Trinity's Take: Understanding IQD's Value

[TrinityeXchange]

Markinsa kudos for compiling all of that data.  That is really good work.  I wonder though if the information I am taking in correlates with the figures you are calculating.  Really the only thing I am interested in is the note count which has significant importance to determining real value per unit.  So as far as how many trillions are out there, it doesn't really matter to me.  All I care about is MV=T because that is what determines how much my dinar will be worth if Iraq decides to independently run their monetary policy.  If you know of another formula that I can plug your numbers into, let's hear it.  Anything outside of that becomes too speculative for me and I am not expert enough to deal with it.  What I do continue to hear from the economic experts in Iraq is that the number of printed currency is 4B notes.  That number represents all of the goods and services in the country.  It appears though that your research corroborates their claim as well, right?  

Trinity, great articles BTW.

 

I enjoy your take on them, especially with regard to too little banknotes with regard to GDP.

 

While I want to agree, it may indeed be wishful thinking as the Fisher Equation is simplistic and assumes stability to predict how another factor will react in a near linear manner. Unfortunately we do not live in a perfect world and the situation is more dynamic and indeed more complicated simply because we are talking of Iraq! In the real world many variables maybe changing at the same time... not just one. So it becomes a "which comes first the chicken or the egg" situation. In other words does the Money Supply change first to effect the economy (GDP) or does the Economy change (read the for told change happening to banking sector and stimulus packages for other areas such as Agriculture, and making Iraq more attractive for investors) cause the Money Supply to react to keep in balance or change in value?

 

Heavy stuff indeed, I think Shabibi had a handle on it but MP's are in over their heads and knowledge level IMO.

I respectfully disagree there Fly.  Yes the Fisher Equation in itself brings into question debates about whether money supply causes inflation or total goods and services increasing cause inflation.  It also leads into debates on whether or not velocity and average price of goods & serv are truly static.  So I follow you there.  What I do not see debated as much is whether or not the Fisher Equation can be used as a good base to generalize from.  Economics is not an exact science and especially when you add fiscal policy into the mix.  However there are some things you can get a good fix on when you are looking strictly at monetary policy, note count and good and services provided by a country.

 

btw +1 to both of you my friends.  i love good dialogue.

Edited March 7, 2015 by TrinityeXchange

[Markinsa]

Markinsa kudos for compiling all of that data.  That is really good work.  I wonder though if the information I am taking in correlates with the figures you are calculating.  Really the only thing I am interested in is the note count which has significant importance to determining real value per unit.  So as far as how many trillions are out there, it doesn't really matter to me.  All I care about is MV=T because that is what determines how much my dinar will be worth if Iraq decides to independently run their monetary policy.  If you know of another formula that I can plug your numbers into, let's hear it.  Anything outside of that becomes too speculative for me and I am not expert enough to deal with it.  What I do continue to hear from the economic experts in Iraq is that the number of printed currency is 4B notes.  That number represents all of the goods and services in the country.  It appears though that your research corroborates their claim as well, right?  

I respectfully disagree there Fly.  Yes the Fisher Equation in itself brings into question debates about whether money supply causes inflation or total goods and services increasing cause inflation.  It also leads into debates on whether or not velocity and average price of goods & serv are truly static.  So I follow you there.  What I do not see debated as much is whether or not the Fisher Equation can be used as a good base to generalize from.  Economics is not an exact science and especially when you add fiscal policy into the mix.  However there are some things you can get a good fix on when you are looking strictly at monetary policy, note count and good and services provided by a country.

 

btw +1 to both of you my friends.  i love good dialogue.

 

This is what I got, 4.413 Billion Notes as of January 2015, not much change from the 4.469 Billion Notes at the end of 2013.

 

[Mrs. Silence Dogood]

Thank you Sir

[Saintsfan]

Thank you

[jeepguy]

o.k.    trinity  , markinsa ,   every one  ----  good   Saturday morning  { day  before the central bank  big  news  about   the  remittance  and  electronic  stuff abroad }  -----    those figures  ,  you are  studying  ,   are this  high  number  ---   the   same numbers  they are  talking about  needing  to have  to get  the  structure back  {  they need 9  trillion ,   they have  4  trillion  now  ,  leaves   5 trillion too be  produced  !  think  they are talking about  9 trillion dinar ,  too replace  the  larger  notes ....    also ------->  a  gooder  one       the  biggie  in my  thinking   puts  to bed  again  the zeros  off notes  { I ,m,o,  }    " delete  the  three zero`s ---  means  deleting  three  ( 3 )  grades  from calculation  records "     {  as  they just did  with the 50  note ,  took it  out of  the  calculations  by  making  them  worthless ,  exchange for easier terms .... }   so these grades  would  be  ----- 10.ooo   25,ooo  50,ooo  ----    with these  zeros  coming out of  the markets  then  the  9 trillion   new dinar notes will be needed to re-place  the  zero  lifting  effect ,     did  I do another  long  version of your  talk again  ?        

