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Central Bank announces the withdrawal of 50 dinars a class of trading


yota691
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don't get me wrong my friend.  i would love to see us get 1:1 exchange or something close to it overnight.  at this point though and from everything i am seeing, i can't corroborate that idea.  one of the closest templates to what iraq is doing is looking at egypt who played from the same world bank strategy guide of monetary reform.  in 2003 egypt floated their currency (read more).


So if it rises gradually over time, why not just hang onto what we have and cash in when you want?

that's the plan my friend.  it will just take a bit more patience that some might not have after being in this thing for a good decade.  but if they float it, it will rise and we will make money.  :twothumbs:

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So if it rises gradually over time, why not just hang onto what we have and cash in when you want?

 

That would be good but, if they are going to float I am sure they also have in place a way to get around that as well. Of course they did state at one time that they would not do away with the old notes (the ones we hold) and that they would run them concurent with the new ones. If this were the case then yeah, you could exchange at a higher rate WHEN there was one but, it probably wouldn't be much and the wait would probably be lengthy.

 

Then again, they could decide to do away with the old notes alltogether like they are doing with the 50 note. I am just speculating here because God knows that I don't know what is really going to happen LOL.

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my friends, i have been steeped in a lot of economic research lately and have come fully and completely to believe that iraq is preparing to float the iqd.  the shocks experienced by this country plus the current global currency war taking place where the united states is feverishly working to suppress the purchasing power of the dollar has forced iraq's hand.  they must privatize the market, stabilize the country's security, and float the iqd.  at this point i am fully convinced of a imminent float.

 

this article would now lead me to believe that there will be no initial revaluation of the currency prior to the float but that iraq will simply unpeg from the dollar and allow it to naturally float up in value.  if an initial revaluation was coming first, the 50 note would definitely have value.  to see it being removed leads me to believe the plan is already in place to come out with a float which means at least for a stretch of time the 50 note will have no significance and should be removed.

Finally, a guru that knows what he's talking about. LOL

No really I totally agree with your assessment.

Only I hope they bring it up to 10 cents then float.

Whatever, I strongly believe we'll know by Sunday.

And FYI everyone, don't panic on the possibility of a float. I doubt that it would

take long for the dinar to go up.

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Trinity - I really respect your opinion but I'm having trouble seeing how it can float up for several reasons:

 

1.  They need to release the money from the budget and to the Kurds as soon as possible.  With a float from 1166 this will put trillions of dinars back into the economy, trillions they just spent the last 10 years removing.  With trillions back in the economy the value of the dinar couldn't be a high value for years. 

 

2.  Unless it's a controlled float the value of the dinar would be very uncertain.  For example, the folks on Forex could take a small amount and run with it and in the blink of an eye the amount a dinar would be worth could be much more than the CBI anticipates leading to inflation and uncertainty.   Also, unless it's a controlled float, from a day to day standpoint the average Iraqi wouldn't know the value of the dinar for basic transactions.  Due to the uncertainty of value Iraqis would likely want to hold onto dollars and not use dinars which is not what the CBI wants.

 

3.  If it's a controlled float starting low then it would take a very long time for Iraq to build the dinar value up.  If it's a low amount it doesn't encourage Iraqis to use the banks or to switch from the dollar to the dinar.

 

4.  If it was going to float I can't see why they wouldn't have released the money to the Kurds and to the ministries already. 

 

5.  If it comes out low and floats up that wouldn't encourage Iraqis to use dinars.  It seems they would still want to use dollars. 

 

This is Iraq and anything can happen (and probably will) but I just can't see how a float would allow Iraq to get what they want - ie., move to an electronic society, get people to use dinars instead of dollars, get people to put money in the banks, make Iraq a reserve currency throughout the rest of the world, etc. 

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hi Trimark.  quite honestly i didn't know what to think for quite some time until i got away from soooooo much speculation from people who know nothing about economics and emerged myself into official documentation and expert reviews.  when you get a chance take a look at this document from the IMF.  it is a really easy and quick read as opposed to some of the other lengthy information out there.  

 

by the way, i was not implying that You know nothing about economics....i was referring to gurus and their logic.  i found that a lot of their logic was very adverse to economic concepts.

 

curious, are you familiar with "Current Account"?  


if you get a chanceTrimark please check out my post: "Is Iraq Preparing to Float the IQD".  i would love to hear your thoughts.

Edited by TrinityeXchange
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Hi Trinity.  I am as far away from being an economist as one can get.  I just try to think very logically and from an everyday person perspective.

 

I skimmed the article you provided.  To me, I read it that increasing flexibility in exchange rate management works better than a float which Egypt and Iran have. 

 

To me, a float will work only if the value starts at above $1.  The reason I say that is if it's a low float the trillions of dinars would be released back into the economy.  Right now the demand for the dinar is very low by the Iraqi people.  At a low value that demand will still be low.  The Iraqi people will still want US dollars not seemingly worthless dinars.   For the last 10 years the CBI has eliminated the supply of dinars from the Iraqi market.  If a supply of dinars goes back out in the market without creating a demand the value will remain low so won't float up. 

