Does Increase Demand For Currencies Like Dong & Dinar Hellp Their Value?

[rulesforrebels]

I saw an interesting post in the "Foreign Currencies" section that basically said Vietnam is sitting on more foreign currency than they ever have before because people all over the world are buying Dong to "invest". There's people in the UK and Australia and Canada all buying Dinar and Dong.

I was wondering if this increased demand for the currencies helps them grow in value or if that has nothing to do with the value of currency and it's stricly economic conditions that determine the value? Basically I'm asking if the value would be lower if it weren't for all of us and others around the world buying these currencies?

[skrappyone]

you would think it would, but i guess it depends on the reason why and a lot of what is being sold is what has been recycled. Look at it like this: I can sell you monopoly money and say it is from the United Kingdom of Skrappy. I tell you I am building my kingdom and it will be the top one in the world. You tell some friends and they buy some. They tell friends and they buy some. I use your, lets say USD, to operate my kingdom. Yes there is demand for my monopoly money, but the only thing it does is gives me more USD to have for me and my country. As long as I never quit using the USD the monopoly money will never have to increase in value. The only thing it costs my kingdom is the cost to print more to sell. Just my way of thinkin.

[makecents]

Iraq pegs thier currency, so demand has no direct effect on the exchange rate. Buying dinars increases M1 (i.e. moves dinars from the CBI vaults where it is not counted in the money supply, to private holders where it does count), but increases reserves in exact proportion so the ratio of the two (which dictates what rate the CBI can support), is unchanged.

I don't know about Viet Nam.

Edited January 31, 2013 by makecents

[rulesforrebels]

Iraq pegs thier currency, so demand has no direct effect on the exchange rate. Buying dinars increases M1 (i.e. moves dinars from the CBI vaults where it is not counted in the money supply, to private holders where it does count), but increases reserves in exact proportion so the ratio of the two (which dictates what rate the CBI can support), is unchanged.

I don't know about Viet Nam.

I dont fully understand what people mean when they talk about CBI auctions but I guess I was wondering if the demand for the currency has any effect on how/where/price point iraq pegs their currency at? does the demand for the currency at the auctions effect the price?

[dontlop]

I saw an interesting post in the "Foreign Currencies" section that basically said Vietnam is sitting on more foreign currency than they ever have before because people all over the world are buying Dong to "invest". There's people in the UK and Australia and Canada all buying Dinar and Dong.

I was wondering if this increased demand for the currencies helps them grow in value or if that has nothing to do with the value of currency and it's stricly economic conditions that determine the value? Basically I'm asking if the value would be lower if it weren't for all of us and others around the world buying these currencies?

I THINK IT DOES HAVE A SIGNIFICANT IMPACT IF YOU HAVE INVESTORS ........IF YOUR LOCAL CURRENCY VALUE IS LOW ..

WHAT HAPPENS IS THE FORIEGN CURENCYS MAY HAVE A GREATER VALUE ("CONFIDENSE LEVEL")AND IF THOSE FORIEGN CURRENCIES ARE APPLIED TO THE DIGITAL BANKING PROCESS (FIAT)THEY CAN MAKE SIGNIFICANT GAINS .. I KNOW THEY CAN JUST USE THEIR LOCAL CURRENCY IN HIGHER VOLUMES TO ACCOMPLISH THE SAME THING BUT IF PEOPLE DONT HAVE CONFIDENCE IN YOUR CURRENCY THINGS GET DIFFICULT SO THEY USE OTHER CURRENCIES "FORIEGN CURRENCIES" TO MAKE THE GAINS NECESSARY FOR DEVELOPING COUNTRYS. ONCE THE CURRENCYS CONFIDENCE IS ACCEPTABLE AND STABLE THEY CAN USE THEIR OWN CURRENCY AND FURTHER ESTABLISH IT AND ITS VALUE SHOULD RISE .. JUST MY OPINION

[makecents]

I dont fully understand what people mean when they talk about CBI auctions but I guess I was wondering if the demand for the currency has any effect on how/where/price point iraq pegs their currency at? does the demand for the currency at the auctions effect the price?

