An interesting Perspective

[djgabrielie]

I don’t know who Tom is or from what site he comes from, but this was reposted by tlar.

 

I cleaned it up and it seems like a very good opinion piece. Let me know what you all think?

 

djgabrielie

 

 

*** COURTESY OF R.I ***

I have been operating on the belief that the PTB are interested in an RV, or at least a drastic increase in value of the currency, and stand to make a lot of money when it does. I no longer believe that to be true.

It looks to me like the PTB are happy to let it go along at its present rate. Consider that Maliki, who favors a weak policy, has managed to stay in office as long as he has, and appears likely to stay in power longer. Consider that, in spite my assumption that the Iraqi money supply has been reduced, it has not.

(I just spent some time on the CBI website, where it states that the Current M1 is 71 trillion dinar, and the M2 is 86 trillion, I believe it said). Unless the CBI is lying, the money supply is increasing- not decreasing.

First let me explain that what is important to us is the currency that is circulating in Iraq only. Bank accounts, loans and even the new smart card are not important to our investment.
...

 Saleh the deputy governor of the CBI stated there was 30 trillion dinars altogether released from the CBI since 2003 through Jan 2012 of which four trillion were circulating in Iraq.

At the end of 2013 Dec the CBI reports that there is 35 trillion dinars. This number is stated in dinars on their website because it is the national currency. It encompasses all dinars ever released including dinars held by investors’ worldwide and including dinar held in central banks around the world.

In this number is also included those dinars, 4 trillion that Saleh told us were circulating in Iraq in early 2012. The growth of paper money, dinars, is 5 trillion from early 2012 to early Dec 2013.

Let’s look inside this number. USD is also circulating in Iraq and today most transactions are done in USD. Every dollar sold at auction is bought with 1166 dinars retired of which some are retired.

 In a 5 month period last year the CBI told us they had retired 15 trillion dinar. But money does not just disappear. Some of it changed form from dinars to USD. So as we look at the CBI website numbers we must understand that all paper monies out are shown in dinars even though we know Iraq has been dollarizing.

 There is no separate category displaying the number of US dollars so they state every dollar as 1166 in dinars. My dinars and your dinar are not considered circulating dinars and neither is any dinar held in any central bank outside of Iraq.

 All of these dinars are dinars considered at rest. For our investment we are only interested in circulating dinar because this is the only thing Iraq has to cover to do an RV. Google will explain what reserves are required for and it is circulating dinar, not dinars at rest.

Here is the CBI numbers for 2013: http://www.cbi.iq/documents/Annual_2012.pdf
 

Here is a supporting article that was just published. As you read this realize it is written by a reporter who has no understanding of economic so he reference the 35 trillion out as if all of it was circulating.

I have also factored the value of oil into the (future) value of dinar. I now believe this is false reasoning. The oil is not a factor in the value of the dinar, because oil is traded in dollars, not dinar.

This is how Saudi Arabia has managed to do just fine with the Royal Family living it up with one currency, the dollar, while the currency of the peasants remains dismally low in value, not reflecting the value of their oil reserves. If you remove oil from the equation, there is little else.

I'm not saying Iraq won't grow at a prodigious rate, or that it won't be a great investment, but I no longer believe it will give us the type of returns we have been dreaming of- not unless it really is part of a worldwide currency reset, in which case the US dollar will be the one worth toilet paper.

Oil is a factor in the equation of the value of the dinar. Oil this year is projected to be 93% of their budget. Over the next few years oil will grow from 3.5 million bpd being produced now, to 4.5 by the end of 2014 with the projection between 2017-2020 to be 8 mbpd at which time Iraq will level off to not flood the market.

 In addition oil will be used as a safety net in valuing the currency. It also can be considered in some part as part of the currency reserves. (ruling IMF when considering if resources can be used for currency backing) Oil is considered a liquid asset under the rules required by international standards because it easily converts to cash quickly. Some agreed upon % by the IMF can be used to back a currency reserve.

Iraq has introduced a new bill in parliament, not read or voted on yet, that provides Iraq ultimately to change from the Petro dollar to requiring all oil purchases to be done in dinars. This is a prelude to what they’re going to do with the currency.

Gold is also considered a liquid asset and can also be considered as part of currency reserves. The CBI announced Iraq's gold reserves are now equal to their cash reserves about two months ago.

Iraq is now producing 5 tons of gold a month having hit a major gold producing area just outside of Bagdad. I you watched to you tube interview I sent you above you will know this is right.

Iraq is staging itself to challenge Dubai for controlling the gold markets in the ME. They have so much gold that the CBI contracted with a metals stamping company to make gold coins and the CBI just recently announced that they will be selling gold coins for DINARS only.

 This will serve two purposes. One it will continue to suck up what dinars are left "circulating" and this move will create a NEW necessary tool to support the dinar and inflation for the CBI whose ultimate goal is to stop the auction this year.

