Investing in Dinars: 11. Finally Iraq Makes a Committment

[Enorrste]

11. Finally Iraq Makes a Committment

As we get closer to the actual event of a revaluation of the dinar we should naturally expect the powers in Iraq to begin to lay out the plan to the people. In the next two links we see that they are beginning to do just that.

Here is the first link:

http://www.rferl.org/content/Iraq_Pl...n/1950504.html[Fact]

And here is the full article, posted in the Radio Free Europe website:

[Enorrste]

Plans to Increase the Value of the Dinar

Here is the next link:

http://translate.google.com/translate?hl=en&ie=UTF-8&sl=ar&tl=en&u=http://www.foratnews.com/paper.asp%3FID%3D8383&prev=_t&rurl=translate.google.com&twu=1[Fact]

And here is the article in its entirety:

From Forat News

Plan to increase the value of the dinar against the dollar and the deletion of three zeroes

”Finance Ministry has prepared a plan to increase the value of the dinar against the dollar and then delete the three zeroes from the dinar's value to contribute to the advancement of the Iraqi economy during the coming period with the Iraqi central bank denied the rumors making the dollar worth 1000 dinars and said in a statement issued by the Ministry of Finance:, the Minister Baqir Jabr said During his recent visit to the Jordanian capital Amman, said the CBI chagrin financially estimated $22 billion and three tons of gold intended to support the Iraqi dinar. He said that successful fiscal policy pursued in Iraq have contributed to increasing the value of the Iraqi dinar against the dollar, noting that the dollar exchange rate dropped significantly during the current year, stressing that all efforts will be channeled to the deletion of three zeros from the value of the dinar.

“On the other hand denied the authoritative source in the Iraqi Central Bank rumors making the dollar worth 1000 dinars, or a change denominations or raise zeros from the current currency.”

“He said in a press statement that the bank has been following with great interest the phenomenon of low demand for the dollar in the local exchange markets, stressing that such information or rumors surrounding the aim of achieving commercial gain emergency for some users at the expense of the public.”

[Analysis]

It has been claimed that the above article is an old article. Some thought it came from 2008. Others said it was first posted on 12/13/2009. The date at the top of the article changes everytime the page is refreshed, so that is not proof of its age.

However, within the article itself we can see that it is a recent article. The last paragraph states that there is “low demand for the dollar in the local exchange markets.” This phenomenon has only occurred since the dollar was banned for local use. That ban was originally to have been in October of 2009 but was since pushed back to January of 2010. Therefore the article has to be from at least January, and probably February, since the “phenomenon of low demand for the dollar” is quite recent.

Here is a link from January 30, 2010, in which this topic is discussed directly:

http://www.blackanthem.com/News/Military_News_1/Iraqi-dinar-to-protect-Soldiers-stimulate-local-economy21736.shtml

Therefore the “phenomenon” talked about in the article under discussion could only have occurred in the very recent past, leading me to suspect that the article is actually current and not dated at all.

Let’s look at the portions of the article in red above and see what they tell us. In the first caption you will notice that I have put in bold the two words “and then”. We can see that the increase in the value of the dinar is juxtaposed to the removal of 3 zeros from the dinar. In addition, however, we see that the phrase “and then” tells us that the first must precede the second. In other words we now know that the two will not occur simultaneously.

From the prior article we gleaned the same information, namely that the removal of the large denominated notes would occur over a period of time ending at the end of this year.

Therefore, once again, we can see that this is not a typical lopping procedure but is instead a removal of large notes that will become superfluous or “unnecessary” in the normal course of business.

Now in this same quote we finally see a clear statement from the Central Bank of Iraq itself that it intends to increase the value of the dinar. This is the first time we have seen a statement of intent put out so clearly by the CBI.

In the next red quote we see that the CBI is receiving 3 tons of gold and $22 billion “intended to support the Iraqi dinar”. We can gain a tremendous insight from this little statement by asking a simple question: If it is the intention of the CBI to only remove 3 zeros from the dinar why do they need all of this money to support the dinar? The answer, of course, is that they wouldn’t. But more to the point, we see that they are bringing in these funds for the very PURPOSE of supporting the dinar.

