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CNN. Broadcasting From The Front Of The Rollercoaster ! Hang On - Here Come The Whoop De Doos !

 

 

Thug Note: The Graphs Being Referred To In The Article Are In The Link.

 

 

 

 

OPINION PIECE

Gold and the Iraqi Dinar Revaluation
Iraqi Central Bank Buys 36 Tons of Gold


By Joseph Cafariello
Wednesday, March 26th, 2014

In a move that surprised economists the world over, the Central Bank of Iraq purchased 36 tons of gold valued at some $1.52 billion this month “to help stabilize the Iraqi dinar against foreign currencies,” the bank explained.

That represents a larger amount of gold than most nations purchased in all of 2013, moving Iraq into 15th place in annual purchases on just that one purchase alone.

But anyone following the recent history of Iraq’s dinar is left scratching their head, as this month’s purchase more than doubled Iraq’s gold reserves from 27 tons to 63 tons for an increase of over 133 percent. Despite transacting the 15th largest annual gold purchase in the world, there was absolutely no move in the value of Iraq’s money – holding steady at approximately 1,165 dinars per USD, where it has been for more than two years and three months.

Just how is this gold purchase supposed to “stabilize” the Iraqi dinar, as the CBI puts it? Everyone knows the central bank uses daily currency auctions to virtually peg the dinar’s value as depicted in the graph above.

The CBI doesn’t need to increase its gold reserves to stabilize the dinar. Iraq’s central bank must be up to something.

Is the Long-Awaited Currency Revaluation Near?
Since early 2010, talk of a redenomination by chopping off the last three zeros on Iraq’s notes has been anticipated by many. Should it ever happen, the move is expected to be accompanied by a simultaneous revaluation of the dinar by inflating its value overnight, which is seen as necessary in order to properly account for the nation’s vast increase in wealth through oil revenues since the end of the 2003 war.

Thanks to the country’s enormous oil reserves which rank 5th in the world, and its steadily increasing oil production which ranks 7th, progress has been remarkably quick. According to Trading Economics, Iraq’s GDP has grown an average of 6.625 percent per year since 2005, reaching 8.58 percent in 2011 and a stellar 10.2 percent in 2012 – ranking 14th highest in world according to The World Bank. Iraq is in the best shape it has been in years, and is well on its way to mounting one of the greatest economic recoveries since Japan and Germany of post-World War II.

But many believe that all this progress is not being reflected in the value of the dinar, which is being kept pegged to the USD at artificially low levels. As noted in the graph below tracking the value of the dinar (inverse to the graph above), the CBI did inflate the dinar from the end of 2006 to the end of 2008. But it has since then kept the dinar stubbornly suppressed.

Is this why the CBI purchased so much gold this month? Is it preparing to increase the dinar’s value for a second time, as everyone has been expecting? The answer is most likely no.

Increasing a currency’s reserves – through acquiring more U.S. dollars, U.S. treasury bonds, gold, etc. – will strengthen a currency. But if Iraq already has more than 10 years’ worth of economic progress that has yet to be priced into the dinar, then the CBI does not need to buy more gold to increase the value of its money. Ten years of oil wealth would be enough to justify an upward revaluation of the dinar all by itself. If the CBI really wanted to revaluate its currency, it doesn’t need more gold to do it.

Given the CBI’s relentless pressure on the dinar for so many years, it is unlikely to raise the value of its money any time soon. A cheap currency stimulates business activity, creates jobs and lubricates the gears of the economy. It is precisely what western nations have been doing for the past five years since the 2008-09 financial crisis.

So still we need to ask – if the CBI does not want a stronger dinar, why the extra gold? What is the CBI up to?

Why the Extra Gold
While extra gold in its vaults does give the CBI room to increase the value of the dinar, it is likely that the CBI would rather use that extra room to print more money instead. The CBI has been steadily expanding the money supply for years. The extra gold gives it the ability to keep doing so.

Look at it this way… $100 would allow you to buy one dinner at an expensive restaurant, or ten average dinners at McDonald’s. You could thus afford a little of something expensive, or a lot of something cheap. It all depends on what you are looking for – quality or quantity.

In the case of Iraqi money, the CBI would rather have quantity over quality. Using the extra gold to expand the money supply instead of boosting the value of the dinar affords benefits which are much more urgently needed – especially while reconstruction is still ongoing.

The Economic Chain Reaction
The most urgent problem that Iraq faces is a growing population and not enough jobs, as noted by the following graphs.