I'm not sure. The auctions have been described as a means of stabilizing the rate, but the auction price always seems to be listed as 1166, so just what sort of auction is that? Maybe it means that the CBI is keeping the price at 1166 by selling dinars to downstream banks at that price so that is also the price they base their exchanges on. So "auction" might be more of a name than a description in this case.

I see Viet Nam pegs as well so what I said about Iraq should generally apply to them as well (i.e. increased foreign reserves would be in proportion to increases in the money supply so it should not impact pressure on the exchange rate, with the actual rate being fixed by the peg).

Edited January 31, 2013 by makecents

[dontlop]

i think that rate 1166 was set up to prevent any minipulations during a given monitoring period .. its a stand by agreement with the international monetary fund ..imf .. the imf has been monitoring the cbi for the last few years which is suposedly ending this february 23 .. they had an agreement that all oil dollars were to be exchanged at the rate of 1170 ..under the agreement ,, that rate changed to 1166 last year. but the agreement also states .. that all other currencys would be exchanged into dollars then into dinars at that rate .. this is what is meant by it being pegged to the dollar .. ..after this monitoring period ends this month on the 23rd .. iraq may be free to change their rates of exchange ,, whether it be by float or what .. who knows . this is what im waiting for right now .. some kind of update on this stand by agreement.. if its over or if it gets extended .. im ny opinion it should end in 3 and 1 half weeks on schedule

[makecents]

i think that rate 1166 was set up to prevent any minipulations during a given monitoring period .. its a stand by agreement with the international monetary fund ..imf .. the imf has been monitoring the cbi for the last few years which is suposedly ending this february 23 .. they had an agreement that all oil dollars were to be exchanged at the rate of 1170 ..under the agreement ,, that rate changed to 1166 last year. but the agreement also states .. that all other currencys would be exchanged into dollars then into dinars at that rate .. this is what is meant by it being pegged to the dollar .. ..after this monitoring period ends this month on the 23rd .. iraq may be free to change their rates of exchange ,, whether it be by float or what .. who knows . this is what im waiting for right now .. some kind of update on this stand by agreement.. if its over or if it gets extended .. im ny opinion it should end in 3 and 1 half weeks on schedule

I think you are completely misunderstanding this. The IMF monitors the CBIs financials. To do so they have to convert between dollars and dinars to get all assets and liabilities expressed in the same terms. The rate the IMF uses for this is called the "program rate", i.e. the rate the monitoring program uses. It is NOT a constraint on Iraq as was clearly seen when the CBI changed the rate slightly to 1166, but the IMFs program rate is still 1170. The Stand By Agreement (SBA) is an agreement that makes funds available to Iraq (just under $2B USD so not huge) in case they are needed. The SBA expires in Feb as you say, but if it is not renewed this would just mean Iraq does not think they need the extra support any more and would have no direct impact on a change to the exchange rate.

[dontlop]

I think you are completely misunderstanding this. The IMF monitors the CBIs financials. To do so they have to convert between dollars and dinars to get all assets and liabilities expressed in the same terms. The rate the IMF uses for this is called the "program rate", i.e. the rate the monitoring program uses. It is NOT a constraint on Iraq as was clearly seen when the CBI changed the rate slightly to 1166, but the IMFs program rate is still 1170. The Stand By Agreement (SBA) is an agreement that makes funds available to Iraq (just under $2B USD so not huge) in case they are needed. The SBA expires in Feb as you say, but if it is not renewed this would just mean Iraq does not think they need the extra support any more and would have no direct impact on a change to the exchange rate.

well i dont think im misunderstanding this . you and i do disagree on this . ill admit that .. ive never seen anything that says iraq has two sets of books one for the cbi and one for the imf . . i do know that the dinars are converted under the arrangment at that rate . i think the only reason its converted through the dollar is the dollar equals one monetary unit under the imf . the dolar is the starting point for all currencies and are based off of the monetary system which is 1 dollar equals one monetary unit.. if the dollar goes to the weakest currency in the world , one monetary unit is still one dollar ..