$22 billion and 3 tons of gold is a little over $23 billion today. In addition we read earlier here that Iraq also intended to raise its reserve funds to $42 billion to support the dinar. Therefore the total reserves of Iraq are now going to go to about $65 billion. At the current exchange rate that means that they have reserves of over 75 trillion dinars.

We also see from the previous article that the total outstanding amount of dinars is only 25 trillion dinars. Therefore Iraq will have “in reserve” the equivalent of 3 times the total amount of dinars currently in the market. Almost all other countries in the world, including the United States, use a “fractional” reserve system in which they have, at most, about 10% reserves in foreign currencies for the amount of national currencies outstanding. Iraq, then, is in a position with this large reserve pool of foreign currencies and gold to raise the value of the IQD substantially in the near future. As I pointed out in the last chapter, we see again that Iraq can certainly afford a significant revaluation of its currency with this large reserve.

In the next red section of the article above we see that ”all efforts will be channeled to the deletion of three zeros from the value of the dinar.” Once again I have emboldened the verb in this sentence to point out that it is in the future tense. Here we see that Iraq will be taking actions in the future, and not immediately, to remove these large denominated notes from the market. This is consistent with the first article above in this chapter in which it was stated that the process would proceed naturally until the end of this year.

Now we come to the last part of the article. I will post the relevant quote again here for ease of access:

“On the other hand denied the authoritative source in the Iraqi Central Bank rumors making the dollar worth 1000 dinars, or a change denominations or raise zeros from the current currency.”

When this article came out I was surprised at how many people missed the intent of this statement. Many were worried that the increase in value would be only to 1000 to 1 for the dinar from the current 1170 to 1 for the dinar.

However, on looking at the emboldened portion of the quote we can see that the CBI is actually DENYING the RUMORS that it would only revalue to 1000 to 1. What this means in simple English is that the CBI is denying that it is only lopping off zeros. We can verify that this is correct from the quote itself, in which it states “or a change denominations or raise zeros from the current currency.” In other words, the statement states that the denial applies to all three things in the quote: (1) rumors of making the dollar worth 1000 dinars, (2) or a change in denomination , (3) or raising zeros from the current currency. Can you see how the word “or” here links all three of these items to the denial. It is saying “not this, or that, or that.”

Now this is extremely important because what it is saying is that the CBI is specifically denying a lopping of the “current currency”!

We now have a definitive statement from the CBI of its intent to raise the value of the dinar, to support that raise in value with substantial reserves, and a denial that there will be a lopping of 3 zeros off the current currency.

What that leaves us with is this: the RV will be substantial and will occur shortly (the timing comes from the need to act to avoid speculators from flooding the market). There will be a period of natural removal of the current currency as the new currency replaces it after the RV. The current currency will not be usable in the normal course of business because of the size of the notes. By the end of the year the notes will have been drawn into the banks and eliminated from the market. Most of the “value” of those large notes will remain in deposits at the bank. This will enable the banks to lend and will improve the economy through this process (this comes directly from the first article above). The end result will be a dramatic increase in the wealth of all Iraqis and a resurgence in the economy of Iraq at the same time.

[Enorrste]

How long until this takes place?

We are now in a position to talk about timing. We have two factors to consider. The first is the RV itself, and the second is the removal of the large denominated notes.

Taking the second item first we see that the timing has already been given us: the large denominated notes will be withdrawn gradually throughout the remainder of this year.

Regarding the timing of the RV itself we can use our reasoning powers to deduce a time frame. This is not difficult. Clearly the CBI, in making the announcement of its intent to do this, has opened the door to speculation from the world market. Therefore it is in its own best interest to complete the RV as soon as possible. Every day that it waits invites more and more speculators into the market. At some point the speculators could literally foul the RV play if the CBI did not act quickly. Therefore we can reasonably assert that the RV will take place within the next few days, and almost certainly before the 12th of February.

