What is the reason the CBI holds a currency auction?

[djgabrielie1]

What is the reason the CBI holds a currency auction?

 

This question has been on these forums since Dinarvets was in its infancy. I really haven't gotten an answer to the question. So I thought I would ask you and share mine. Serious Input Only Please!

 

The first thought is that the CBI wishes to control the amount of Dinar in circulation, while they replace it with US Dollars.

Why would they do this and why for so long?

Seems to me that they are making money on the exchange rate from Dinar to Dollar while they are still printing and circulating new money into the market place. Ever wonder, What is distributed from an Iraqi ATM machine? Certainly new Dinar currency and not US Dollars. If you use your US VISA in an ATM, you are charged an exchange rate and are paid out in Dinar. So what if you have an Iraqi VISA? You are not charged an exchange rate and are operating on strictly Dinar.

 

Bottom line is that the CBI is making money on the sale of USD that is being used for transactions that only accept dollars for payment. It has been Big Business for the CBI and associative Banks.

 

Keep in mind that Iraq exports oil which is paid for in Petrodollar and not Dinar.

 

The second though is that Iraq likes to operate in USDs currently because it is more convenient to carry out transactions small and large with the United States without again an exchange fee from IQD to USD. You can easily enough exchange your IQD to the GPB pound when dealing with the UK as well but there is that pesky Exchange Rate again. Currently No one wishes to convert their currency to IQD because it is not a recognized international currency and is tied to oil and the USD and not gold or any other currency. So in Iraq they deal with Dinar other countries deal with their own currency least they incur an exchange rate.

So are electronic banking and credit cards more convenient than carrying cash in country?.

Of course it is. It is also more convenient to write a check from a local bank then to carry cash. It is also convenient for many businessmen travelling abroad to just use their credit card and incur the exchange or conversion fee.

Note: They already have foreign currency exchange rates just like we do for major currencies. I am quite sure that an Iraqi Businessman will accept the dollar and give you back Dinar in change after they apply an exchange rate. 

 

Why would Iraq ever raise the value of the IQD then?

Value or worth of the goods and services that they export I would guess. Seeing that 90% of that is oil and natural gas you would have thought that they would have done it already. As of December 2015, OPEC has thirteen members including Iraq. So why haven’t the Iraqi people enjoyed that which other OPEC countries enjoy? War, Corrupt Government general stability of the region? I don’t know. They should have done it already after chapter 7 was lifted. The Hydrocarbon Law may be the key after all.

 

In summary: They have to actually put value in their own currency at least at a 1:1 or better to do away with the auctions and be on par with other OPEC counties. Even then, they will still be dealing with petrodollars regarding their main export which is oil. Refer to: Petrodollar. But they have been doing that all along.

 

 

[newbieDA]

this is something I think about often as well

 

its seems the also manifest their own dinar liquidity problems are well with the auctions, and still why

 

do they want the dinar not too be used? well no

 

only thing that comes to mind is they are sucking up more and more dinar aka the note count

 

all I got, hope it helps some what

 

like we all think, it'll turn around and turn on, upwards in value

Edited December 15, 2015 by newbieDA

[Zebra0101]

Never did understand it either....

[bigwave]

"They have to actually put value in their own currency at least at a 1:1 or better to do away with the auctions and be on par with other OPEC counties."

This single line is what "pumped" me in years ago.......

 

Peace,

 

Come on RV.

[djgabrielie1]

"They have to actually put value in their own currency at least at a 1:1 or better to do away with the auctions and be on par with other OPEC counties."

This single line is what "pumped" me in years ago.......

 

Peace,

 

Come on RV.

So why don't they just set the value of the Dinar back to prewar value then?

 

Another thing that is bugging me: They can't set the price of Oil. The 13 members of OPEC agree on the price. So why does the Budget fudge with the price per BBL? Unless they are selling it on the sly to anonymous counties. Which would get them kicked out of OPEC.

[SnowGlobe7]

The budget just accounts for how much they THINK that a barrel will sell for...then they divide up the proceeds from there. The budget is just a negotiated guideline of where profits are to go to.

 

At least that is how I have understood it.

[djgabrielie1]

The budget just accounts for how much they THINK that a barrel will sell for...then they divide up the proceeds from there. The budget is just a negotiated guideline of where profits are to go to.

 

At least that is how I have understood it.

I can believe that but they already know what that is via their affiliation with OPEC.   Check out the website for the report and 2016 estimations. There should be no guesswork for Iraq's Budget unless they are selling oil under the table.

 

​I believe that you are right that it is negotiated as to where the profits will go or be shared. This is where the government is corrupt in their expenditures and how much their currency should be worth. That is why the HCL would be most important. The value of the IQD does not relate to the value of the oil that they are exporting. So they need to adjust the value.

[gymrat76541]

They were making money with the currency auctions, so why stop? Question of the year??????????

