Stryker 07.22.2013 On The Iraqi Dinar - Part II

[ronscarpa]

Stryker 07.22.2013 
On The Iraqi Dinar

 

 

 

 

IRAQ

2013 ARTICLE IV CONSULTATION

July 2013

Stryker Part II

Again, I will summarize just a few interesting parts but feel free to read all the report as needed. The word Note: in Red are used to express my thoughts and highlights in blue.

Pages 17 & 18

B. Monetary, Exchange Rate, and Financial Policies

With a severely underdeveloped financial system, high bank liquidity, and administered interest rates, the usual channels of transmission of monetary policy are largely ineffective. Therefore, the principal instrument available to the CBI is foreign exchange intervention, but its effectiveness has been hampered by CBI regulations. Discussions focused on (a) distortions in the foreign exchange market, ( exchange rate policy, © foreign asset management, and (d) banking system restructuring

14. The de facto fixed exchange rate has served Iraq well.

Note: de facto: is a Latin expression that means "concerning fact." In law, it often means "in practice but not necessarily ordained by law" or "in practice or actuality, but not officially established."

Like I stated yesterday: Iraq is on a Float of Orbit, they may show the IQD to be pegged or fixed to the dollar but the official term of appreciation is a float. For those that wish to challenge me on this do your homework yourself, wait who am I kidding, they don’t do homework, lol. Here it is:

Floating Exchange Rate

Floating exchange rate system means that the exchange rate is allowed to fluctuate according to the market forces without the intervention of the Central bank or the government.

Note: CBI daily auctions allow this float and this is why Iraq has a Parallel rate within its borders. The IQD hasn’t been pegged to the dollar since 2009 but yet it still shows up as a peg or people still call it a peg. Remember, Iraq is really only recognized currency within their borders, hence why the market rate is floating up and down and why we read about this parallel rate between the de facto fixed CBI rate and the Floating market rate.

Appreciation and Depreciation

The exchange rate for any currency usually fluctuates. When the value of the currency goes up as  compared to other currency it is known as appreciation. When the value of currency falls as compared to

 other currency it is known as depreciation.         IQD to the USD

Usually the exchange rates are determined by the demand and supply of that 
currency in the international market.

Demand for any country’s currency on the foreign exchange market is determined 
by demand for that country’s exports of goods and services and by changes in 
foreign investment in that country. This is because when foreigners buy another 
country’s exports of goods or services they must pay for these in the currency 
of the exporting country.

In the same way Supply of any country’s currency on the foreign exchange 
market is determined by that country’s imports of goods and services and by its 
investment in other countries. 
Thus when the demand for a currency rises its price goes up and it becomes costlier.

Revaluation and Devaluation

It refers to official changes in the price of a currency in a fixed exchange rate system. (outside Iraq).

Devaluation is when the price of the currency is officially decreased in a fixed exchange rate system.
Revaluation is the official increase in the price of the currency within a fixed exchange rate system.

 

LINK: http://www.dineshbakshi.com/igcse-gcse-economics/international-aspects/revision-notes/1339-exchange-rate

Note: What is confusing to some is that the Inspector General’s Report to the US Congress, August of 2012, they refer to it as revalue of a token of 4 dinars when explaining what took place in February 17^th, 2012. They did this because the CBI shows it as a “de facto” fixed to the dollar but yet have that Floating Orbit that takes place because of the daily auctions. OK, now that everyone should be straight on that, lol, they have options as you will see below but when the IMF makes reference that a currency has appreciated in value, they are referring to a Float Regime. Once again they are an artificial “de facto” exchange rate regime within their borders, we want them internationally recognized and their real value disclosed.

The authorities agreed that a stable nominal exchange rate provides a valuable anchor for inflation expectations in an uncertain environment (this is how Shabibi managed to control the inflation since 2003), and intend to continue implementing this policy for the foreseeable future(this looks to mean that they will keep the daily auctions going even after they change exchange rate regimes, I am still research if any other Petrodollar country does this to get the dollars out of their country or do they just sale it on the Forex). In the medium term, staff encouraged the authorities to consider creating the conditions which would make possiblea move to a more flexible exchange rate policy. Such flexibility could allow a predictable and gradual appreciation of the nominal exchange rate, triggered by strong oil revenues and the Balassa-Samuelson effect, to accommodate a possible real exchange rate appreciation while keeping domestic inflation low.