[ChuckFinley]

Hello again my friends.  Let's have a discussion on how we quantify value in the IQD in a very simplified way.  There is a well respected and accepted economic principle called the "Quantity Theory of Money".  Simply put, the theory states that there is a direct relationship between the quantity of money in an economy and the level of prices of goods and services sold.  The equation goes like this:

 

MV=PT or M(money supply) [x] V (velocity) = T(avg price of good and services [x] volume of goods and services)  

for the sake of keeping the explanation simple we will call T - goods and services throughout this write up

 

Let's break the equation down in english - For a defined window of time, the amount of printed money multiplied by the average number of times the money changes hands equals the total goods and services at average price.  When there are changes on one side of the equal sign, there must be changes on the other side of the equal side.  Change in goods and services directly effects money supply, velocity or both.  Please continue no further until that is clearly understood.

 

Quickly we can recognize a few scenarios from this direct relationship:

 

• When goods and services boom, there must be a significant rise in either money supply, velocity (number of times the money changes hands) or both in order for the equation to stay equal/balanced.
• When money supply booms, if goods and services stays the same, there must be a reduction in velocity
• When money supply booms and velocity stays the same, there must be a resulting boom in goods and services
• When velocity of the currency booms, and goods stays the same, money supply must be reduced

 

I could continue on drawing up scenarios with this equation but I believe I gave enough examples to help highlight the direct relationship between opposite sides of the equal sign.

 

Should we accept this respected theory as a means to compute value, what do we see Iraq doing?  

• We know for fact that Iraq has significantly reduced its Money Supply.  We watched much of this happen through the auction process where the CBI purchased IQD with USD.  We have seen reports from the CBI that the notes in circulation has been reduced to 4 Billion with a goal to get to 1 Billion.
• We might assume that the velocity of the money is up from articles of currency been worn out through overuse.
• We know that the GOI and CBI are working to boost privatization on a massive scale which will significantly increase the volume of goods and services in the economy.
• We know that as the volume of goods and services increases, the monetary policy of Iraq is to PREVENT inflation (increasing money supply).  

My friends I hope we are all able, from this simple means of measurement, to see that the IQD is intended to gain value....significant value.  The only thing standing in the way of realizing the real value of the currency is the presence of the USD.  Eventually we will see the time when foreign investment into the country will demand a true foreign exchange market where the foreigner's money will be exchanged into IQD in order to execute business in the country resulting in boosting the country's volume of goods and services.

 

The only thing we really have to watch for at this point that will work adverse to our hope is 1) Reduction in the nation's security 2) Anything denoting that Iraq begins increasing/inflating the money supply.  As of today however, these two indicators are either being addressed (1) or the exact opposite (2).  

 

Now, I bet more people are happy to read about the 50 note being removed from the economy.  That alone should have given the dinars you hold a boost in value!

 

Be blessed my friends.

Thanks TrinityX for reminding us of Fishers equation. It's a simple view of how money supply affects inflation.

 

Let's say in LaLa Island in the Pacific they use Clam Shells for their Money Supply (M) is 120. They normally trade 10 canoes each year (T=10). The money supply is spent twice each year (thus V=2)

Now assuming Total Goods and Services are the same year after year. what would happen if Money Supply is doubled.

Let's first establish a base year.

 

MV = PT

 

Hence 120 x 2 =P x 10

Thus P = (120 x 2)/10= 24 Clams/canoe

 

Now if  M is doubled

Then, (120 x 2) x2 = P x 10

Thus 480 = P x 10

Hence P= 48 so the price of canoes double...an inflationary effect.

 

Please note this Fisher equation is an expression of a country's economy or GDP

 

Both sides of the equation represent the economy but express it in a different way (Tautology = saying same thing twice in different words)

 

Simplistically, doubling the Money Supply (M) doubles the size of the economy (GDP)

 

However, in this example the Real GDP (the size of the Goods and services 'T') didn't double, just the nominal GDP (the monetary value of the GDP increased)

 

Any printing of money by the CBI increases inflationary pressure if the other factors are not stimulated (business confidence and willingness to invest etc)

 

We note that Abadi and CBI are trying to change emphasis and stimulate the business sector while stopping printing IQD as the continue to draw it in.