Remember a bank only must cover the currency that is considered circulating which means it does not have to cover dinar outside of Iraq held by investors and held by central banks, nor does it have to cover numbers of dinar that is held electronically in banks in Iraq, just the cash circulating.

 If you Google currency reserve requirements as I have done then you will see what reserves are required to back a currency.  If you check the CBI website you will see the total dinars out by Dec 2013 and that number is 35 trillion.

The question is how much of that is circulating and how much of that is considered at rest. Again as a beginning reference Saleh told us in early 2012 that Iraq had 4 trillion dinars circulating in Iraq out of a total at that time 30 trillion that were "out" of the CBI. About July of 2012 the CBI became a net seller of physical dollars retiring physical circulating dinars.

As I referenced above, last year the CBI admitted to having retired 15 trillion dinars. But again some were retired by being replaced by USD which on the CBI's website is listed as part of the 35 trillion dinars out but in dinar equivalency.

They have continued with the auctions through today selling exclusively dollars for dinars (check CBI website, section auctions). Dollar sales have gone from a high of 350 million USD sold at auction in one day and averaging in the 100's of millions every day at the end of 2012, running through most of 2013.

Today the auctions are averaging from a low of 16 million to as hig as 66 million per day. The trend though continues down indicating there are less and less dinars in Iraq. Iraq has been dollarizing beginning at the end of 2012 retiring dinars. Iraq today is operating mostly on dollars. What does all this mean?

The CBI has 90 billion in cash in currency reserves, not the 80 billion you mention above. They published that they had 89 billion in currency reserves a few months ago and by now they have to have increased some. So the 90 billion may be an understatment.

The CBI stated two months ago that their gold holdings were equal to their cash reserves. Months ago the CBI announced that frozen funds were being released to Iraq of approx. 82 billion and that money when released would be part of the reserves.

I think what the CBI recently did in Jan 2014 with these released funds as money deposited with the BIS for reasons to lengthy to explain here. What was published in the news in Dec 2013 was that the BIS (The Bank of International Settlements) would accept dinars on deposit with their bank starting in January of this year.

Then an article from the CBI stating that the monies received from frozen funds would be converted to dinars as they are deposited with BIS. I took this to mean any currency be it Euro's, dollars, yen etc. that were released, would be converted by BIS to dinars at the request of the CBI.

The BIS is the bank serving Central banks around the world which converts currencies for those central banks in world trade. (Google BIS for better understanding) The fact that BIS has account in dinars tells me it is in preparation to use dinars in world trade.

The only way this will happen is if the currency is international. The question must be asked, why would BIS open an account in dinars, a non tradable/non convertible IMF Article XIV exotic currency?

 The short answer is they must know something about the dinar that has not yet been publically announced. The dinar will be convertible soon.

Let's now go back and see what this means. The CBI has approximately 90 billion in cash reserves. They have about 90 billion in gold. They have approximately 82 billion that has been or very shortly will be completed in released funds because they no longer are on Chapter VII sanctions.

 Adding these up, the CBI has at its disposal as potential 250 billion dollars to cover what. Saleh told us 4 trillion dinars in early 2012. That number has to have been reduced by now due to continued dollarization of Iraq. But let's assume it is 4 trillion dinars still out.

That is the equivalent of about 2,5 billion USD round about. Consider this, today the CBI has 250 billion USD value today to back its circulating currency or there about. The currency they are backing is about 2.5 billion in USD value.

No matter how you cut even using the 4 trillion number circulating number told to us by Saleh in 2012 when we know they have and are continuing to dollarize, the CBI has approximately 100 USD to back each USD equivalent dollar circulating in Iraq.

That's a unheard of number for any central bank. Why? I will answer this question as I think it is. The CBI is building a massive reserve (number 12 if I remember correctly, in the world of currency reserves held by any country) as it prepairs to delete the zeros. From .00086 to .86.

Are they there yet? I believe the CBI answered that question when they met with the EC and FC in Dec 2013, holding confidential meetings with each of these groups, to announce their plan to delete the zeros and introduce the new currency in January.

This information was leaked to the press by a loose lipped member of the FC within a day of these what were suppose to be confidential meetings. What issued when the press announced they had been told of the CBI plan was a run on the banks with Iraqi's asking to close their accounts and wanting to be paid in dinars.

From Basra to Bagdad to Kurdistan, there was a run on the banks. Immediately the CBI had to stop this run, or run the risk of a banking disaster. The day after the release in the press, the CBI began a campaign of denial which lasted the rest of Dec and well into January.

A total of three weeks of an article a day making denials and acusations. They announced they were not going to delete the zeros in January followed immediately be the FC and the EC and the COM all chiming in, all denying that article. As late as the middle of January, Kurdistan still had people trying to close their accounts converting to cash dinars. Iraqi's aren't stupid.

