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Current events in Iraq reveal the government is preparing to privatize in an effort to liberalize the market or best put institute a market economy.  Why would Iraq decide such drastic change to its centrally managed economy?  One short answer is that its budget deficit revealed economic fragility.  Iraq finds itself in a precarious situation since its macroeconomic stability, as recently revealed, is tied to factors outside of its own control. 

 

A critical factor of oil price volatility, and the affect it has on developing oil producing economies pegged to the dollar, is known as terms-of-trade shock. (Nikola Spatafora and Andrew Warner completed an interesting research paper addressing this specific issue - read more). In a Sebastian Edwards article "Flexible exchange rates as shock absorbers", he states: 

 

We find evidence suggesting that terms of trade shocks get amplified in countries that have more rigid exchange rate regimes. We also find evidence of an asymmetric response to terms of trade shocks: the output response is larger for negative than for positive shocks. Finally, we find evidence supporting the view that, after controlling for other factors, countries with more flexible exchange rate regimes grow faster than countries with fixed exchange rates.

 

Supporters of flexibility, on the other hand, have argued that under floating exchange rates the economy has a greater ability to adjust to external shocks.  According to this view, which goes back at least to Meade (1951), countries with a flexible exchange rate system will be able to buffer real shocks stemming from abroad. This, in turn, will allow countries with floating rates to avoid costly and protracted adjustment processes.

 

continued research reveals that Edwards is not alone in his findings concerning the dangers of rigid exchange rates for market based economies.  Jbili of the IMF's Finance & Development Magazine wrote an article entitled "Should MENA Countries Float or Peg?" examining 6 MENA countries and their exchange regime.  I note some of the identical remarks.....

 

The prevailing view now is that increasing flexibility in exchange rate management would help countries deal with external shocks, reduce the risk of banking crises, and contribute to financial stability. There are, of course, dissenters who argue in favor of intermediate regimes, stressing the difficulty developing countries have in meeting the preconditions for a successful float and the negative impact of excessive exchange rate volatility on investment and growth.

 

The above country-by-country analysis indicates that exchange rate regimes in the six countries had varying degrees of success. Exchange regimes in Jordan, Morocco, and Tunisia have not recently come under pressure, because real shocks were relatively manageable and macroeconomic policies were generally consistent with the choice of exchange rate regime. In contrast, the recurrent pressures in the foreign exchange markets of Egypt and Lebanon demonstrate that vulnerability to real exogenous shocks, volatile capital inflows (Egypt), and large structural fiscal deficits financed by heavy domestic and foreign borrowing (Lebanon) are incompatible with a pegged exchange rate

 

Popular opinion through much research shows that it is quite favorable for developing countries to free themselves from a fixed peg toward a more flexible exchange rate regime in order to protect their economies from terms of trade shock.  A great example of this is Egypt by 1986 where the country began to experience serious macroeconomic imbalances and a dramatic fall in growth characterized by budget deficits of 17% of GDP.  Egypt launched its Economic Reform Program to address dire economic conditions which really took off by 2003 for further liberalization of the economy.  In 2003, the government began floating the rate of exchange of the Egyption pound, releasing it from its peg to the dollar (read more).   Although Egypt continues to struggle with its economy for numerous reasons, it stands to reason that Iraq would be in a much better place should it head in the same direction.

 

There are preconditions to a successful release from the peg and toward a flexible exchange regime.  The country must establish a sound market economy, political energy must be aligned with it, a sound financial sector must be established, and capital markets should be in operation.  Everything we see Iraq doing tells us the country's intent is to float the dinar.  Government controlled economics with rigid exchange regimes can be the death of a country whose economy is subject to highly violatile exogenous terms of trade shock.  It's tie to the dollar can create years of deficits.  Iraq must take control of its economic future.  It must liberalize its economy, harmonize its political landscape and float its currency.

 

all of this is my 2c on the matter through my own research.  take it for no more than that.

be blessed my friends

Edited by TrinityeXchange
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Thanks TX ! You point of view is shared by many others in and out of this forum. If it turns out that way we could be years away from a substantial gain on the IQD. The problem that I see is that Iraq is ripe for a flood of external investors waiting to jump on board now. The completion of the HCL and article 140 will bring solidarity to Iraq. The United States has now re-established a presence back in Iraq and this time we know that we can't let it fall back into the hands of terrorist. In short the USA is the main peace keeper for Saudi Arabia, Kuwait and Iraq. The differences now is that Iraq is pegged to the petrol-dollar and there is no way for them to disengage until they are fully capable of standing on their own two feet. I don't see our (USA) presence going away anytime soon. Which brings me to my conclusion that Iraq's time is now and there is no going back. They can RV their currency backed by the USA right now. Thanks

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It does indeed appear to be heading towards a float, but I am still optimistic that they do an initial exchange of around .10..... If for no ther reason, to kick start the float and let the world know they are ready to become an international currency with some kind of value to it.

