The Iraqi Dinar Will Revalue

[marcuscurtis]

I really enjoyed the dialog between jmw and mc. The importance of how GDP can enhance the value of the IQD is quite real. The one thing in your equation that is missing is that instead of increasing the exchange rate, Iraq could increase the number of IQD in circulation to reflect the same effect. In this way they could introduce any increase in value domestically. Any profit we may realize with this investment ultimately involves a transfer of wealth from Iraq to us. We should always remember that for every way we might profit, there is a way for Iraq to profit instead. As we are well aware, only time will tell.

If Iraq were to do this they would expand their money supply without changing value to fill in this gap there would be around 80 trillion dinar. I highly doubt this would happen. Also take into account what has been going on with the currency auctions for the last 30 days.

Jac your link does not work.

Quoting you responses makes mine really long lol!....so i'm not going to right now....I have enjoyed the discussion and you are correct...I don't think we will agree on everything but that's okay... I've got to finish hanging some Christmas lights with a year old but I will get back to your post later...one thing i wanted you to check was your figures for M3...M3 is M2 + RP's + Eurodollars..

http://nowandfutures.../key_stats.html

ours is only about 14 Trillion...

have a great evening....more to come!

Your right JMW

http://inflationdata...ey_supply_2.asp

without going into too much detail I was reading something else and using the wrong terminology. completely my fault, sorry about that. Thanks for the correction!

However that does not change the real money supply put in place by Federal Reserve Banking. (FRB)

Edited November 29, 2010 by marcuscurtis

[drox]

Marcus...

I appreciate the response and as I said before great post and research. I am really enjoying both yours and JMW's dialogue as well.

Let's step away from what we all want (signicant RV) and lets talk possible real affect on Iraq to support a significant RV. Help me get this confusion out of my brain please. Yes, Debt=money and money=debt, but imports and exports have an important link. If Iraq comes in at lets say $1-$3 in the current economic climate how do you propose Iraq will handle that gigantic influx of value within it's borders? I am trying to understand post RV effect in Iraq versus the obvious low purchasing power and need for some kind of a value adjustment.

In my opinion Iraq needs to have a much more stable foundation to handle such an event. Stable in regards to numerous things.

1. Imports/exports. If Iraq comes in at say a $3 RV. Most goods with the exception of oil/gas will be imported. Why? Because it will be dirt cheap to import all goods since the rest of the world prices remain static (or will they?). We have all seen what trade imbalances do to a country's currency and unemployment. This is one reason why the United States has so many problems with the currency misalignment in the world in particular with China. If Iraq imports all goods and the oil/gas industry makes up over 90% of the GDP then Iraq will remain a one industry nation. Banks make up 5% and the rest are spread across agriculture and mining mostly from what I have read. Iraq needs to sustain itself post RV too. It will not create an environment to build new industry because it is cheaper to import than to create goods. This is a problem because Iraq wants to be diversified. It can't afford to be at the mercy of oil price fluctuations as we have witnessed the last couple years in Iraq. You know... Iraq had to borrow from the IMF just to support the budget deficits.

The oil industry only employs 2% of the Iraq labor force but makes up over 90% of the GDP. The majority of the workforce works for the government in almost made up positions to employ them. I have seen unemployment quotes between 15%-25%. If you are not creating new industry that does not help your labor situation or get citizens off your payroll. Yes, the foreign investment into the infrastructure will help provide new jobs but not necessarily jobs for the long haul. Many Iraqi's will not benefit much from an increase in exchange rate because many live in poverty or have no work. It seems a huge divide will occur in social classes. How will they keep up with the inflation that will occur from a huge revaluation? Cheaper prices to import goods but we both know price controls do not work. So prices will likely move up concurrently with the exchange rate. A larger poverty class would only increase crime and terrorism not help it.

2. Investment climate. Banks are still not prepared to handle the investment. Citizens still keep their money out of the banks. They have not been conditioned to use them. There remains much distrust in both the government and the banks. Electronic banking is becoming more available but the 2 main state owned banks (and most popular) are still going at a snail's pace to reform. The CBI's move to increase reserve deposits will take years for the banks to reach. Only 23% of the country uses the internet as of about 6 months ago. Atm's and credit cards are newly introduced in the last couple years. The CBI is encouraging the banks to merge together to become stronger and to lend more but they are not doing it. The existing investment laws are insufficient. They were passed in a hurry and left out important things. Many Iraqi's feel they unfairly reward foreigners rather than their own citizens. The tax advantages are awesome for foreign corporations! The daily climate for doing business is awful though. Bribery and collusion are normal functions of doing business in Iraq. Competition has not been embraced. Infrastructure is a nightmare for anyone (foreign or domestic) to do business in Iraq. Security in particularly at the banks are weak at best and corporations have to add security to their cost of doing business there.

If an RV discussion was not on the table Iraq would have numerous foreign investment. The increase in foreign currency in Iraq would cause the Dinar to naturally rise. Even then it would force imports to still increase in an unbalanced way for awhile. My main argument is that Iraq is not Kuwait. They have to rebuild everything that was run-down or neglected in lieu of palace building in the Saddam era. They have to establish more laws for investment to thrive. They have to maintain security in a still dangerous culture. How is more money going to help? It could have the inverse effect. Without question the purchasing power has to increase for the average Iraqi. But... Is it possible that reinstating an old rate would be like tying your own noose to hang yourself down the line? I just need someone to help me make sense of this. You have already opened my eyes to a new possibility with your post. Thanks so much.

[DaveH]

Excellent post, thanks or all the effort you put into it

[Eddinar]

One of the best posts I've ever seen Marcuscurtis.... Great job.. +1

[lechesuerte]

Thanks Marcuscurtis! Great job! GO RV in 2010!!!

[TimS]

Marcus....wow........you seem to be very well educated, maybe you know some economists or even some currency traders....so here's my question to you-

Currencies trade on the Forex based on hard data, hard data like the type you've given in your initial thread, so based on info that we "know" to be true and accurate for Iraq, WHY CAN'T ANYBODY COME UP WITH A RV RATE BASED ON WHATEVER ECONOMIC DATA CURRENCY VALUES ARE DETERMINED EVERY SINGLE DAY ON THE FOREX?????????

This cannot be the guessing game everybody makes it out to be......don't any of the guru's on this site "know" any traders who do business on the Forex? One of these guys should be able to come up witrh a number that will be fairly accurate....You have to believe that it won't benefit anyone if the RV rate comes out too high or too low, stability is what the market place likes.......increases and decreases will take place over the long haul.

Can you help me out with my thinking?