A dollar for a dinar ??????

[rockfl9]

Of course IF you have dinar to sell you would love to get a dollar for it .. But what if you dont  have dinar ,  WHY would you give up a solid dollar???.  WHO would buy ANY ?  TRUE the CBI has the option of setting the price to buy/sell the dinar in Iraq and the Iraqi economy will rise or fall on that decision.

OUTSIDE OF THE COUNTRY the value of the dinar is set by the DEMAND in the market not what the CBI says it is !   It must compete with ALL other currencies on basic value alone. 99% of all currency exchanges are made to buy some product or service , NOT to  just accumulate in the hope of a profit.   

IF the dinar was UNDERVALUED as the GURUs want you to believe the CBI would have fixed that long ago by gradually improving it .  The IQD rate started at about 4000:1 in 2003 and gradually improved to 1170.  Now iT has moved to 1190     BECAUSE that  is where the CBI/MOF believe it SHOULD BE in the best interest of the country. 

You think that the rate MUST be increased to make the IQD an Internationally trade-able  currency .  BS !  It could trade at that  rate today IF the GOI wanted to. They have many good reasons T NOT TO  !  As long as the GOI has enough USD coming in to buy what it needs it will get along just fine.

As time goes on and the normal pressures of growth set in the CBI may need to change the rate BUT I would not be surprised to see it edge to 1200+ .  WHY ,  Because that is the historical trend of all currencies. 

[EverCurious452]

I'll after to quibble with some of that Rock.  First the history.  Indeed the IQD did get into the 3,000 to 4,000 range prior to the 2003 war (the CBI history page ( https://cbi.iq/page/39) says it got to 3,000 to 1 USD in 1995 .  When the banking system was reset in late 2003 or early 2004 after the war it came out at about 1480 to 1 (https://tradingeconomics.com/iraq/currency

 

It stayed around that level til late 2006 when they started to increase its value to fight inflation reaching (roughly) the present rate around mid 2009,    They were able to make such an increase in the rate due to having sufficient foreign reserves to cover it.  And while that steep increase ( a drop in the graph above since its dinars per dollar) its only about 20%.  That indeed IS huge for a currency but nothing like the 100,000% folks on this site are looking for.

 

Now for the idea of demand.  A pegged currency is going to be much less impacted by supply and demand than a floating currency would be.  Why would anyone pay more than the central bank is offering? (plus margins and feeds and cost etc associated with the various intermediaries).   Supply and demand have some impact, that is why the street rice of dollars in Iraq is a bit higher than the official rate.  Of course since here is virtually nothing you can buy where you need IQD there is no demand in the first place.  But even if there were the central bank has plenty of IQD for sale, they print them after all.   

 

As long as the IQD remains pegged the rate will be limited by the ratio of foreign reserves to the money supply and and as long as those reservers are replenished by oil revenue, nothing is going to change here.  The IQD went down in value from its rough parity with the dollar (or more) to the 3,000 to 4,000 to 1 level due to Saddam hyper-inflating the currency and the only way to undo that is with a redenomination.  But I don't think there is any pressing need to do so.  They can very well continue just like they are.

 

The CBI could only float the IQD (if that is what folks mean by "going international") if there were sufficient volume in IQD to keep the rate stable (rate stability is their main goal after all, it's in their founding documents).  And since there is virtually no such volume floating the currency just won't work.  So that is not going to happen either.  I think we in agreement on that point.

 

Edited May 18, 2019 by EverCurious452

[rockfl9]

Hello EC.  Tks for the reply.  Your numbers help make the point that the rate has stabilized and that the CBI/MOF believe that it is about the right place. (value )  The CBI can keep that rate ( steady ) and the country will continue to advance as long as more oil dollars keep coming in.  But there will be pressure from the expanding population and increased cost of imports.   

I am trying to get the answer to where the dollars for the big payout will come from ?  Joe Dinarian expects the IQD will RV,, then be traded internationally and his local bank will gladly exchange for dollars on the spot !  I am not sure that Joe understands that a banks job is to move money around , not just hold it !!   There has to be a customer wishing to pay dollars for dinar.