[makecents]

well i dont think im misunderstanding this . you and i do disagree on this . ill admit that .. ive never seen anything that says iraq has two sets of books one for the cbi and one for the imf . . i do know that the dinars are converted under the arrangment at that rate . i think the only reason its converted through the dollar is the dollar equals one monetary unit under the imf . the dolar is the starting point for all currencies and are based off of the monetary system which is 1 dollar equals one monetary unit.. if the dollar goes to the weakest currency in the world , one monetary unit is still one dollar ..

There aren't two sets of books. When the IMF monitors things it does its own analysis, and in doing so the rate it uses is 1170 (presumably so year over year comparisons make more sense) even though Iraq is now using 1166.

[RVPleaseToday]

The IMF's main function where exchange rates are concerned is to watch exchange rates to determine if a member country is manipulating foreign exchange rates to give themselves a competitive economic advantage over other countries. The IMF does not have the power to tell a country what it does with it's exchange rates, though. That is clear as China has been manipulating its exchange rate for years for competitive advantage.

I'm not sure where the idea came from that the IMF was controlling Iraq's exchange rate. Nor where the idea of a "program rate" that limited Iraq came from.

[dontlop]

II. DEFINITIONS

3. For purposes of monitoring under the program, a program exchange rate will be

used. This program exchange rate will be set at ID 1,170 per U.S. dollar. The program

exchange rate will be used to convert into Iraqi dinars the U.S. dollar value of all CBI foreign

assets and liabilities denominated in U.S. dollars, as required. For CBI assets and liabilities

denominated in SDRs and in foreign currencies other than the U.S. dollar, they will be

converted in U.S. dollars at their respective SDR-exchange rates prevailing as of

December 31, 2010, as published on the IMF’s website.

Read more:

i guess they have nothing to do with iraqs exchange rate .. the imf decided to have a stand by agreement with the cbi to exchange the dollars into dinars at the rate of 1170 .. so iraq just decided to auction their dinars for 2 years at that rate and maintain that rate for 2 years before they allowed it to go down to 1166 dinars per dollar and kept it their for the last year of the standby agreement .. .. and store up all the dollars in the cbi reserves to equal the amount of dinars at the 1170 and 1166 rate backing their m2 money supply .. its a heck of a coincidence but i guess its possible ..

IX. Exchange rate arrangement:

The Central Bank of Iraq has been conducting foreign exchange auction on a daily basis

since October 4, 2003. The central bank followed a policy of exchange rate stability which

has translated in a de facto peg of the exchange rate since early 2004. However, from

November 2006 until end 2008, the CBI allowed the exchange rate to gradually appreciate.

As a result, the exchange rate arrangement of Iraq was reclassified to the category of

crawling peg effective November 1, 2006. Since the start of 2009 (this is the beginning of the stand by agreement ), the CBI returned to its

earlier policy of maintaining a stable dinar. Consequently, the exchange rate arrangement of

Iraq was reclassified effective January 1 2009 as a stabilized arrangement.

Read more:

[makecents]

i guess they have nothing to do with iraqs exchange rate .. the imf decided to have a stand by agreement with the cbi to exchange the dollars into dinars at the rate of 1170 .. so iraq just decided to auction their dinars for 2 years at that rate and maintain that rate for 2 years before they allowed it to go down to 1166 dinars per dollar and kept it their for the last year of the standby agreement .. .. and store up all the dollars in the cbi reserves to equal the amount of dinars at the 1170 and 1166 rate backing their m2 money supply .. its a heck of a coincidence but i guess its possible ..

I think you still are missing it a bit. When Iraq's banking system was restarted and the IMF initiated the monitoring program the rate Iraq was using was 1170, so that became the program rate that the IMF's analysis used from then on. The program rate is not used in any real exchange, only in the IMFs analysis to convert everything to a comparable currency. If Iraq were to change the rate by more, say a few percentage points, maybe the IMF would change the rate they use, but for small changes (e.g. 1170 to 1166) it would just complicate the analysis to try and track the actual rate exactly so the IMF's analysis continues to use the "program rate".

