Interesting read of an RD

[babyorca]

This coming from a blog regarding this person's opinion of an RD not an RV. I left out the remarks by others as it would be too long but you get the jist of this persons's opinion.

by: Brian

June 24, 2011 21:34 ReplyHi Bill, yes "redenomination" means they will remove 3 zeroes from notes. So your 25,000 notes will be exchanged for new 25 notes but at a new ratio of say 1.175:1 instead of 1175:1. You won't lose any money (value is retained minus the trading fees), and in the long run you may make some profit if the Dinar appreciates naturally vs the $, but all these "become a millionaire by changing up $1k worth of Dollars for $1k worth of Dinars" "Dinar pumpers" have been lying and scamming people all along with fake invented "intel", etc. A 99,900% profit has never, ever happened in any RV process. Take a look at what the Turkish Lira (6 zeroes removed), Venezuelan Bolivar (went from 2000:1 to 2:1), the pre-Euro (franc, pesetas, deutschemark, etc) to Euro currency changeover went through to understand the process better. Hope this helps.

No Peter, my explanation of how every single redenomination has worked in history including Iraq's neighbour Turkey isn't "flawed" at all:-

USA : There are $10.2 trillion (last M3 figures) from a country with a population of 310m people. This works out to approx $32,903 printed per American.

Euro : There are €8.5 trillion in existence (ECB M3 figures) from an entire continent with a Euro-using population of 327m people. This works out to approx €26,000 Euro's printed per European.

Iraq : There are 29 trillion Dinar's in existence from a country with a population of 31m (Iraq). This works out to 935,483 Dinar's printed per Iraqi (blatantly obvious hyperinflation).

If you remove 3 digits, yes you get 29bn Dinar but those Dinar will be valued at say 1.17:1 instead of 1,170:1. The dollar value will not change - just as the Iraq Central Bank have openly stated it won't back in April as reported on Iraqi Alsumaria TV. It's only a few vested interested conmen who just happen to sell Dinar who keep pumping the "instant millionaire" nonsense. If holding just $1k worth of Dinar will make you a millionaire, then by extension, you must believe every Iraqi who owns a house / car will be given between $50m-100m each if they sold it and changed the 50m-100m Dinars up at an FX outlet, and that the average $2k-$4k Iraqi income will become $2m-$4m. Um, no. That's not how it works at all.

Just to add, Peter : Countries can't and don't just magic 99,990% more money into thin air through an RD (re-denomination). The "rumored" value of $3-4 you mention was the value of what were known as "Swiss Dinar's" under Saddam Hussein. They got their name from the Swiss printing plates used (which were of much higher standard than the 3rd hand ones Iraq otherwise had), and this was the currency used prior to the 1990 Gulf War (the first one) after which they ceased to be legal tender. Since the supply of Saddam notes increased while the supply of Swiss Dinar notes remained stagnant (even decreased because of torn / damaged notes without replacement), the Swiss Dinar appreciated against the Saddam Dinar notes (which is exactly what "inflation" is that some pumpers absurdly claim "doesn't affect Iraq and thus makes it 'different'"). In fact, the northern part of Iraq (Kurdish) which continued to use Swiss Dinars partly evaded inflation, which ran rampant throughout the rest of the nation. The old Dinar was $3.33 against the $ because it WASN'T inflated. The Saddam Dinar fell below 1100:1 against the $ due to inflation during the economic sanctions (if you can't borrow or trade then you can only print). The $3-4:1 from the 1980's also involved Saddam picking an arbitrary value to peg the Dinar to which is also not the case with the market valued NID today. The reason the Dinar is so weak is because it's overprinted. It really is that simple.

Bill, the Iraqi Central Bank have openly stated "re-denomination" multiple times, and "revaluation" not once. Only Dinar salesmen with vested interests are using "RV" over and over whilst the ICB are saying RD (lop) over and over. They do intend to appreciate the Dinar somewhat on top of the RD, yes, but not the 99,000% some people have got confused with (and it won't happen overnight either).

Angela, you're confusing the Kuwaiti Dinar with the Kurdish (Old Iraq) Dinar. They're not the same. You're also seriously misunderstanding how redenomination works. It doesn't take 99% of wealth away from people, but nor does it magic 99,900% of wealth out of nothing. Purchasing power is retained so businesses don't lose anything. What happens when zero's are lopped is that prices are readjusted to match:-

For example, if current 25k Dinar notes are turned into 25 Dinar notes, prices are adjusted by same. So eg, a 75m Dinar house now becomes a 75k Dinar house. A 1,000 Dinar loaf of bread becomes a 1 Dinar loaf of bread, etc. Look at what happened to Turkey to understand the process better - they lopped 6 zeroes off. Of course Turkish bread was not still priced at 1,000,000 Lira when 1m Lira banknotes changed to 1 Lira, it was repriced down to 1 Lira along with the new banknotes. This is the whole point of a redenomination : get prices of thing (in terms of zeros) back to sanity and parity with other countries which boosts confidence in the currency & economy.

