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What would it cost to Revalue the dinar.


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See Table 16 - Monetary Base ( M0 ) Developments  page 43 

 

Notice how

 

M0 = a- Currency outside banks + b- Bank reserves ( 1+2 ) 

M0 = a - Net Foreign Assets of CBI +  b - Net Domestic Assets of CBI

I'm afraid I don't follow this table or what you think it means.  Clearly 'a' can not be both "currency outside of banks" and "Net foreign assets of the CBI" as these two things are not equal.  We know what M0 is, its physical cash outside of banks.  Some countries define it to include bank reserves, some not,  Plenty of resources online for such things.  Definitions vary a bit, but clearly the money supply of a country is about its own currency.  So your point about M2 somehow going down when there was an RV due to foreign assets being a big component of M2, doesn't make sense to me.  The money supply of Iraq is in the realm of 85T IQD, the CBI's foreign reserves are in the realm of $80B USD worth, that gives them the current exchange rate, with a bit of wiggle room, and is why an RV of more than a few percentage points is simply not possible and never was (sorry Seabee).

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My main concern and question with the dinar RV is how or why Iraq would or could do this.   We all  know that fiat money is currency that a government has declared to be legal tender, but is not bac

I see the Monday Morning Born Again Foreign Currency Experts are back at it in full hot air capacity..............Some things NEVER change. But hey I got to give em credit, they are just like the "gur

Well maybe FR there are people who have the capitol to invest in something against all odds. I'm not a casino gambler but I do have friends that are not afraid to walk into one with a suitcase full of

Some days I'm glass half full, and many days I'm glass half empty. I'm tired of happy face gurus who are never right. Never right. I have only my instincts to keep me in this thing and the knowledge that my life does not revolve around the stinking iraqi dinar. Now if it ever does revalue, I'll call it the glorious iraqi dinar!

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I'm afraid I don't follow this table or what you think it means.  Clearly 'a' can not be both "currency outside of banks" and "Net foreign assets of the CBI" as these two things are not equal.  We know what M0 is, its physical cash outside of banks.  Some countries define it to include bank reserves, some not,  Plenty of resources online for such things.  Definitions vary a bit, but clearly the money supply of a country is about its own currency.  So your point about M2 somehow going down when there was an RV due to foreign assets being a big component of M2, doesn't make sense to me.  The money supply of Iraq is in the realm of 85T IQD, the CBI's foreign reserves are in the realm of $80B USD worth, that gives them the current exchange rate, with a bit of wiggle room, and is why an RV of more than a few percentage points is simply not possible and never was (sorry Seabee).

 

You said Foreign Deposits have nothing to do with M0, that table is showing you Foreign Assets are part of M0.  There are two different a's and b's.  You need to compare this Table with the Key Financial Indicators to see the relationship.  At the end of 2014 there was about $54 Billion (62 Trillion Dinar) in US Foreign Assets (excluding the 25 Trillion Dinar in Euros and Other Currencies), if the Dinar had RV'd to 1:1 at that time, that 62 Trillion of M2 would have changed to 54 Million.

 

Do you have an Accounting, Economics or Financial Background?

 

.

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Markinusa, in your opinio, based on what you think the anount of Iraqs current money supply is, how much of a reval can we realistically expect? .01, .10, 1.00, 3.00? Just curious..

 

:shrug::facepalm2:  I'm an accountant, not an economist. :lol:

 

47635698.jpg

 

.

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You said Foreign Deposits have nothing to do with M0, that table is showing you Foreign Assets are part of M0.  There are two different a's and b's.  You need to compare this Table with the Key Financial Indicators to see the relationship.  At the end of 2014 there was about $54 Billion (62 Trillion Dinar) in US Foreign Assets (excluding the 25 Trillion Dinar in Euros and Other Currencies), if the Dinar had RV'd to 1:1 at that time, that 62 Trillion of M2 would have changed to 54 Million.

 

Do you have an Accounting, Economics or Financial Background?

Having just completed a somewhat lengthy assembly of a glorious pot of Texas Chili (i.e. no beans), I have some time while waiting for the first simmer....  man this stuff is so good...