The 12th of February is important because that is when campaigning will begin for the next election. Maliki would be foolish to revalue the currency during this period, since it would appear obvious that he is doing so for electoral support. Therefore, in my opinion, this is the outside date for the RV to occur, and most likely it will occur before that date.

[jocko129]

As always Enorrste great Job!!!, Very explicid and easy to understand. Lets RV Now!!!!!!!!!!

thanks,

enorrste!!!!

[tabajam]

Thanks for the info

[Rickybobby]

Bravo !!!!!!!!!!!!!!!!!!!!!!!!!

[jlt0614]

Thank you thank you thank you! Very easy to understand!

[afarns]

$22 billion and 3 tons of gold is a little over $23 billion today. In addition we read earlier here that Iraq also intended to raise its reserve funds to $42 billion to support the dinar. Therefore the total reserves of Iraq are now going to go to about $65 billion. At the current exchange rate that means that they have reserves of over 75 trillion dinars.

But that reserve figure is only valid for the current dinar value. When you change it to reflect a 1:1 USD:IQD value, that changes things substantially.

[War Eagle]

I do NOT mean to throw "cold water on this post,but I want to explain one thing; It is true that Iraq has 25 trillion dinars in circulation,and that their reserves might be built up to 75 trillion.On the surface,this appears to be enough to warrant a good reval.However,on futher disclosure,if the dinar revals 1-1,then the amount in circulation will be 25 trillion DOLLARS,WITH A BACKING OF ONLY 65 billion dollars. This simply is not substantive.You can draw your own conclusions!!!!!!!!!!!!!!

[john1025]

Well, as always, you've answered all my questions and have set my mind at ease. I don't know what else to say except, Bravo! The voice of reason. It's a good thing! Thank you.

[Enorrste]

Afarns and War Eagle: You seem to have forgotten one thing: the large denominated notes will be drawn in and eliminated. Therefore the total money supply in circulation will fall dramatically, since most people will leave their money in the banks (in-country) and the foreigners will turn theirs into the federal reserves of those countries, thereby taking the large denominated bills out of circulation. We can reasonably project that all dinars outside of Iraq will be eliminated over time. Within the country, assuming a 1000 fold increase in the value of the dinar, the locals will hold 1/1000 th of that amount in cash in their pockets, the remainder staying in the banks, where it will be turned into deposits (not considered dinars "in circulation"). In other words the value of 999/1000 ths of the large denoms in country will also disappear.

This should easily solve the question raised by you.

[1908champs]

I do NOT mean to throw "cold water on this post,but I want to explain one thing; It is true that Iraq has 25 trillion dinars in circulation,and that their reserves might be built up to 75 trillion.On the surface,this appears to be enough to warrant a good reval.However,on futher disclosure,if the dinar revals 1-1,then the amount in circulation will be 25 trillion DOLLARS,WITH A BACKING OF ONLY 65 billion dollars. This simply is not substantive.You can draw your own conclusions!!!!!!!!!!!!!!

I agree with your assessment. This $$ cannot come from midair. The most likely scenario is that if there is to be an "RV", then it will most likely be "in-country" with the benefits going only to Iraqi citizens. The speculators will not benefit other than some small potential gain over what we paid for the dinars. This "in-country" RV has been done before and there are several references by GOI that Dinar held by people outside of Iraq will not be valid.

[ezjc79]

I do NOT mean to throw "cold water on this post,but I want to explain one thing; It is true that Iraq has 25 trillion dinars in circulation,and that their reserves might be built up to 75 trillion.On the surface,this appears to be enough to warrant a good reval.However,on futher disclosure,if the dinar revals 1-1,then the amount in circulation will be 25 trillion DOLLARS,WITH A BACKING OF ONLY 65 billion dollars. This simply is not substantive.You can draw your own conclusions!!!!!!!!!!!!!!

B=War Eagle I agree with you on this. Based on those figures what would this reserve support for a reval? I am bad at math!!