Iraq’s population has grown by 25 percent since the war ended 10 years ago, while the unemployment rate has been cripplingly high. While fixing this problem is not as easy as I attempt to make it, we could condense the process into one basic objective – create jobs and increase the citizens’ personal wealth.

That triggers a series of remedies:
• A) Make money cheaper. A cheaper currency is cheaper to borrow, stimulating business expansion and job creation, putting money in people’s pockets which is then spent to further stimulate commerce and growth. But how do we make money cheaper?

B) Increase the money supply. The more money there is circulating through the economy, the cheaper it is to borrow, which empowers businesses, expands commerce, creates jobs, and increases personal wealth. As shown in the graph below, the CBI has been printing money with gusto, steadily increasing the amount of dinars in circulation for years.

But that created a problem. Such a rapid expansion of the money supply caused the currency to fall in value too quickly, eroding purchasing power, making prices more expensive, and creating hyper-inflation - as noted in the graph below where inflation in Iraq reached an incredible 76.55 percent by August of 2006.

While a weak currency is desirable as it stimulates the economy, it mustn’t be so weak that its buying power can’t keep up with rising prices. Money is like blood in your body. You want it thin enough to circulate freely, but not so thin that it loses its oxygen carrying power.
So how do we stop a currency from falling too quickly and reverse hyperinflation?

• C) Increase the interest rate. By increasing interest rates on government bonds, a central bank increases the value of its currency, allowing it to catch-up with runaway prices and bring inflation down. Thus, as noted in the graph below, the CBI increased the interest rate from 7 to 20 percent over 2006 and 2007.

Did it work? Absolutely. As noted in the prior graph, inflation in Iraq fell from 76.55 percent in August of 2006 to zero by the end of 2007. The raising of interest rates is what accomplished it.

But that created a problem of its own, since rising interest rates make money too expensive to borrow, impeding business expansion, job creation and commerce. To make matters worse, high interest rates make a currency stronger, as noted in the graph below of the dinar’s rapid increase in value from the end of 2006 to the end of 2008 – mostly due to high interest rates that surpassed 14 percent during that entire period.

By 2009, interest rates at 14 percent were way too high to stimulate growth. It ran opposite to what the government wanted to achieve, namely job creation and increased wealth.

So the challenge remained: How can you bring interest rates down to make money cheaper, and pump more dinars into the economy to make money more available - without collapsing the dinar and triggering hyperinflation all over again?

A Little Boost from Gold
Because keeping interest rates low and pumping more dinars into the economy through daily auctions puts downward pressure on the value of the dinar which leads to inflation, the CBI needs to counter that downward pressure by increasing the nation’s reserves, exerting upward lift to the value of money and helping to keep the dinar steady.

By boosting its gold reserves, the CBI gains some room to play with. It can use that extra room to either increase the value of the dinar, or to print more dinars and release them into the economy without depreciating the dinar and triggering inflation. In the interest of job creation and economic stimulation, it has chosen the later, as most central banks have done worldwide.

So the CBI was speaking truthfully after all. It did buy the gold to help stabilize its currency. But not to make it stronger. Rather, to prevent the dinar from collapsing and to prevent hyper-inflation as it prints more money to finance its continuing reconstruction.

Joseph Cafariello

http://www.wealthdaily.com/articles/gold-and-the-iraqi-dinar-revaluation/5091

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Someone help me here..

Let's say I have 1.52 billion in cash. I go and buy 1.52 billion worth of gold. At the end of the day I still have something only worth 1.52 billion. How does owning gold help?

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Thanks Thug, for extra effort!!!

 

While I know this is a opinion, and it makes some valid points.  I certainly hope that Iraq would see a bigger picture, of returning their value to their currency, as opposed to keeping everyone poor, with the exceptions of their goverment employees.  I would think, that they would find, having a real currency, will give them a powerful economy, which in turn will make them a world power.  I am not a brilliant economist, but really don't understand being smart with your money, by keeping everyone poor, and they can't purchase things, that would increase production, and jobs!

 

JMHO...lets do the right thing for once Iraq!  RV!!!

 

Go RV or RI Soon!!!

:twothumbs:

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Someone help me here..

Let's say I have 1.52 billion in cash. I go and buy 1.52 billion worth of gold. At the end of the day I still have something only worth 1.52 billion. How does owning gold help?

I will trade you all day long 1 for 1 dollar vs gold. Give me gold any day over a piece of useless paper.

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I need help too.  Don't the auctions bring in dinars for dollars?  I thought people were buying dollars with whatever currency they had.  If Iraq is printing so much money how come all we hear about is how dilapitated the money is?  Who is this guy anyway?