 

Also, they are trying to make the dinar a reserve currency.  Having it start out low and dumping a big supply of dinars back in the market is not going to increase its value and make it attractive as a reserve currency.  Plus, there will be a lot of uncertainty to the average Iraqi person as to its value. 

 

I thought your post about the float was excellent.  I think we both agree that Iraq needs a flexible economic regime.  I think we differ on what value that will start at.  It just makes more sense to me that if they are going to float they have to come out at $1 or more before the float can start in order to increase the demand for the dinar by the Iraqi people. 

 

IMO, I think they will come out at a round number such as $1, $1.50, $2, etc. so that will give them a starting point for the float that makes it easy for the man on the street to figure out the value compared to the dollar, entice the Iraqi people to start using the dinar, use the banking system, etc. 

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that was a good read trinity.  It seems the most desireable outcome to all of those countries was stability in their exchange rates.  lebanon showed a strong increase in their exchange rate and intervened to bring it back down a little to ease inflation.  My concern out of all of this is the desired stability that we keep hearing about from the cbi.  If they don't revalue before going to a float, their main concern is going to be keeping stability in the exchange rate.  That article covered a 10 year period with minimal change except for lebanon, and that was evidently undesired.


Hi Trinity.  I am as far away from being an economist as one can get.  I just try to think very logically and from an everyday person perspective.

 

I skimmed the article you provided.  To me, I read it that increasing flexibility in exchange rate management works better than a float which Egypt and Iran have. 

 

To me, a float will work only if the value starts at above $1.  The reason I say that is if it's a low float the trillions of dinars would be released back into the economy.  Right now the demand for the dinar is very low by the Iraqi people.  At a low value that demand will still be low.  The Iraqi people will still want US dollars not seemingly worthless dinars.   For the last 10 years the CBI has eliminated the supply of dinars from the Iraqi market.  If a supply of dinars goes back out in the market without creating a demand the value will remain low so won't float up. 

 

Also, they are trying to make the dinar a reserve currency.  Having it start out low and dumping a big supply of dinars back in the market is not going to increase its value and make it attractive as a reserve currency.  Plus, there will be a lot of uncertainty to the average Iraqi person as to its value. 

 

I thought your post about the float was excellent.  I think we both agree that Iraq needs a flexible economic regime.  I think we differ on what value that will start at.  It just makes more sense to me that if they are going to float they have to come out at $1 or more before the float can start in order to increase the demand for the dinar by the Iraqi people. 

 

IMO, I think they will come out at a round number such as $1, $1.50, $2, etc. so that will give them a starting point for the float that makes it easy for the man on the street to figure out the value compared to the dollar, entice the Iraqi people to start using the dinar, use the banking system, etc. 

Trimark, i have heard you say a couple of times that if it's a low float, trillions of dinar will be dumped back into the market.  Why do you say that?  I don't understand why that would have to happen to have a float?

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Trimark, i have heard you say a couple of times that if it's a low float, trillions of dinar will be dumped back into the market.  Why do you say that?  I don't understand why that would have to happen to have a float?

 

It doesn't have to happen to have a float.  The trillions going back in will be a result of the low value.  The Kurds and the ministries will receive money very, very shortly from the budget.  If the value is low at that point then trillions of dinars will be dumped back in the market.  If the rate changes and starts at a high number billions, not trillions, will be distributed.

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i have not studied up enough about determining the new float price of a currency, so i will have to give way to speculation.  there are a few points i want to emphasize and i am going to paste from two different sources that complement each other.  one is the report posted earlier from the imf and the other is from the world bank (pg 18):

 

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.
 
Exchange rate: Iraq pursues a policy of a de facto peg to the U.S. Dollar, and therefore monetary policy is constrained in tackling the current shock. The Central Bank of Iraq (CBI) had kept the Dinar steady through January 2009. In 2014, the nominal exchange rate in the official market remained stable against the U.S. Dollar at 1,166 IQD/1 USD, but the rate in the parallel market increased. 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. With the peg, fiscal policy carries the burden of macroeconomic stabilization, but in this case does not have the space to do so. 
 
let's put it all together.  iraq is a country that generates tremendous surplus in its current account (take a look).  oil exports completely trump imports.  with well over 80% of its exports and income deriving from oil, iraq is a prime candidate for "terms of trade" shock.....and i mean very very prime candidate.  the current oil crisis has placed iraq's future in a state of emergency.  these two references from experts explains to us that a country like iraq significantly reduces its susceptibility to these shocks by leaving a rigid peg to a flexible exchange regime (float or variant).  the world bank tells us that iraq's current peg fiscal policy does not have the space to help it stabilize against terms of trade shocks.  iraq has to make a move, like right now, if it plans to secure its economic future.  the problem as stated by the imf is that moving to a flexible exchange regime requires preconditions (i will not go into them but suggest you read my take in opinion section).  what we see iraq doing today is the preconditions necessary to change its exchange regime.  they are following the world bank's playbook to the letter.  
 