 

so what Trinity says is true.... it has to impact the true value of the IQD which is artificially being held low. Hence the talk of some Guru's speculating that they need to come out with a moderate or low new rate and then let the Supply and Demand drive the value of the IQD via a float 

 

Thus endeth the lesson 

Being a Stats Guy. I love when you guys talk dirty like this. Great insight and post guys.

[boosterbglee]

I'm going to agree with Chuck......be still my beating heart!   

[Laid Back]

This is why I love DV. We learn something new everyday

Thanks all you guys for today's lesson

[Wiljor]

This is why I love DV. We learn something new everyday

Thanks all you guys for today's lesson

I'll second that LB, DV is the most trusted and reliable site on the net For Dinar info.

[BJinMontreal]

If you discount Luigi's incessant posts that is.

[MyLadiesDaddy]

Mark, I've a question. If we believe the CBI numbers, and I'm not entirely sure I do, 

 

then how come for yrs now we've been reading about the money shortages in Iraq?

 

Also the stories about the old and worn out currency being able to be easily counterfeited.

 

It seems that something is off with everything. And on a side note, does anyone know 

 

how many bank notes the CBK , Kuwait, has in circulation?

 

[Markinsa]

Mark, I've a question. If we believe the CBI numbers, and I'm not entirely sure I do, 

 

then how come for yrs now we've been reading about the money shortages in Iraq?

 

Also the stories about the old and worn out currency being able to be easily counterfeited.

 

It seems that something is off with everything. And on a side note, does anyone know 

 

how many bank notes the CBK , Kuwait, has in circulation?

 

 

I'm not sure.  It may be most of what is "Currency Outside of Banks" is actually outside of the country.  

 

-

[MyLadiesDaddy]

That would explain why so many countries have such a strong 

 

interest in Iraq. And if rumors are to be believed we supposedly 

 

have five trillion here in the states. 

[TrinityeXchange]

This is what I got, 4.413 Billion Notes as of January 2015, not much change from the 4.469 Billion Notes at the end of 2013.

 

Markinsa, where are you pulling the bank note information from or are you computing this on your own??  btw you really don't have to compute or solve for numbers like "currency issued" because it is found in the financial statements (link) though i'm sure you are aware of this.  what i question though is why the CBI hasn't posted a 2014 financial statement?  we are looking at old data.

 

Currency issued

In millions of IQD           2013                2012

Banknotes                     40,630,036     35,784,805

 

we see that the CBI in 2013 accounted for 40T in banknotes circulated outside of the banking structure and was a significant increase from 2012.  the 2013 numbers amount to approximately 35B usd.  i am beginning to wonder who on the planet is holding this much dinar??  sheesh....looks like i have my work cut out as i continue digging through financial documents.  it is getting exhausting.  

 

they need 9  trillion ,   they have  4  trillion  now  ,  leaves   5 trillion too be  produced  !  think  they are talking about  9 trillion dinar ,  too replace  the  larger  notes ....    

jeepguy go back and reread that quote, he specifically said that there were currently 4B notes supporting the economy and the delete the zeros project would require them to print more notes and get the total to 9B.  at least that's how i read that.  the main reason to print more of a currency and devalue it is to stay competitive in the exports market or to reduce purchasing power.  a main reason to reduce purchasing power is to keep the domestic market competitive against imports.  (i can explain more if you like)

 

And on a side note, does anyone know how many bank notes the CBK , Kuwait, has in circulation?

 

their central bank's financial statement should reflect how much money is in circulation.  how to get number of bank notes though is beyond me.  i am still trying to find where Markinsa is getting bank note information.

Edited March 7, 2015 by TrinityeXchange

[Markinsa]

#1 Markinsa, where are you pulling the bank note information from or are you computing this on your own??  #2 btw you really don't have to compute or solve for numbers like "currency issued" because it is found in the financial statements (link) though i'm sure you are aware of this.  what i question though is why the CBI hasn't posted a 2014 financial statement?  we are looking at old data.

 

Currency issued

In millions of IQD           2013                2012

Banknotes                     40,630,036     35,784,805

 

we see that the CBI in 2013 accounted for 40T in banknotes circulated outside of the banking structure and was a significant increase from 2012.  the 2013 numbers amount to approximately 35B usd.  i am beginning to wonder who on the planet is holding this much dinar??  sheesh....looks like i have my work cut out as i continue digging through financial documents.  it is getting exhausting.  