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Someone help me here..

Let's say I have 1.52 billion in cash. I go and buy 1.52 billion worth of gold. At the end of the day I still have something only worth 1.52 billion. How does owning gold help?

I'll try to help you...all that gold now makes you "shiney"...that, and it makes you need a fleet of trucks to haul it around!!! Hope that helps buddy!!! ;o)

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could you not barrow more with Gold than paper.. gold will not go from $3.31 to 8cent like there paper did.. Just saying  :twocents:

You would need the barrow as in wheel barrow to haul the gold around.  Have another drink, in fact I'll have a few with you.  Some of you are still trying to figure this out.  I know, it's really wheel barrel.  I report, you decide.

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By Joseph Cafariello
Wednesday, March 26th, 2014

In a move that surprised economists the world over, the Central Bank of Iraq purchased 36 tons of gold valued at some $1.52 billion this month “to help stabilize the Iraqi dinar against foreign currencies,” the bank explained.

That represents a larger amount of gold than most nations purchased in all of 2013, moving Iraq into 15th place in annual purchases on just that one purchase alone.

But anyone following the recent history of Iraq’s dinar is left scratching their head, as this month’s purchase more than doubled Iraq’s gold reserves from 27 tons to 63 tons for an increase of over 133 percent. Despite transacting the 15th largest annual gold purchase in the world, there was absolutely no move in the value of Iraq’s money – holding steady at approximately 1,165 dinars per USD, where it has been for more than two years and three months.

iraq-dinar-gold1.jpg

Source: Xe.com

Just how is this gold purchase supposed to “stabilize” the Iraqi dinar, as the CBI puts it? Everyone knows the central bank uses daily currency auctions to virtually peg the dinar’s value as depicted in the graph above.

The CBI doesn’t need to increase its gold reserves to stabilize the dinar. Iraq’s central bank must be up to something.

Is the Long-Awaited Currency Revaluation Near?

Since early 2010, talk of a redenomination by chopping off the last three zeros on Iraq’s notes has been anticipated by many. Should it ever happen, the move is expected to be accompanied by a simultaneous revaluation of the dinar by inflating its value overnight, which is seen as necessary in order to properly account for the nation’s vast increase in wealth through oil revenues since the end of the 2003 war.

Thanks to the country’s enormous oil reserves which rank 5th in the world, and its steadily increasing oil production which ranks 7th, progress has been remarkably quick. According to Trading Economics, Iraq’s GDP has grown an average of 6.625 percent per year since 2005, reaching 8.58 percent in 2011 and a stellar 10.2 percent in 2012 – ranking 14th highest in world according to The World Bank. Iraq is in the best shape it has been in years, and is well on its way to mounting one of the greatest economic recoveries since Japan and Germany of post-World War II.

But many believe that all this progress is not being reflected in the value of the dinar, which is being kept pegged to the USD at artificially low levels. As noted in the graph below tracking the value of the dinar (inverse to the graph above), the CBI did inflate the dinar from the end of 2006 to the end of 2008. But it has since then kept the dinar stubbornly suppressed.

iraq-dinar-gold2.jpg

Source: Xe.com

Is this why the CBI purchased so much gold this month? Is it preparing to increase the dinar’s value for a second time, as everyone has been expecting? The answer is most likely no.

Increasing a currency’s reserves – through acquiring more U.S. dollars, U.S. treasury bonds, gold, etc. – will strengthen a currency. But if Iraq already has more than 10 years’ worth of economic progress that has yet to be priced into the dinar, then the CBI does not need to buy more gold to increase the value of its money. Ten years of oil wealth would be enough to justify an upward revaluation of the dinar all by itself. If the CBI really wanted to revaluate its currency, it doesn’t need more gold to do it.

Given the CBI’s relentless pressure on the dinar for so many years, it is unlikely to raise the value of its money any time soon. A cheap currency stimulates business activity, creates jobs and lubricates the gears of the economy. It is precisely what western nations have been doing for the past five years since the 2008-09 financial crisis.

So still we need to ask – if the CBI does not want a stronger dinar, why the extra gold? What is the CBI up to?

Why the Extra Gold

While extra gold in its vaults does give the CBI room to increase the value of the dinar, it is likely that the CBI would rather use that extra room to print more money instead. The CBI has been steadily expanding the money supply for years. The extra gold gives it the ability to keep doing so.

Look at it this way… $100 would allow you to buy one dinner at an expensive restaurant, or ten average dinners at McDonald’s. You could thus afford a little of something expensive, or a lot of something cheap. It all depends on what you are looking for – quality or quantity.