 

Answering the last first, nope, I'm an engineer but I can do arithmetic and read a spreadsheet.  As such let me answer your post in two ways, first lets just assume you are right and see what happens, and then I'll get into the CBi's spreadsheet a little if anyone cares to go there.

 

Ok so I think your central assertion ( and please correct me if I'm wrong) is that some big chunk of the Iraq M2 is actually in dollars, so the stated values of around 90T IQD (page 45 table 17) is not all IQD.  First this only matters if you accept the idea that the exchange rate can't generally go higher than the ratio of the foreign reserves at the CBI divided by the size of the money supply, otherwise why does it matter?  So how much is comprised of USD?  50%?  For a 1:1 RV to occur it would have to be 99.9% and clea ly that is not the case.  The auctions are exchanging 10s of trillions of IQD each year for 10s of billions of USD for imports.  So even if you are correct and M0 contains some USD, it can't be enough to make the RV (that folks here talk about) possible.

 

Now a little bit of the CBi's spreadsheet.  I don't understand table 16 as it basically claims that

Net foreign assets of the CBI

plus

Net domestic assets of the CBI (which is always negative)

 

is equal to

currency outside of banks

plus

bank reserves.

I don't know why that would be the case.  But we don't have to speculate about what is M0, they tell us in the introduction.  The do include bank reserves in M0 (the UK does also, but the US does not).  here are the refs:

Monetary Base (M0): represents money issued for circulation (except for cash in the central bank vaults) plus commercial banks deposits in Iraqi Dinar with the Central Bank .

Money Supply (M1): represents money outside banks plus current deposits in national and foreign currency for economic sectors (except for central government sector) with commercial banks .

Money Supply (M2): represents (M1) plus other deposits economic sectors (except for central government sector) with commercial banks . 

 

 

Clearly M0 does not include USD, but M1 (and thus M2) could.  But it can't be enough to matter.   Look at the money supply table 4 page 21.  It shows 36T in cash and 36T in on demand deposits (not exactly the same, I'm rounding).  Could half of those on demand deposits be in USD?  I don't think so but it doesn't matter.  If instead of 90T IQD the money supply is "only" 72T (i.e. half of the on demand deposits of M1, 16T is USD), it makes no difference for a huge RV, its still impossible.  The dollars just don't exist to back it.

 

I don't fully understand table 16 as I said, but the net domestic assets seem to be the delta between M1 and M2, i.e. bonds which would be denominated in IQD and be a negative, but not clear why its a "domestic asset" and not just a liability.  But again I don't think this changes anything about the overall take away from the spreadsheet.

 

Which is high tens of trillions of IQD in the money supply and high tens of billions of foreign reserves gives an exchange rate in the realm of 1000:1, as it is, and is going to stay.

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Markinsa:  M0 IS the amount of THE LOCAL CURRENCY ONLY. That is the classic definition. There are  no foreign assets in that number.

M! adds on the value of bank deposits which may be Non-local  currency But would have the value converted to the local currency. It is still considered "cash".

What I am getting at is that when the MOF statistician puts out the M's they are ONLY local currency values.

I THINK EC is correct.

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I see the Monday Morning Born Again Foreign Currency Experts are back at it in full hot air capacity..............Some things NEVER change. But hey I got to give em credit, they are just like the "gurus"............ they will continue to spew until they are blue in the face...............man I wish that would happen soon!!!!! LOL

Yo Rock

Still haven't seen excerpts of the manuscript/book you say you are writing (sic)- you promised!!!! Now u wouldn't lie ...........would ya? I think u and I know the answer............but I would love to hear another excuse.

Edited by caz1104
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People, we are debating how many angels can sit on the head of a pin. We all know there is way too much printed dinar out there floating around in people's hands. The officers in the MOF and the CBI completely understand this. They are in no hurry to bring on economic panic or marketplace chaos by doing something ŕadical with their currency at this present time of uncertainty in oil prices and geopolitical turmoil. In my opinion, the dinar will remain where it is at 1166 for awhile longer. There must be some significant positive changes in order to shake the CBI out of its protective cover for the dinar. They are not stupid over there. They want to keep their cushy government jobs. Why shake up the marketplace and maybe bring riots to the streets of Baghdad if not necessary? Just my opinion, of course, but history over the last seven years proves me right.