Also, not only is your fact on Iraq's oil reserves "being the largest" incorrect...

http://www.nationmaster.com/graph/ene_oil_res-energy-oil-reserves

...but it's also irrelevant to the value of the Dinar because it is just as much a FIAT currency as everyone else's. Just because a nation has a nationalized oil industry doesn't mean its currency is backed by anything (any more than the $ is backed by Chevron or the £ is backed by BP). That's the first mistake first-time Dinar gamblers usually make : confusing nationalized oil with a specie currency. They are not the same thing at all. The Iraqi Dinar is a unbacked FIAT currency (which is precisely why it was so overprinted and devalued in the first place). What's more, most of the world's oil is purchased in $ not Dinars (hence the origin of the term "petro-dollar"). And on top of that, many of Iraqi's oil fields are part-owned by non-Iraqi's (remember the 2009 oil services contracts?), so even if the Dinar was oil-backed (which it won't be for as long as buying countries are using FIAT currencies of their own), you can't just pick a figure and say "lets print ourselves all that wealth now before we've even dug it up, and then try and earn it all again when we actually do sell it in years to come". That's not how the Forex market works at all.

Hi Angela, thanks for your comment. As mentioned previously, the Dinar is "undervalued" because it's overprinted and the cure for that is not a further 1,000x expansion in the money supply (turning a $27bn Dinar supply into a $27tn supply by giving every 1,000x more for their Dinars than they bought) - that will just result in another Zimbabwe (where everyone's a billionaire but the price of a loaf of bread is 1.3m).

I can only repeat what I mentioned earlier : The Dinar is a FIAT currency, and like other FIAT currencies, it's value is derived by how many are printed and traded. What's underground and won't be sold until 2015-2020 is as irrelevant to the current Dinar value as untapped Texan oilfields are to the Federal Reserve $ or undiscovered Canadian "shale oil" is to the CAD. Norway has a lot of oil, and neighboring Denmark hardly has any, yet both currencies (NOK & DKK) are within 5% of each other. Simply finding oil does not magic a currency's value up by x0,000%. That smaller influence occurs when it is actually sold and money changes hands (and only then if it's actually sold in its native currency and not "petro-dollars"). You can't sell the same barrel of oil twice (once to yourself by printing yourself imaginary wealth now, and once again when you actually dig it up and sell it for real in a decades time).

Kathryn's excellent post (UK) correctly addresses the issue : Over 103 other countries on Earth also have oil and / or natural gas reserves in some form. There is absolutely nothing whatsoever unique about Iraq's. Every country on Earth has debt-based money (FIAT currencies) including the Iraqi Dinar. No country has an asset backed anything and hasn't for decades since the world came off the gold standard in the 1970's.

To those who think oil will magically sustain 1,000x more Dinars, here's a Mid-East reality check : There are only 1tn Saudi Riyals (approx $266bn) in circulation for a country that has more than 4x Iraq's oil reserves and more than 5x Iraq's daily oil production. There are also only 985 UAE Dirham's (approx $268bn) in circulation.

$29tn worth of Dinars would also mean that people who claim the Dinar will be "RV'd" to near 1:1 vs the $ are basically saying that a 3rd-world war-torn country smaller than Canada should have a monetary supply that's larger than all US & Canadian Dollars, Euros, Renminbi, Rubles and Yen *combined*, and approx 60% of the entire planets global combined GDP (even though Iraq sells less than 5% of the worlds oil), not to mention a currency that's 116x higher than Saudi Arabia) just because they found a little oil that 100 other countries also have and because they sell slightly more oil than Algeria and less than Mexico or Brazil. It literally defies all common sense, and basic mathematics / economics.

No matter how you "cut the cake", you simply cannot print yourself more wealth because the more you print, the weaker the currency gets. Take a look at Zimbabwe for a nation of "self-declared paper millionaires". Iraq won't stay poor in the long run because they can reinvest oil sales - but the point is that it's the *sale* of oil revenue already sold today not an RV/RD that generates wealth. An RD won't make Iraq wealthier no, but that's not its intention (and nor is it possible for any country to become 1,000x richer just by declaring it), and the only people who have been sucked into believing an RD = "a millionaire for $1,000" are confused amateur first-time Forex gamblers who do not understand the process, have never held any other currency through a similar RD before, and are being "bounced" around from one confused Internet "pumper" to another.