In the case of Iraqi money, the CBI would rather have quantity over quality. Using the extra gold to expand the money supply instead of boosting the value of the dinar affords benefits which are much more urgently needed – especially while reconstruction is still ongoing.

The Economic Chain Reaction

The most urgent problem that Iraq faces is a growing population and not enough jobs, as noted by the following graphs.

iraq-dinar-gold3.jpg

Source: TradingEconomics.com

Iraq’s population has grown by 25 percent since the war ended 10 years ago, while the unemployment rate has been cripplingly high. While fixing this problem is not as easy as I attempt to make it, we could condense the process into one basic objective – create jobs and increase the citizens’ personal wealth.

 

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I don't get it. How, by printing more money is that going to increase personal wealth in Iraq? It certainly hasn't had that effect

In the USA. Personally I think or HOPE the CBI is getting ready to make a move. Hopium.

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The guy is just giving text book Monetary Policy, about controlling the cost of money in Iraq, to control inflation and stimulate growth. The problem is he is forgetting history and psychology. Lots of countries have high growth rates, despite having currencies that are valuable and high priced. Sure, he is right, if money is cheaper, it stimulates business, drives growth, and he is right about the general relationship between inflation and interest rates. However, these are obviously not the only things that drive economies. Otherwise, as I said, why would you have lots of economies with high growth rates, where the local currency is worth a heck of a lot more than the Dinar?

 

Also, currencies, I believe, are set by psychological values, of expectation. Iraqis have a very long and proud tradition of having a one of the world's most valuable currencies.

 

And, that is what they expect will happen eventually, to their currencies.

 

....and thinking back, when the Iraqi currency was so very valuable, so very long ago, did that stop economic growth in Iraq?

 

Of course not.

 

So, there is your answer. 

 

Iraq is buying gold, lots of it, to use as a cushion, so they can raise the value of their currency.

 

If you read the article carefully, it sounds like, while he is analyzing his own information, he is trying to convince himself that Iraq will only use the gold cushion to print more money. 

 

I doubt it.

 

They already have too much money.

 

Expect a big jump in the value of the dinar, imo.

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If their currency DOESNT need to RISE in value...then why have they spent so much time and money deliberating and fussing over it...not to mention all the issues as well...and why the isssue constantly about the price of the dinar against the dollar needing to be STRONGER?....If they know how to raise the value of the dinar...as they did the first few years after it came out...then why spend probably more dealing with all these issues over it.....than it probably costs to intially print and distribute it... instead of actually doing it...

 

IS IRAQ EVEN IN CONTROL OF ALL OF THIS AND IS THERE IS A "GRANDER SCHEME" WAITING TO BE HATCHED!...AND WHY EVEN FOOL WITH GOLD IF YOU KNOW YOUR CURRENCY IS GOING NOWHERE?...OR WHY WORRY OVER WHAT THE VALUE OF THE DOLLAR IS AGAINST THE DINAR.....IF THERE'S NO FUTURE ANYWAY?....AND WHY IS THE DOLLAR EVEN IN THERE COMPETING AGAINST THE DINAR...AND THE U.S. STILL PUMPING BILLIONS INTO IRAQ...IF THERE IS NO PLAN?...GO FIGURE......

 

IMO...THE GUY WHO WROTE THIS IS LEAVING TOO MANY FACTS HIDDEN ABOUT WHAT THE ULTIMATE PLAN IS/WAS FOR IRAQ...IF HE EVER DOES A TRUE INVESTIGATION AND FINDS OUT.....HE MAY FIND OUT WHAT THE DINAR'S POSITION IN ALL OF THIS IS?..IRAQ IS DEFINITELY NOT THE SAME ANIMAL THAT HE IS COMPARING HIS RESEARCH TO......LOL....

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GOLD IN PRICE WONT DROP LIKE THE DOLLAR. BUT THE DINAR AND THE DOLLAR WILL DROP ALOT OVER NIGHT. EVERY COUNTRY USE GOLD AS A BACKING TO support THERE MONEY AND KEEP IT UP TO THE DOLLAR

Thanks Thanks Thanks

GOLD IN PRICE WONT DROP LIKE THE DOLLAR. BUT THE DINAR AND THE DOLLAR WILL DROP ALOT OVER NIGHT. EVERY COUNTRY USE GOLD AS A BACKING TO support THERE MONEY AND KEEP IT UP TO THE DOLLAR

Sandfly on xtasy

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