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I think the Iraqi Government has made huge steps forward under ABadi. More than what could EVER happen in this country IMO.

 

I also believe that you can not judge a country by what the corruption did while it was unstable. ABadi has brought more stability than they have seen for many many years. Yes there is still a way to go...when the RV happens is on their timeline not ours.

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People, we are debating how many angels can sit on the head of a pin. We all know there is way too much printed dinar out there floating around in people's hands. The officers in the MOF and the CBI completely understand this. They are in no hurry to bring on economic panic or marketplace chaos by doing something ŕadical with their currency at this present time of uncertainty in oil prices and geopolitical turmoil. In my opinion, the dinar will remain where it is at 1166 for awhile longer. There must be some significant positive changes in order to shake the CBI out of its protective cover for the dinar. They are not stupid over there. They want to keep their cushy government jobs. Why shake up the marketplace and maybe bring riots to the streets of Baghdad if not necessary? Just my opinion, of course, but history over the last seven years proves me right.

Suppose peace and prosperity come to Iraq (wouldn't that be great!).  How would that fundamentally change (i.e. we're not talking small changes here for the sort of RV folks are wishing for) the ratio of the money supply to the CBI's foreign reserves?  The exchange rate can't go past that ratio whether its done overnight or over years.

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People, we are debating how many angels can sit on the head of a pin. We all know there is way too much printed dinar out there floating around in people's hands. The officers in the MOF and the CBI completely understand this. They are in no hurry to bring on economic panic or marketplace chaos by doing something ŕadical with their currency at this present time of uncertainty in oil prices and geopolitical turmoil. In my opinion, the dinar will remain where it is at 1166 for awhile longer. There must be some significant positive changes in order to shake the CBI out of its protective cover for the dinar. They are not stupid over there. They want to keep their cushy government jobs. Why shake up the marketplace and maybe bring riots to the streets of Baghdad if not necessary? Just my opinion, of course, but history over the last seven years proves me right.

Could not have said it better.

BTW the rate now is not 1166 it is 1182!   Heading for 1200 maybe.

The CBI knows it must hike the rate but doesn't know how much how fast. It would hurt imports and I  believe the importers have a lot of political power.

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Question... Why would Iraq RV knowing ISIS has raided banks in cities ISIS took ?

 

That would give Billions or Trillions of money to they enemy.

 

Why would they do that ? Anyone have a logical response ?

 

Thanks for the post SCD.

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The CBI will not hold off a revalue of the dinar based on ISIS controlling g a few banks in Mosul. They will hold off the revalue because the marketplace will not accept it right now. The iraqi man on the street has a fistful of US dollars just in case the dinar hyperinflates again. They know the dollar is safe. They do not have the same faith in the dinar. Neither do I, come to think about it.

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The CBI will not hold off a revalue of the dinar based on ISIS controlling g a few banks in Mosul. They will hold off the revalue because the marketplace will not accept it right now. The iraqi man on the street has a fistful of US dollars just in case the dinar hyperinflates again. They know the dollar is safe. They do not have the same faith in the dinar. Neither do I, come to think about it.

If they had the funds to back an RV, then those other things might be relevant to the CBI's decision.  But since they don't have the funds to back it, and never will at 1000x (I doubt they ever will at 2x), all those other things are moot.

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SD, you are probably right about how much ISIS controls, but my point is that there was no ISIS before 2013, and the CBI did not revalue the dinar. That is my point. The money people in the GOI will not plunge the country into an economic crisis by revaluing before it's feasible to do so. It matters little all the talk about how much in reserves the CBI has. The only thing that matters is the government of iraq keeping control. The day that the average iraqi holds only dinars in his wallet instead of US dollars, then it may be time to consider a revalue, but it won't be huge, as was the mantra back in 2011. I believed it back then, but I am now way too financially savvy to ever believe that scenario again. My money will be made by realistic improvements in the economy of iraq, which will be translated into a downward move of the peg. I may even live long enough to see no peg at all, ..okay, that was probably TOO optimistic!

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