"Back to readjusting their prices to match their currency, what happens if the prices do get readjusted but someone only has a 25,000 note wanting to buy something that is only worth 25 notes? Does that mean the cashier will have to hand back that person 24,975 banknotes in lower denomination notes? "

No, no, no. OK it's clear there's some confusion here, so I'll explain the 3 steps of a redenomination : A redenomination (RD) simply means taking the zeroes out of the economy. Three things are done:-

1. All old banknotes are swapped for new lower denom ones at a fixed ratio (usually 1,000 for ease of exchange) within a fixed time-frame (3 months for prior Iraq banknote swaps). Eg, 25,000 Dinar notes are swapped for 25 Dinars. Iraqi's will change their old for new notes at their banks. The below article explains what happened during Iraq's prior bank-note swap when the "Swiss Dinar" was taken out of circulation in the Kurdish region for good during 2003 and Saddam's face removed from notes. When the time-limit is up, any old notes not exchanged for new are demonetized and become worthless.

It also states in the final two questions : "Q:Can dollars also be exchanged for new Iraqi dinars What will be the conversion rate for dollars?

A:Dollars will not be converted directly into new dinars during the official exchange. Following the exchange, dollars will be convertible directly into new dinars at the market exchange rate" and "Q:Will it be possible to exchange currency outside of Iraq? A:No. The only official currency exchange locations will be located within Iraq":-

2. The currency is adjusted by the same factor for the *new notes only*. Eg, a 1170 vs the $ becomes 1.170 vs the $. You won't be paid $1m for handing in $1k worth of old notes, you'll just be given the equivalent in new notes (1k Dinars at 1.17 in place of 1m Dinars at 1170). This is what confuses many amateur Dinar speculators the most.

3. Prices in Dinars are also adjusted by the same factor. Eg, a 75m Dinar house becomes a 75k Dinar house. A 1,000 Dinar loaf of bread becomes 1 Dinar. 250,000 Dinar average rent becomes 250 Dinar rent, etc.

This doesn't have to be in multiples of exactly 1,000, it could be anything. But the PP (Purchasing Power) of *current* notes doesn't change the same way some "pumpers" are hyping it. The Iraqi Central Bank have openly stated the Dinar RD will be "based on Turkey". For those who don't remember Turkey's RD / lop, here's the official brochure explaining it:-

People weren't given $1m in cash just for holding $1 worth of Old Turkish Lira during their 6-zero RD/lop. And likewise, people won't be given $1m in cash just for holding $1,000 worth of Iraqi Dinar during their 3-digit RD/lop. The Dinar may appreciate in time when their oil exports increase in time and demand for Dinar rises, but not by silly 10,000% figures purported by some dishonest Dinar salesmen preying on FX first-timers. Hope this helps.

PS: Kathryn, my occupation isn't economic related, but I have and do trade in the Forex market before (both paper and metals). Thanks.

Hi Angela, yes that's absolutely how it works. You're not alone in this as there's an obscene amount of fraud and disinformation in the amateur investment community that makes even 2nd hand car dealers look honest!

As far as taking larger banknotes out of circulation are concerned before the RD, some people have got the wrong idea in thinking it means they're being torn up whereas in reality, many are being used for inter-bank transactions instead of public circulation. I don't think any "RV" is likely before a lop because there's simply nothing to RV. A "revaluation" simply means "moving a peg" (like China have revalued the CNY vs the $). The Dinar's low value genuinely does match the huge 29tn worth of currency created, and the only way of bringing that down is an RD. Iraq's 29tn money supply is already 30x higher than Saudi Arabia's whilst their economy is 5.5x smaller. That fact alone is enough to make the Dinar worth 165x less than the Riyal even without taking their 80% destroyed infrastructure and state of near civil war into consideration, or the fact much of their current economy is imported $ driven subsidies and foreign aid rather than Dinar driven exports.

I do believe the Dinar will go up in the long run, but not radically so. Many Forex "newbies" are confused and believe a country's currency should match its resources. This isn't the case anywhere on Earth because a fiat currency is a liquidity measurement (how much money is needed for ongoing trade at any one time) - not a "gold standard" full reserve bank of every potential mineral export for the next millenium up to 3011AD (and supposedly unique only for Iraq!) all squeezed into 2011's money supply valuation! Oil isn't owned by central banks either.

Saudi Arabia has $27tn of proven oil reserves yet only $266bn worth of Riyals in circulation. Kuwait has $11tn of oil but only approx $120bn of Kuwait Dinar in circulation. UAE has over $10.3tn of oil yet only $268bn worth of Dirhams. Russia has $7.8tn of oil yet only $720bn worth of Rubles. Nigeria has $4tn of oil but only $75bn worth of Naira. Venezuela has $10.3tn of oil yet under $175bn worth of Bolivars, etc. People thinking "well Iraq has around $12-15tn of oil sales for the next century therefore it must have $12-29tn worth of currency in circulation today" are seriously misunderstanding how the world works.