[dontlop]

I think you still are missing it a bit. When Iraq's banking system was restarted and the IMF initiated the monitoring program the rate Iraq was using was 1170, so that became the program rate that the IMF's analysis used from then on. The program rate is not used in any real exchange, only in the IMFs analysis to convert everything to a comparable currency. If Iraq were to change the rate by more, say a few percentage points, maybe the IMF would change the rate they use, but for small changes (e.g. 1170 to 1166) it would just complicate the analysis to try and track the actual rate exactly so the IMF's analysis continues to use the "program rate".

well im glad you got it all figured out .. maybe you can add some links so i can read what you just said ,, thanks

[dontlop]

the imf is simply over there to verify things and guide iraq as the set up and restructure their banking sector . its involved in more than just the cbi .. its involved in all the banking process of all the banks in iraq.

we will see in the next few weeks what has come out of it ..

[makecents]

the imf is simply over there to verify things and guide iraq as the set up and restructure their banking sector .

I agree. From the overview page at www.imf.org

The IMF promotes international monetary cooperation and exchange rate stability, facilitates the balanced growth of international trade, and provides resources to help members in balance of payments difficulties or to assist with poverty reduction.

The IMF has no power to impose an exchange rate on a country.

[Sk 1962]

Plus 1 to both of for a good debate without getting ugly. Either way I am ready to see what happens on the 23rd

[dontlop]

I agree. From the overview page at www.imf.org

The IMF has no power to impose an exchange rate on a country.

i understand that and didnt mean that they did .. the standby agreement is an agreement .. and an agreement of both partys .. it is not imposed at all ..but an agreement

the imf is helping iraq get set up ..when the imf walks into the central bank they expect it to be set up like all the other members are .. when they need something .. the imf should be able to locate it in the same fashion they can locate it in every other member country .. and they should be able to collaborate those numbers by using their system .. so no one can hide the truth .. and yes the imf will loan you the money and guide you thru this process ..it usually takes 24 months to do this but they can go up to 3 years .. thats the longest this should take according to the imf web site .. the 3 years are up this february 23 ..its the end of the last extension i believe they can get .. they could go alittle longer but not by more than a month or 2 from what i read

[RVPleaseToday]

dontlop, the IMF is monitoring Iraq, not controlling it. You are misunderstanding what you are reading.

[dontlop]

dontlop, the IMF is monitoring Iraq, not controlling it. You are misunderstanding what you are reading.

i understand they are monitoring the restructuring of the banking sector in iraq .. i fully understand the stand by agreement is an agreement ,, an agreement between both partys .. . no one is imposing anything on iraq besides the last few provisions that are left under chapter7 at this time

ATTACHMENT I. IRAQ: LETTER OF INTENT

March 3, 2011

Mr. Dominique Strauss-Kahn

Managing Director

International Monetary Fund

700 19th Street, N.W.

Washington, D.C. 20431

Dear Mr. Strauss-Kahn:

The Stand-By Arrangement (SBA) for Iraq that was approved in February 2010 by the

Executive Board of the International Monetary Fund (IMF) has continued to provide us with a

valuable anchor for our economic policies during a period of political transition and

considerable uncertainty with regard to the global economic outlook. The key objectives of

the SBA remain the preservation of macroeconomic stability, and the adoption of policies and

measures to ensure sustainable growth and poverty reduction. In this regard, the program

offers a framework for our structural reform agenda, as we still face many challenges in the

rebuilding of key economic institutions. Our reform efforts are particularly geared towards

improving public financial management, including the management of our hydrocarbon

resources, and developing a financial sector that can support private sector activity. Last but

not least, the SBA provides us access to financial assistance to support the economic stability

and reconstruction of Iraq in challenging times.

43

ATTACHMENT III. IRAQ: TECHNICAL MEMORANDUM OF UNDERSTANDING

March 3, 2011

1. This memorandum describes the quantitative and structural performance criteria,

benchmarks, and indicators for the third Stand-By Arrangement (SBA) with the International

Monetary Fund (IMF). It also specifies the periodicity and deadlines for transmission of data

to the staff of the IMF for program monitoring purposes.