 

jeepguy go back and reread that quote, he specifically said that there were currently 4B notes supporting the economy and the delete the zeros project would require them to print more notes and get the total to 9B.  at least that's how i read that.  the main reason to print more of a currency and devalue it is to stay competitive in the exports market or to reduce purchasing power.  a main reason to reduce purchasing power is to keep the domestic market competitive against imports.  (i can explain more if you like)

 

their central bank's financial statement should reflect how much money is in circulation.  how to get number of bank notes though is beyond me.  i am still trying to find where Markinsa is getting bank note information.

 

#1. I'm getting it from this report: Annual Statistical Bulletin Page 16 & 17

#2. We all want to know how many Banknotes have been issued.  With the above report, we know how much was issued by denomination.  Using the percentages of each denomination at the end of 2013, I calculated an approximate number for the Currency Issued as of January 2015.  If you go back and look at the my post "I quoted" follow the links in that post, and you'll be able to see that we can calculate Currency Issued to 2015.  We do not have to wait for the 2014 Financials to be issued to get that number.

 

Below is another post I made concerning the Currency Issued.  It is the report from Page 17 above, I added a calculation for number of notes at the bottom.

 

Here's the deal. 

 

At the end of 2013 there were 9.191 Billion Dinar in 50's issued (184 Million Notes).  Of that 9.191 Billion, only 801 Million was in Banks; 800 Million of that 801 Million was in State Owned Banks, 55 Million was in the Rafidain Bank, 744 Million was in Rasheed Bank, and 1 Million was in the Agricultural Coop Bank and the remaining 1 Million was in the Bank of Baghdad.

 

To me, this was a no brainer for the CBI. If you look at the table below, you will see it too.  The CBI exchanges the 801 Million Dinar with those 4 Banks, the remaining 8.39 Billion is outside of the banks (about $7 Million (US))  may or may not be turned in.  That's free money, that gets removed from the CBI's liability and is added to their equity.  It is also a test run for the withdrawal of the other denoms.

 

 

 

-

 

-

[TrinityeXchange]

#1. I'm getting it from this report: Annual Statistical Bulletin Page 16 & 17

#2. We all want to know how many Banknotes have been issued.  With the above report, we know how much was issued by denomination.  Using the percentages of each denomination at the end of 2013, I calculated an approximate number for the Currency Issued as of January 2015.  If you go back and look at the my post "I quoted" follow the links in that post, and you'll be able to see that we can calculate Currency Issued to 2015.  We do not have to wait for the 2014 Financials to be issued to get that number.

thank you my friend.  i will get right on it.  putting all of our heads together should help us figure this thing out.  it is encouraging to know that the reports by economist of 4B notes in existence a true accounting.  i wonder though why we aren't seeing that number continue to decline toward 1B though?? 

 

thanks for the lead...i will keep digging.

 

btw: i am reading the report now and find it funny that they add this bullet point item:

"The data provided in the bulletin is amendable."  in other words, "we can change the information provided in this report should we choose."  there is always a backdoor left open with the banksters....always a way to hide data if you don't want it known. 

Edited March 7, 2015 by TrinityeXchange

[TrinityeXchange]

here is my complete analysis.  anyone finding anything differently please chime in:

 

in order to get an accurate reading of money in circulation we must begin with Iraq's M0 otherwise known as Monetary Base.  not to add confusion but on balance sheets this is also entitled "reserve money (RM)" but for our purposes we will regard it as M0/MB, Monetary Base.  

 

the Monetary Base is comprised of three accounts:

• currency issued
  
• reserves
  
• other deposits
  

for our purposes of determing money in circulation or "note count" (reserves + other deposits) must be deducted from the M0 and we are left with currency issued.  

• currency issued is comprised of two accounts:
  
• currency outside banks
  
• currency held in banks
  

questions comes into play on whether or not to include "currency held in banks" when determining the real money in circulation.  according to iraq's key financial indicators for january 2015 that answer is, no.  instead, "currency held in banks" is included in the "reserves" account of the monetary base.  

 

as of january 2015 according to key financial indicators there are 35.6 Trillion IQD in circulation outside of banks.  this places the "note count" WELL under 4B notes in circulation.