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Have been in this since 2010 when Scooter was pushing this hard with all his elaborate charts and predictions.  All were false and nothing he said ever came to pass.  He left after some pumpers started getting arrested.  Simple fact is trillions of dollars will be needed to rv and Iraq doesn't have it.  Not holding my breath anymore.

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Thanks TX ! You point of view is shared by many others in and out of this forum. If it turns out that way we could be years away from a substantial gain on the IQD. The problem that I see is that Iraq is ripe for a flood of external investors waiting to jump on board now. The completion of the HCL and article 140 will bring solidarity to Iraq. The United States has now re-established a presence back in Iraq and this time we know that we can't let it fall back into the hands of terrorist. In short the USA is the main peace keeper for Saudi Arabia, Kuwait and Iraq. The differences now is that Iraq is pegged to the petrol-dollar and there is no way for them to disengage until they are fully capable of standing on their own two feet. I don't see our (USA) presence going away anytime soon. Which brings me to my conclusion that Iraq's time is now and there is no going back. They can RV their currency backed by the USA right now. Thanks

 

I agree that Iraq is ripe for foreign investors. A float starting out with a low exchange rate ($0.01) would stimulate foreign investments where a RV with a high exchange rate ($1.00) would hinder foreign investments. If you were an investor, would you invest in an economy with a low exchange rate, EUR for example, knowing your dollars will buy more and speculating that it will eventually rise?

 

Cheers!

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I just want to say there some very intelligent people here and come with experience and very reasonable points, however Iraq is just been one those countries you just can't quite figure out. Every single time we think understand what there doing they change the game. Basically I do enjoy reading a lot of these posts and I have grown and learned more then I ever imagined, my hats off to all of you whom take the time and bring your hard work. But in the end it's just a great opinion, and you have my respect, and I mean no disrespect but I believe know one really knows until the end. Iraq so far is like the great elusive fish we know there going to be big and powerful, the question everyone waits for is are we going to profit from them.

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Have been in this since 2010 when Scooter was pushing this hard with all his elaborate charts and predictions.  All were false and nothing he said ever came to pass.  He left after some pumpers started getting arrested.  Simple fact is trillions of dollars will be needed to rv and Iraq doesn't have it.  Not holding my breath anymore.

 

Maybe you should check your facts before trying to trash one of the most respected DV posters of all time, who's not even around to defend himself.

 

Scooter NEVER pushed this investment hard & he NEVER made any predictions, NOT ONE TIME. In fact, when everyone else was stating RV was around the corner, he provided detailed facts to confirm an RV was still a ways off. He took the time to post factual, detailed info, only because 99% of members wanted to hear his opinion, considering he was one of the most educated & knowledgeable Investors around. Sure he created elaborate charts unlike anyone else, but NOT ONE TIME did he ever predict an upcoming RV. In fact, here's one of his old sites where you'll find nothing but detailed Investment info and not just about the IQD:  http://************.com/ .........please tell us what he stated is false & where you see his RV prediction. 

 

After sitting in the DV shadows for many years, this is the only reason I began posting, to defend the DV family from trolls who began trashing other members for no reason......why trash anyone at all??

 

If you actually listened to what Scooter had to say, you'd probably make some money from his advice, I hear he's doing pretty well for himself.

Edited by Markinsa
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Maybe you should check your facts before trying to trash one of the most respected DV posters of all time, who's not even around to defend himself.

 

Scooter NEVER pushed this investment hard & he NEVER made any predictions, NOT ONE TIME. In fact, when everyone else was stating RV was around the corner, he provided detailed facts to confirm an RV was still a ways off. He took the time to post factual, detailed info, only because 99% of members wanted to hear his opinion, considering he was one of the most educated & knowledgeable Investors around. Sure he created elaborate charts unlike anyone else, but NOT ONE TIME did he ever predict an upcoming RV. In fact, here's one of his old sites where you'll find nothing but detailed Investment info and not just about the IQD:  http://************.com/.........please tell us what he stated is false & where you see his RV prediction. 

 

After sitting in the DV shadows for many years, this is the only reason I began posting, to defend the DV family from trolls who began trashing other members for no reason......why trash anyone at all??

 

If you actually listened to what Scooter had to say, you'd probably make some money from his advice, I hear he's doing pretty well for himself.

Sorry, but Scooter's whole premise was this was going to make us rich and while he never gave specific dates he did estimate time frames.  I remember in late 2010 he indicated there was a high probability it should happen by the end of the year.  It caused much anticipation and large volumes of followers(many of which are long gone). Of course it didn't happen.  But his compelling discourse was back then, to say the least, very encouraging.  I read all his discussions here and listened to his audio interviews and bought because of his pumping and so far like so many others have lost a tidy sum.   He continued with these complex pro rv teases until he left. The new site he established diversified investments true maybe because he didn't want to continue to be a one trick pony.   Possibly his paycheck from the brokers finally stopped and/or he got worried he would get caught up in legal battles like others did.  Your take and mine simply don't agree.  Just my personal opinion and no harm meant.  FYI,  I do still own some dinar. 

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