I. QUANTITATIVE PERFORMANCE CRITERIA AND INDICATORS

2. The quantitative performance criteria are the following:

(i) a floor on net international reserves of the Central Bank of Iraq (CBI);

(ii) a ceiling on net domestic assets of the CBI;

(iii) a ceiling on the central government fiscal deficit;

(iv) a ceiling on the central government current spending bill;

(v) a floor under the balance in the Development Fund for Iraq (DFI);

(vi) a ceiling on direct government subsidies to the fuel sector;

(vii) a ceiling on contracting and guaranteeing of new medium- and long-term nonconcessional

external debt contracted or guaranteed by the central government and/or the

CBI; and

(viii) a ceiling on external payments arrears on any rescheduled and new debt of the central

government and/or the CBI.

II. DEFINITIONS

3. For purposes of monitoring under the program, a program exchange rate will be

used. This program exchange rate will be set at ID 1,170 per U.S. dollar. The program

exchange rate will be used to convert into Iraqi dinars the U.S. dollar value of all CBI foreign

assets and liabilities denominated in U.S. dollars, as required. For CBI assets and liabilities

denominated in SDRs and in foreign currencies other than the U.S. dollar, they will be

converted in U.S. dollars at their respective SDR-exchange rates prevailing as of

December 31, 2010, as published on the IMF’s website.

[RVPleaseToday]

Then you agree that the IMF has no control over Iraq's exchange rate?

[dontlop]

Iraq continues to avail itself of the transitional arrangements under Article XIV. Iraq has a

generally unrestricted current account regime and a significantly liberalized capital account.

However, four measures (plus one exchange restriction maintained for national or

international security) have been identified to give rise to exchange restrictions subject to

IMF approval, namely,

(i) the requirement to pay all obligations and debts to the government

before proceeds of investments of investors, and salaries and other compensation of non-Iraqi

employees may be transferred out of Iraq,

(ii) the requirement to submit a tax certificate and

a letter of non-objection stating that the companies do not owe any taxes to the government

before non-Iraqi companies may transfer proceeds of current international transactions out of

the country,

(iii) the requirement that before non-Iraqis may transfer proceeds in excess

of ID 15 million out of Iraq, the banks are required to give due consideration of legal

obligations of these persons with respect to official entities, which must be settled before

allowing any transfer, and

(iv) an Iraqi balance owed to Jordan under an inoperative bilateral

payments agreement.

In addition, one exchange restriction maintained for security reasons

should be notified to the IMF under the framework of Decision 144-(52/51).

http://www.imf.org/external/pubs/ft/scr/2011/cr1175.pdf

Then you agree that the IMF has no control over Iraq's exchange rate?

i wish you would please point out where i said the imf has control over iraqs exchange rate . iraq is working under the stand by arangement with in an agreement of both partys what im leading to is once this agreement time frame is over iraq will be free to do what they want .. they are currently involved in this agreement of their own free will , because i believe they want an international currency .. they cant make an agreement with the imf and then not do it ..

.

Edited January 31, 2013 by dontlop

[dontlop]

IMF/Iraq Exchange Rate Arrangement

http://dggoldjax.wordpress.com/2011/10/14/imfiraq-exchange-rate-arrangement/ << >>

dgoldjax We are everything dinar…

[makecents]

Iraq continues to avail itself of the transitional arrangements under Article XIV. Iraq has a

generally unrestricted current account regime and a significantly liberalized capital account.

However, four measures (plus one exchange restriction maintained for national or

international security) have been identified to give rise to exchange restrictions subject to

IMF approval, namely,

(i) the requirement to pay all obligations and debts to the government

before proceeds of investments of investors, and salaries and other compensation of non-Iraqi

employees may be transferred out of Iraq,

(ii) the requirement to submit a tax certificate and

a letter of non-objection stating that the companies do not owe any taxes to the government

before non-Iraqi companies may transfer proceeds of current international transactions out of

the country,

(iii) the requirement that before non-Iraqis may transfer proceeds in excess

of ID 15 million out of Iraq, the banks are required to give due consideration of legal

obligations of these persons with respect to official entities, which must be settled before

allowing any transfer, and

(iv) an Iraqi balance owed to Jordan under an inoperative bilateral

payments agreement.