[misty]

thank you for making it so easy for me understand. the sooner the rv the better

[afarns]

Afarns and War Eagle: You seem to have forgotten one thing: the large denominated notes will be drawn in and eliminated. Therefore the total money supply in circulation will fall dramatically, since most people will leave their money in the banks (in-country) and the foreigners will turn theirs into the federal reserves of those countries, thereby taking the large denominated bills out of circulation. We can reasonably project that all dinars outside of Iraq will be eliminated over time. Within the country, assuming a 1000 fold increase in the value of the dinar, the locals will hold 1/1000 th of that amount in cash in their pockets, the remainder staying in the banks, where it will be turned into deposits (not considered dinars "in circulation"). In other words the value of 999/1000 ths of the large denoms in country will also disappear.

This should easily solve the question raised by you.

I have yet to see anything where the government has said that the large notes would be drawn in and eliminated. I HAVE, on the other hand, seen where it said they would remove 3 zeros from the currency and redenominate the national currency. I much as I'd love to believe that your explanation is what they "really meant", I'm going to have to take the literal meaning for now. I hate it, but I think it's naive to try to rationalize this situation so that it fits our desires.

[rt59]

I do NOT mean to throw "cold water on this post,but I want to explain one thing; It is true that Iraq has 25 trillion dinars in circulation,and that their reserves might be built up to 75 trillion.On the surface,this appears to be enough to warrant a good reval.However,on futher disclosure,if the dinar revals 1-1,then the amount in circulation will be 25 trillion DOLLARS,WITH A BACKING OF ONLY 65 billion dollars. This simply is not substantive.You can draw your own conclusions!!!!!!!!!!!!!!

Ware Eagle, exactly..but no one wants to address that. They just want to justify a high RV and not look at the monetary problems post RV with at least 25 trillion IQD in circulation becoming worth $25 trillion after RV. $65 billion in reserve is only .0026 % of the value of the IQD in circulation, post RV. Something has to give! $65 billion won't last long after an RV. Are they going to get $ from a camels butts?

[nascardman]

I do NOT mean to throw "cold water on this post,but I want to explain one thing; It is true that Iraq has 25 trillion dinars in circulation,and that their reserves might be built up to 75 trillion.On the surface,this appears to be enough to warrant a good reval.However,on futher disclosure,if the dinar revals 1-1,then the amount in circulation will be 25 trillion DOLLARS,WITH A BACKING OF ONLY 65 billion dollars. This simply is not substantive.You can draw your own conclusions!!!!!!!!!!!!!!

I'm no genius, but I do not think that everyone will be cashing in a day one of the RV. Countries that are holding Dinar and then will hold your investment in the banking system to use for future purchases, will be alot slower at hitting Iraq. Meanwhile the export prices in Iraq continue to climb and build their assets / reserves.

JMO. Like I said I'm no genius.

[tabi]

I still don't see how every country involved with Iraq would erase their debt, pat them on the back and say "How much for a quart of oil.

If Iraq revaues 1 to 1usd they still don't have a deficit as large as ours in the US.

If Iraq revalues and all the countries hold the IQD in their reserves Iraq can slowly pay everyone back as they grow. We all will need the IQD in our reserves anyway.

[nascardman]

Let me throw something out here. Since most of the money held in this country is just an electronic transaction. It would be impossible for the US government to cash out everyone in the world with the physical equivalant of there dollar holdings. Does that mean that your dollar is not worth a dollar? No, of course not. Money is just numbers floating in cyberspace. We have nothing to back our dollar, who cares if they have enough to back theirs.

[rt59]

Afarns and War Eagle: You seem to have forgotten one thing: the large denominated notes will be drawn in and eliminated. Therefore the total money supply in circulation will fall dramatically, since most people will leave their money in the banks (in-country) and the foreigners will turn theirs into the federal reserves of those countries, thereby taking the large denominated bills out of circulation. We can reasonably project that all dinars outside of Iraq will be eliminated over time. Within the country, assuming a 1000 fold increase in the value of the dinar, the locals will hold 1/1000 th of that amount in cash in their pockets, the remainder staying in the banks, where it will be turned into deposits (not considered dinars "in circulation"). In other words the value of 999/1000 ths of the large denoms in country will also disappear.