For years now the CBI has been educating them on the deletion of the zeros and how it will affect them. The CBI even hired Dr. Bakri to hold seminars and tour universities to explain this project to the people.

Iraqi's know that the project will adjust everything in Iraq including loans, contracts etc. and yes it will also adjust their electronic bank accounts meaning, if they have 25,000 dinars in the bank today, they will have 25 dinars tomorrow but the value will not have changed. A physical dinar will not change.

A dinar is a dinar being their national currency. What will change for those holding the currency in Iraq and you and I is the exchange rate. Dr. Bakri said it best and I will paraphrase his teaching, “a coke that cost a thousand dinars today will cost 1 dinar after this change”. He followed that with this statement.

Those thousand dinars you paid for that coke yesterday, if used the day after the change will buy 1000 cokes. Contracts, budgets, loans, the prices on all items they buy, and all electronic numbers in bank accounts on all sides of the accounting sheets, will all be adjusted all at once to reflect the new reality and exchange rate.

Everything in Iraq will be adjusted all at once with one exception, the physical currency itself. The CBI announced that the new dinar and the old dinar will both be circulating in Iraq for two years after the change.

The CBI told us numerous times what will change is the nominal value which is defined as the exchange rate. The FC told us that they will delete the LEADING zeros. LEADING zeros are not found on the currency, they are only found on the exchange rate.

The FC in three articles told us they wrote the 2014, and estimated the 2015 and 2016 budgets based on 1.16 dinars equal one US Dollar. Doing the math that's 86 cents per each dinar or deleting the zeros.

If this is truth then they can't open the 2014 budget without changing the value of a dinar to 86 cents.

For instance, a budgeted program or project that is earmarked to get 1 million dinars at 1.16, value is earmarked to receive 860,000 USD equivalence in dinars.

If the currency is still at 1166 per dollar, that project will still get the same1 million dinars, but the USD equivalency would be 860 dollars instead of the budgeted 860,000 USD. They can't open the budget written at 1.16, if the currency is at 1166. The currency must match the budget.

 This why I've been saying for 2 months watch the budget. I think it is the key to our investment. If the budget is written at 1.16 as told to us by the guys who wrote the budget, I believe we will see a .86 dinar, or the budget cannot be opened when it is passed. I hope this helps.

 

[Tripphood]

Sounds logical but logical to us and logical to cavemen are two different things. Ha ha LOL! In the beginning of this article it stated and I quote, "I have been operating on the belief that the PTB are interested in an RV, or at least a drastic increase in value of the currency, and stand to make a lot of money when it does. I no longer believe that to be true".

Well I for one think that that .86 is a huge increase and I will be as happy as a turd roller in a cow pasture if that actually happens. Heck, If it were a dime I'd be happy. I just wish they'd do somethng in a hurry because I'm tired of this ride. I know way more about Iraq than I ever cared to know.

GO RV or FLOAT!!! :)

[GGGECKO]

Thanks Djgabrielie

 

This makes a lot of sense. I can only hope it RV's at .86 . I would so take that with a big smile.

 

Go RV!

 

Good Luck everyone.

[skeetdog]

Thanks Djgabriellie....This the way I've always viewed it but not as elaborate in your statement...It's a good read and hopefully a timely one...

[vietnam1969]

Thanks for the post Djgabrielle.  I just want to see something happen this year. Who knows what the rate will be?  Just do it !!!!

Edited February 17, 2014 by vietnam1969

[dantach]

The scarry part... see my avatar.

[AmericaInc]

I think this is one of the better analyses I have read in the almost four years I've been in this...a lot makes sense.

Any LOPSTERs care to make accusations and wail about an RD? 

Let's hear your argument - based on these assertions: reduced money supply, auctions, physical dinar in circulation....etc

[Maggie123]

Thank You Djgabrielie.... Appreciate your efforts to bring this in for us.

 

Very Interesting Read!

[Seabee]

I like others have been waiting with baited breath on the theory of .10 or .86 for many years now. All I can say is that I should perhaps open up my safe after all this time and see if the little beauties are still there. I hope it can still remember the combination , hmmm was it left right or what?

[sandfly]

THANKS

[Benjamin NutnYahoo]

Unfortunately nothing coming out of Iraq much less the U.S regarding the Dinar makes absolutely no sense. So all articles are useless toilet paper just like their money.

[umbertino]

I think this is one of the better analyses I have read in the almost four years I've been in this...a lot makes sense.

Any LOPSTERs care to make accusations and wail about an RD? 

Let's hear your argument - based on these assertions: reduced money supply, auctions, physical dinar in circulation....etc

America.. If you want to debate this with LOPsters you should be kind enough and take this over to the LOPster section... As you know, LOPsters can't post outside of their section.

 

Just a friendly suggestion, Bro.