In addition, one exchange restriction maintained for security reasons

should be notified to the IMF under the framework of Decision 144-(52/51).

http://www.imf.org/external/pubs/ft/scr/2011/cr1175.pdf

None of those restrictions appear to impact Iraq's ability to change the exchange rate (so the name of "exchnage restrictions" does not appear to be referencing the exchange rate but some other type of exchange). So it does not appear to me that part of the agreement with the IMF is that Iraq will hold its exchange rate at a fixed value. And that is supported by the tiny (but normal sized) change they made last year.

i wish you would please point out where i said the imf has control over iraqs exchange rate . iraq is working under the stand by arangement with in an agreement of both partys what im leading to is once this agreement time frame is over iraq will be free to do what they want .. they are currently involved in this agreement of their own free will , because i believe they want an international currency .. they cant make an agreement with the imf and then not do it ..

You have in the past often said of the current rate things like "iraq uses a program rate .... to exchange dinars for dollars" (link). That certainly sounds to me as if you are saying Iraq's exchange rate was set to match the IMF program rate, instead of the other way around, which I think is the case. It is the IMF, not Iraq, that uses the "program rate" for their analysis, while Iraq can (I think) set their rate as they see fit, even now while under the current IMF agreements. So I don't see any support for the idea that Iraq is restricted in their exchange rate adjustments by the agreements they have with the IMF and thus no reason to think that rate will change when those agreements expire. The rate is what it is currently as that is the appropriate level given the size of the money supply and reserves.

Edited January 31, 2013 by makecents

[dontlop]

None of those restrictions appear to impact Iraq's ability to change the exchange rate (so the name of "exchnage restrictions" does not appear to be referencing the exchange rate but some other type of exchange). So it does not appear to me that part of the agreement with the IMF is that Iraq will hold its exchange rate at a fixed value. And that is supported by the tiny (but normal sized) change they made last year.

You have in the past often said of the current rate things like "iraq uses a program rate .... to exchange dinars for dollars" (link). That certainly sounds to me as if you are saying Iraq's exchange rate was set to match the IMF program rate, instead of the other way around, which I think is the case. It is the IMF, not Iraq, that uses the "program rate" for their analysis, while Iraq can (I think) set their rate to anything they want, even now while under the current IMF agreements. So I don't see any support for the idea that Iraq is restricted in their exchange rate adjustments by the agreements they have with the IMF and thus no reason to think that rate will change when those agreements expire.

edit

they are using a program rate .. they have an agreement to do that .. im not thinking they are .. im reading it off the imf web page i provided .. if iraq is carrying 2 sets of books yes they can have a different rate than they are using under this stand by arrangement they have with the imf .. .. im not saying iraq cannot go back on their word to the agreement with the imf if they choose to ,, but it wouldnt be to iraqs benifit to do that .. make an arrangement with the imf and then just do as they want .. i dont think the imf would be extending anything to iraq if they were to do that .. they are living up to the arrangement as far as i can see .. which is to use the program rate in the arrangement with the imf .

i do understand you do not agree with me on that .. ya already told me that .. thas fine .. in a short time we will see if the ending of this arrangement has any affect on the dinars exchange rate. im loking forward to feb 23 for some kind of update . just so i can post it, even though the updated report may come after the exchange rate changes .. those reports dont usually come out on the expiration day . the report ould be delayed ..

why iraq changed its rate from 1170 to 1166 baffles me .. > the "official" explanation is it reflects the overall weakening USD << being 1 us dollar equals one monetary unit , that explaination doesnt make sense ,, it didnt float to that it was an over night change in exchange rates ,, 1170 being the program rate set up under the standby arrangement .. who knows what that adjustment was about ..

to change the rate all the sudden by a quarter of a penny . or 4 dinars .. .. makes no sense . maybe smoke

Edited January 31, 2013 by dontlop