 

The Iraq people would rather deal in dollars because they do not need a wheel burrow to carry money around. If they went 1 to 1 then the use of the dollar is no longer needed.

[djgabrielie1]

They were making money with the currency auctions, so why stop? Question of the year??????????

 

The Iraq people would rather deal in dollars because they do not need a wheel burrow to carry money around. If they went 1 to 1 then the use of the dollar is no longer needed.

If in the marketplace that deals in Dinar why would they carry dollars? Why not just write them a check off of their bank account or use their own bank card to pay for the transaction?

 

Are you telling me that the marketplace deals in dollars? In Dinar? Both?

Is their Bank Strictly Cash and no other financial instruments such as a check, bank card credit card?

What do they have ATMs for and what do they dispense?

 

Making the case for an ease of carrying folding money just doesn't make sense to me (I could be wrong.). Besides, they do have large denominations of Dinar available. 

 

If I were to travel to Iraq, I would go to the currency exchange and exchange Dollars for Dinar to have walk around money while in Iraq. I would then use my credit card and pay for hotel, car, meals where the card is accepted. The exchange rate would be calculated at the time the transaction took place. For most countries that I have visited, this was the normal procedure and worked well.

 

As I stated in the original post: " The CBI is making money on the sale of USD that is being used for transactions that only accept dollars for payment. It has been Big Business for the CBI and associative Banks." To wit, they won't stop the auctions.

 

Thank you Gymrat for your input and helping me understand the situation more clearly.

[Antietam]

The citizenship of iraq do not have faith in the stability of the dinar. They watched Saddam artificially inflate it's value to $3 before the Gulf war, and then they watched the Bremer government deflate it's worth to 4000 to 1. What a nightmare for the Iraqi man on the street. Since 2009 the CBI has stabilized the value at a pegged 1166 to 1. But it is pegged to the most dominant and stable currency in the world, the US dollar. Also, since iraq's budget is almost entirely petroleum based, and the petrodollar is the world's buy/sell currency, it just makes sense for the CBI to stay tucked in close to King Dollar. Trust me, the average iraqi on the street is very happy to have some dollars in his hand just in case his dinars take another nosedive. All currency is fiat. It is only worth what the rest of the world believes it's worth. Nothing more, nothing less. And the average iraqi doesn't have much faith in their dinar, but they do trust in the value of the US dollar. So do I.

[djgabrielie1]

 Agreed Antiem Thanks for the input.

[djgabrielie1]

Not really sure that we have found the underlying answer to this question yet.  

 

I would very much appreciate hearing from Ronscarpa on this.

[FlyHi]

In my limited understanding the petrodollar is paid but the GOI can't touch it in that form as the CBI is the custodian for any transaction. Their role is to convert it into Dinar for the treasury.

The CBI always tries to strengthen their reserves which the GOI treasury can't touch. Currently the auctions to the other banks and abroad net the CBI  a healthy profit that goes into their reserves.

It almost appears they are also in fact "laundering" some USD so this is why they keep the auction system going.

The whole area is not that transparent and confusing as heck....

[gymrat76541]

I think the Iraqi people prefer dollars because it has much more value. Maybe if they increased the worth of the dinar to the same as the dollar then they could eliminate the use of our money?

 

In the meantime, the government is making money by exchanging dollars to dinars and back into dollars. Why change this system if they are making a profit?

 

I have been on this ride for 11 years and patiently wait for positive change!

[Texas1]

They have auctions because they like talking fast.....duh

[TQueezy]

The CBI sells physical US dollar notes to representatives from major in-country banks and money exchangers, not individual citizens.

 

if you look at the auction details, only a small portion of each total days sales of dollars are in cash, physical paper bank notes.

The rest are electronic transactions and remittances, which are payments directly for goods and services usually out of country (think CBI is the liaison for the banks to pay companies not based in Iraq for imported goods or services.

 

So with so little cash dollars per day being distributed to banks who then distribute to citizens through tellers in bank buildings or ATMs, the rest of daily transactions are done with dinars, which employees get paid in (even government employees, who account for 20% of the population of working adults).

 

CBI makes a commission on both cash sales and electronic transactions exchanging dinar for dollars. Major reason they don't stop the auctions. 

Also, this helps regulate currency in circulation, both US dollars and Iraqi dinar, and possibly helps them remove some notes from circulation as their reserves can sustain (usually damaged notes or if major decreases in CBI foreign currency reserves then a sligh adjustment of circulating dinar notes based on money supply).

 

It's not that hard to see why they don't stop based on commission alone, dealing with hundreds of millions of dollars per day.

 

For Iraq to have a higher valued dinar compared to the dollar, they have to do more than expect the world to believe oil will be consistently strong for decades longer (questionable). 

And they have to stop arguing over budget money in government and regional conflicts and get rid of terrorist threats, just to mention a very few things on a long list…

[djgabrielie1]

Thank you TQUEESY +1