there credits in Usd. Why would anyone, take a floating varying rate, instead of a stable secure trable currency...like the usd?? Who would take a credit that could lose value? The big boys want stability, with their big bigmoney.....that way just small movements gains them tons of money.

Edited December 17, 2012 by truthful1

[vomer]

[dontlop]

Capital requirement

This is in the context of fractional reserve banking and is usually expressed as a capital adequacy ratio of liquid assets that must be held compared to the amount of money that is lent out.

http://en.wikipedia.org/wiki/Capital_adequacy

right now the central bank of iraq should have enough capitol to loan the government of iraq around 750 billion dollars worth of dinars ..enough for a one penny rv .. the goi can capitalise of that money for eternity ..its just a starting point ..

remove only 2 zeros and rv one dinar to one dollar peg .... that would be a huge boost to iraqi local economy .. for building a new internal economy and become less dependent on the export enconomics of oil sales ..

i know iraq says they want to delete 3 zeros ,, but they would be better off financing their future and delete only 2 zeros

[RVPleaseToday]

Only commercial banks use fractional reserve banking. By definition, a Central Bank can't.

[hame55]

Here are a few links to IMF documents and a couple of quotes from those links to try and help people understand what it takes to move to a float from a fixed rate. So why can't Iraq just float their currency?

You decide.

So what does all this mean? Basically that a float will only work if the country can successfully lift its currency restrictions and attract investors into the country and allow residents to invest outside the country. This leads us right back to Chapter 7 with the UN and Article 14 Status with the IMF. Iraq is finding it difficult to find investors with the black eye of chapter 7 still over their heads and with the current set of restrictions they have in place on capital flow. They could attempt to remove those restrictions, as some are suggesting, prior to getting released from Chapter 7 or moving to article 8 compliance with the IMF but the consequences could very realistically cause a heavy outflow of their FX reserves as the money would pour into outside investment and not investment opportunities inside the country. Some countries took as long as 10-20 years to successfully convert to a float and that was without chapter 7 over their heads and without currency restrictions still in place. Of course others have done it in as little as 6 months to a year but again without the burden of chapter 7 or currency restrictions in place and with several years of preparation (which we saw an article from Shabibi last week where he stated that a move to a float takes studies and preparation and the timing was not correct in Iraq at present).

So basically we all need the same thing to happen whether you are looking for a float, an RV, or a redenomination with a favorable exchange rate on the notes. And the first 2 steps to our hopes of making money on this thing called the dinar is Chapter 7 release from the UN and Iraq to remove its currency restrictions and controls and become article 8 compliant with the IMF. This is just my 2 cents on the current debate between a LOP, Float or RV.

Good analysis here Highlander. Thanks!

Perhaps the outflow on the FX wouldn't be a great hindrance. It's part of the flow of things when going international. Big investment opportunities would still be in Iraq.

There are many MNC's investing in Iraq now, presumably using the dollar as payment. I don't see why that can't go on for the foreseeable future - any thoughts on them just staying with the dollar for years to come? The GOI getting richer, maybe...

[SPOTLIGHT]

Floating the Dinar would not benefit the Iraqi people. A dinar is a dinar in Iraq. Cost of things inside of Iraq would rise with the value of the Dinar, just like it would do with an overnight RV. It also would cost folks outside Iraq more in real dollars to invest there, thus discouraging investment.

And, of course, there is the problem of Iraq being a one-trick pony economically. Iraq is a small, politically unstable country whose only significant export is oil, an unstable commodity itself. Floating the currency would be economic disaster for Iraq. It is pegged because that is the only way Iraq can maintain some stability in the value of their currency.

B)/>

Edited December 22, 2012 by SPOTLIGHT

[MrFnHappy]

Only commercial banks use fractional reserve banking. By definition, a Central Bank can't.

Correct.

Edited December 22, 2012 by MrFnHappy