i see no benefit getting into discussions of money supply and trillions of dinar and possibilities.  i strongly suggest though that one study "The Quantity Theory of Money" M x V = P(y) with a slant that iraq has told us that they are approaching 1B notes in circulation and that the current pursued policy of privatization will have a tremendous effect on the dinars Velocity.   i can quantify though that iraq is doing everything in the playbook to prepare it for a move from a rigid to a flexible exchange regime.  that is all i know.
Edited by TrinityeXchange
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Trinity I think you and I agree.  I agree that they are going to move to a flexible regime.  I also think that they are going to allow it to float (sorry I didn't state it very well earlier when I said it wouldn't float, I actually meant that I don't think it will float starting at a low rate.)  Where I'm not sure we agree is at what starting point they will start that float.

 

I just can't see how it would benefit them at all to start at the current rate of 1166.  It just makes no sense to me.  I could very well be wrong but for a lot of reasons it just makes more sense to me for them to come out at or above $1 in a round number that is easy for people to figure in relation to the dollar. 

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Trinity I think you and I agree.  I agree that they are going to move to a flexible regime.  I also think that they are going to allow it to float (sorry I didn't state it very well earlier when I said it wouldn't float, I actually meant that I don't think it will float starting at a low rate.)  Where I'm not sure we agree is at what starting point they will start that float.

 

I just can't see how it would benefit them at all to start at the current rate of 1166.  It just makes no sense to me.  I could very well be wrong but for a lot of reasons it just makes more sense to me for them to come out above $1 in a round number that is easy for people to figure in relation to the dollar. 

yep we agree.  i just don't know the particulars of what a currency is introduced at when it floats.  the egyptian pound for instance was pegged at something like 3 to 1usd but when they floated the currency it went to 6 to 1usd.  i don't know what would happen with the dinar on the day it floats.   :shrug:

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yep we agree.  i just don't know the particulars of what a currency is introduced at when it floats.  the egyptian pound for instance was pegged at something like 3 to 1usd but when they floated the currency it went to 6 to 1usd.  i don't know what would happen with the dinar on the day it floats.   :shrug:

 

That's the part I'm stuck on too.  As mentioned I think it will come out at or above $1 to start but a part of me wonders if they might actually come out at $3.  The reason I say that is because I think the $3+ rate is what they ultimately would like to get to.  IF that is true - and that's a big if - then how realistic is it for them to go from a $1 starting point to $3+? 

 

I don't know a lot about how currency works but it seems that there aren't huge $2+ swings in the value of a country's currency over time.  It seems that a lot of currencies stay within a certain range and just go up or down a bit over time not huge amounts. 

 

That makes me think that if their end result is above $3 then coming out at $3 gives them room to grow into that end result over time. 

 

Again, I have no idea.  I'm just thinking out loud. 

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my friends, i have been steeped in a lot of economic research lately and have come fully and completely to believe that iraq is preparing to float the iqd. the shocks experienced by this country plus the current global currency war taking place where the united states is feverishly working to suppress the purchasing power of the dollar has forced iraq's hand. they must privatize the market, stabilize the country's security, and float the iqd. at this point i am fully convinced of a imminent float.

this article would now lead me to believe that there will be no initial revaluation of the currency prior to the float but that iraq will simply unpeg from the dollar and allow it to naturally float up in value. if an initial revaluation was coming first, the 50 note would definitely have value. to see it being removed leads me to believe the plan is already in place to come out with a float which means at least for a stretch of time the 50 note will have no significance and should be removed.

Interesting read .. What do you think it will float at first off ?

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Central Bank pulls the coin 50 dinars class of trading

 

 

        16-3331.jpg

2/28/2015 0:00 

 BAGHDAD - morning, 

the CBI has decided to withdraw a paper currency in circulation and prevent Alarac.waodh Bank said in a statement received "morning," a copy of the bank decided to "pull the banknote category of 50 dinars from circulation," he said, adding that this was due to stop the public from trading by On the basis of the authority vested in the Article 36 of the Central Bank Law No. 56 of 2004, adding, "The duration of the replacement category above two months, starting from 03/01/2015 up to 04/30/2015." adding that he and "after the end of the replacement for the banknote become null and have no discharge power will not be accepted in the Republic of Iraq, "the central" banks and their branches .odaa to banknotes presented to it without a fee or commission a replacement, and the banks deposit with the central bank and its branches for the purpose of being the equivalent value in the accounts we have. "

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Interesting read .. What do you think it will float at first off ?

Whatever it starts out at, it appears that the 50 dinar note will be insignificant. I have no clue what rate that might be. It wouldn't surprise me to see other lower notes be retired after the 50 is removed.

On the bright side we know that the ministry of planning intent is to get to 1.13 according to its official study and maintain that for 3 years I believe they said.

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