 

i corroborate my finding by comparing 2013 numbers with 2015 (thanks largely to help from Markinsa).  2013 indicators reveal 35T IQD in circulation outside of banks which is represented by 3.6B notes.  we would have to assume that 2015 note count is not far off.  

 

so now we know for certain that there are under 4B notes in circulation in the economy.  however i learned something through all of this and am admittedly wrong in my statement that the note count has been reduced over the years.  the financial indicators DO NOT show this but quite the contrary.  currency outside of banks has actually increased every year.  HOWEVER what has decreased significantly between 2013-2014 is bank reserves which went from 38.3T to 30.7T in one year.....quite significant.  

 

i look forward to watching the indicators for the CBI to begin reducing the note count to 1B notes because as of today it is maintaining a steady just under 4B count.

[FlyHi]

Good digging Sherlock (Trinity) and the ever faithful Watson (Markinsa). I appreciate the hard forensic yards you guys are doing in trying to get to the bottom of the # notes in circulation within Iraq. 3.6B is a lower quantity than what we have been lead to believe offically.

The question (fact??) remains are the bank books cooked enough to "hide" the true note count number.

Trinity I agree Economics is not an exact science and we need to focus on the note count as LGD reminds us Supply & Demand determine perceived value. We just need some tangible data to demonstrate that the note count has indeed been reduced to around 1B as hinted by various MP's and CBI. That together with the new banking reforms and business stimulus into the Goods and Services (T) area of the economy will be having an impact and we await the release of the "Economic BRAKE" that the fixed artificial exchange has and want to see the IQD soar when this brake is released and stare in amazement as it floats up to its true worth!

Edited March 8, 2015 by FlyHi

[tommyboy]

 

in case any are confused by the equation, here is a little more explanation.  There are variations of this equation.  

MV=PT

MV=T

MV=P(y)

 

and perhaps some other variations of the equation exist where:

 

M = Money Supply 

V = Velocity of Circulation (the number of times money changes hands)

P = Average Price Level

T = Volume of Transactions of Goods and Services

 

regardless of which equation is used, it all means the same thing and  the purpose is this:

Essentially, the theory's assumptions imply that the value of money is determined by the amount of money available in an economy. An increase in money supply results in a decrease in the value of money because an increase in money supply causes a rise in inflation. As inflation rises, the purchasing power, or the value of money, decreases. It therefore will cost more to buy the same quantity of goods or services.

 

OK. Got it. The only thing I am thinking about is how, in the US w/fiat dollars, the FED keeps doing the QE (Quantitative Easing) and INCREASING our money supply!!! Wouldn't it be a b!+c# if we got 3.5/1 and the dinar was actually worth MORE than our greenbacks? LOL

[MyLadiesDaddy]

OK. Got it. The only thing I am thinking about is how, in the US w/fiat dollars, the FED keeps doing the QE (Quantitative Easing) and INCREASING our money supply!!! Wouldn't it be a b!+c# if we got 3.5/1 and the dinar was actually worth MORE than our greenbacks? LOL

 

 

I am beginning to seriously wonder the same thing.

[marknet73]

Thanx for the breakdown.

[TrinityeXchange]

OK. Got it. The only thing I am thinking about is how, in the US w/fiat dollars, the FED keeps doing the QE (Quantitative Easing) and INCREASING our money supply!!! Wouldn't it be a b!+c# if we got 3.5/1 and the dinar was actually worth MORE than our greenbacks? LOL

in actuality the opposite effect is happening.  the fed has been seriously attempting to devalue the dollar but the harder they try (QE 1,2,3) the stronger the dollar has become.  score 1 for the citizen who gained in purchasing power, deduct 1 for the corporations who depend on a cheap dollar for export competitiveness.  the fed has had to regroup in a sense with rumors that interest rates will be increased finally.  i imagine QE 4 will begin sometime in 2016.  

[skeetdog]

Thanks Trinity/Markinsa...With everything up in the air from oil prices to ISIS to world finances...I don't think anybody's got a solid grip on who's goin' to do what...I got a hunch that this entire financial puzzle is an elaborate chess game that the Rothchilds have been playin' since ''Desert Storm' to benefit everyone that wanted to jump on their band-wagon...Two events in the last 6 months that nobody thought would be possible a year ago; ISIS forcing Iraq to acknowledge the Kurd as an equal...Low oil prices forcing Russia to get off their soapbox and realize just who the Bull-of-the-woods really is....I just don't think number count makes a difference in the price of tea in China...Whatever the count has to be...my monies goin' to be ridin' on the count bein' right at the right time....