This should easily solve the question raised by you.

Enorrste, the only way to draw them (IQD) in to eliminate them is to make them worth something, ie an RV. That is the easy part, paying for them is the hard part. You say people (in country) or governments (out of country) will put money into banks or hold in federal reserve. That is fine, but backed by what? $65 billion in gold or whatever won't last a minute if and when the IQD RV's at even a $1. And what government will hold them, probably in the trillions of dollars for redemption from Iraq for goods and services at a snails pace? It would take 10 yrs to redeem one trillion dollars at a 100 billion dollar a year pace. Where is the money going to come from while they draw all of the big bills out of circulation? That is the problem. They have to be converted to something to decrease the money supply. Are they going to give us the lower denomination bills? That won't work either..not enough of them and if you print more you have not contracted the money supply, which accomplishes nothing. Round and round we go..IMO. This is why IMO the RV will come in at a much lower amount..at best .10. But I do not know any thing! We will see and I hope I am wrong but the numbers do not make sense at all. Peace out! lol

[jackdavis1364]

Thank you Professor Enorrste. As always, very analytical and speaks to the common sense of us all. I'll bet you 25,000 dinar that if you are in the chat room at 9:00 as usual, you will be asked all of the questions that you have answered here at least a dozen times. I greatly admire your patience.

[krayblue]

11. Finally Iraq Makes a Committment

He said he expects the currency change to go smoothly because of the decision to allow both the old and new banknotes to coexist, leading to less turbulence in the economy.

Iraq has announced that sometime during the next several months but before the end of this year all large denomination notes will be removed from their currency. In their place will be smaller denomination notes. The purpose for doing this is to make it easier for the people to do transactions and for them to carry LESS money. Both will remain legal tender throughout this process, so there is no lop, period. If there were to be a lop, one currency would become void and would be replaced with the other. Instead, the large denominations will be phased out over the next several months but will remain legal tender. In order for stated purpose number 2 above to work, there MUST be a revaluation of the IQD. This is the plain sense of statement number 2. If there were not a revaluation, then the people would be carrying MORE money, not less!

Enorrest - Why couldn't they do this (see link) and accomplish the same thing? Seems to me that this is exactly what the article is saying but I hope I'm wrong.

http://www.reconversionbcv.org.ve/pdf/TripticoColorIng.pdf

[rt59]

Let me throw something out here. Since most of the money held in this country is just an electronic transaction. It would be impossible for the US government to cash out everyone in the world with the physical equivalant of there dollar holdings. Does that mean that your dollar is not worth a dollar? No, of course not. Money is just numbers floating in cyberspace. We have nothing to back our dollar, who cares if they have enough to back theirs.

We have something to back ours..the full faith and credit of the USA.. T bills, bonds etc..they do not pay much but exist for that purpose. Iraq has the future of their oil production, which is growing but cannot support a large RV IMO. Hope I am wrong.

[bellypod]

this is what happens when a currency is redenominated...just replac dianar for bolivar and i raq in place of Venezuela

http://www.reconversionbcv.org.ve/pdf/TripticoColorIng.pdf

[jackdavis1364]

I'm confused. I assume all of the detractors have purchased dinars. Why did you buy them? Did you do it on impulse and now you are wondering how they will provide the money that you thought you were going to get? I know you are looking for answers that will placate you and I don't fault you for that but the fact is that it is either going to pay off for us or it is not going to pay off for us. All of the talking, guessing, questioning, etc. is not going to make it happen or not happen. They are going to do what they want to do. In the meantime I, for one, am thoroughly enjoying the posts and the different thoughts and seeing how the same sentence or paragraph can be interpreted so many different ways. The brain is a wonderful computer.