15. However, the authorities have been limiting foreign exchange supply to address concerns related to money laundering and terrorism financing. The CBI has recently taken steps to simplify foreign exchange market regulations, but has not eliminated all existing exchange restrictions and the multiple currency practice. The CBI continues to rely on controls to ration the supply of foreign exchange, which have contributed to the increase in the spread between the official auction and parallel market rate. The authorities aim to liberalize the foreign exchange market over the medium term. However, given the limited capacity of the financial sector to implement Anti-Money Laundering and Combating Financing of Terrorism (AML/CFT) preventive measures, they consider restricting the supply of foreign currency necessary to stem illegal outflows triggered by regional developments and increased import demand financed by illegal sources.

Note: Elements of an Effective AML/CFT Framework: Legal, Regulatory, and Best Institutional Practices to Prevent Threats to Financial Stability and Integrity

An important criterion by which the effectiveness of any aspect of an AML/CFT framework should be assessed, is its ability to be meaningful in the context in which it takes place. In addressing the issue of verifying a customer’s identity, FATF requires that countries should use ‘reliable, independent source documents, data or information”

LINK: http://www.imf.org/external/np/seminars/eng/2006/mfl/cs.pdf

16. In contrast, staff recommended liberalizing the foreign exchange market and improving the AML/CFT regime. Staff noted that effectively limiting supply might be inconsistent with a de facto fixed exchange rate regime. The CBI has ample international reserves to maintain the de facto peg. Furthermore, AML/CFT standards do not contemplate ex-ante controls on foreign currency transactions, but focus on customer due diligence and reporting suspicious transactions to an operational and fully independent Financial Intelligence Unit. In staff’s view, accelerating the liberalization of payments for current transactions would therefore be the best approach to eliminating distortions in the foreign exchange market, the exchange rate spread, and the rents it creates. It would also allow removing the exchange restrictions and the multiple currency practice, with a view to accepting the obligations under Article VIII. The improvement of the AML/CFT framework, in line with the MENA-Financial Action Task Force (FATF)recommendations, and FATF standards, together with the ongoing efforts in strengthening AML/CFT supervision by the CBI, would help address money laundering and terrorism financing concerns.

LINK: http://www.imf.org/external/pubs/ft/scr/2013/cr13217.pdf

Note: Financial Action Task Force on Money Laundering in South America (GAFISUD) Middle East and North Africa Financial Action Task Force (MENAFATF).

LINK: http://menafatf.org/

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

OK, they look to have the choice and it looks like the IMF has made their recommendations, get Iraq some stability and security and we just could see this change take place.

Enough for now!

 

Happy Sunday Evening,

 

Stryker

[keylime]

thank you for all your hard work and research Stryker....I appreciate it....

[hame55]

Seems the gist of this is Stryker believes it's in a floating system, which means they could change it any time they want, depending on all the factors (I guess since they are out of Chap 7, or most of it)

[stealthwarrior]

I still think Iraq is stalling

[NWGUY]

Thank you Ron....interesting post!

 

Like everyone lately, we are on the edge of our seat, wondering why Iraq isn't revaluing their currency, or at least letting it float.  You hear all the time, that the IMF is in control, but it really appears, that the only one in control of the currency is Iraq.  I don't think anyone can make them do anything!  They will do what they want in the time frame that they want, so I will sit back, and relax!

 

Again, thanks Ron, and keep up the great work!!!

 

 

Go RV or RI Soon!!!!

[calkid11]

I BELIEVE YOU ARE RIGHT STEALTH, GOOD POSTAND READ...

[10 YEARS LATER]

I still think Iraq is stalling

Yep, pretty much it.

[wood1521]

Very interesting. Good post.

[ronscarpa]

Thank you Ron....interesting post!

 

Like everyone lately, we are on the edge of our seat, wondering why Iraq isn't revaluing their currency, or at least letting it float.  You hear all the time, that the IMF is in control, but it really appears, that the only one in control of the currency is Iraq.  I don't think anyone can make them do anything!  They will do what they want in the time frame that they want, so I will sit back, and relax!

 

Again, thanks Ron, and keep up the great work!!!

 

 

Go RV or RI Soon!!!!

You're very welcome NWGUY .. I appreciate your thoughts...!   

[Hotcurl]

I still think Iraq is stalling

I agree and wonder why ??

[quadkidd1]

Thanks for bringing the post over.

Good take! 

[George Hayduke]

Thanks - always look forward to Strykers take on things.

[Amos9:13]

The guy does his homework.  I'd have to look and see if the IMF has any outstanding loans to Iraq.  Can't remember if Iraq has paid them back or not.  They seem really interested on them getting everything in order rather quickly.  To me it always seems weird that the Paris club forgave that much debt.  With the world economy in the shitter...really makes you say "hmmmm"...The IMF would know though if something was going on such as kickbacks and a more valuable currency could help pay back debt faster. 

[aliciadogz]

Ron and Strykers very good read Thank you.

[sandfly]

THANKS