Iraq's net export economy would only be $12-15tn if they sold the whole lot at once all in one year without using a single drop for themselves or importing a single thing (which is impossible). And then when it ran out after a year, they'd sink like a stone. Iraq may have $12tn, $15tn or even $20tn worth of oil, but it won't be selling even 1/10th of it at any one time even with restored infrastructure (and won't be exporting it all either). And that's assuming every drop of oil is sold in Dinar's, whereas it's usually sold directly in $. And most of the currency earned is simply sent straight back out again in the form of imports.

Iraq currently exports $49.1bn - but they also import $42.56bn so the net export is only $6.54bn, which isn't much money at all. (To keep things in perspective, Russia's net export is $139bn, oil production is 10m bbd and the Ruble is only 27:1 vs the $). $6.54bn per year is the real trickle rate at which Iraq as a whole is getting richer from oil. Total oil reserves for all countries make little impact on their paper fiat currency valuations. It's total amount of money created (M2/M3 figures) that determine a currency's value relative to another, and at 29 Trillion, Iraq has printed more for its 31m population than USA + Europe + China + India combined have for 3.4bn people which is why it's so weak and devalued.

As for US debt forgiveness, a lot of that has to do with "favors for oil contracts" politics in my opinion. I'd like to thank you too for this great conversation!

Hi Angela. "Balance sheet items" usually refers to debt owed to other countries. Although there's been some voluntary debt write-off by some countries, Iraq's debt is still quite high. The main purpose is to stop the Dinar tanking the day it starts trading (due to countries and other foreign entities all trying to cash in on the debt at once). The wording seems to talk about revaluing Iraq's debt for those countries who haven't written it off.

As said previously, the Dinar will probably appreciate in time as their GDP increases (as long as "growth" isn't just oil sold for $ but goods that are actually priced in Dinars). What is wrong and what I do speak out against is the deliberate fraud committed by some Dinar conmen "pumpers" (named because they're doing a classical "pump and dump" on the outgoing old Dinar notes) who openly and deliberately missell the Dinar as having a 99,900% ROI profit and creating fake "intel" to "support" that when the Iraq Central Bank has repeatedly and clearly stated it will do an RD (lop).

One popular licensed pumper (like many others) sells $85 worth of Dinar's (100,000 Dinars) for $185. That's an insane 115% spread. Normal FX cash spreads are under 5-10% whilst pro-Forex trading is in "pips" (a "pip" is 1/100 of a cent). Even higher denom trades are a total ripoff, ie, selling 1m Dinar's ($854 worth) for $1,220. On top of that, they also charge a minimum $150 per 1m Dinar's ($854) fee when changed back leaving people spending $1,220 and getting back $704. Between 40-80% of the investment would have been swallowed up in outrageous trading spreads & fees. At those fees, the Dinar could "RV" up a whopping 70% and many still wouldn't break even.

This has happened to many folks including elderly people who gambled their pensions on it and have since been evicted from their homes (after people mislead and lied to over how and when it would happen). Needless to say, this popular "Dinar Trade" has since stopped trading Dinars after rumors of a lawsuit being filed by one group of people and "strong" demands (threats) for refunds came from a few others. And that's a licensed one! Unlicensed ones using Dinar's smuggled in from Jordan are illegal, and heading for jail on federal fraud charges:-

"A South Dakota man who banked hundreds of thousands of U.S. dollars by selling Iraqi dinars to investors outside the state has been indicted on federal fraud charges... What dinar dealers don’t say, according to Jim David of South Dakota’s Better Business Bureau, is that *Iraqi currency cannot be exchanged for dollars in the U.S*. "It seems as if people don’t realize that they’d have to take it to Iraq to get anything out of it,""

Hi Gary. There's a great deal of misunderstanding with the removal of high-denom notes. The Iraq govt isn't going around stealing them from people and giving nothing in return, they're simply printing more lower denom notes, ie, replacing 1x 25,000 note with 5x 5,000 notes. This doesn't reduce the money supply in the way some pumpers claim it does. Europe has done the same thing by withdrawing the 500 Euro note that was targeted by counterfeiters - but it hasn't made the Euro value go up a ridiculous 99,999%. The vast majority of denomination banknotes printed in any currency are the lower commonly used notes. The highest denominations usually make up just a fraction. As an example of the Euro, there are only 56 million 500 Euro banknotes printed out of 6 billion total banknotes (approx 0.1%). Same is true of Iraq with the 25,000 notes. It simply doesn't make any difference as different denomination banknotes don't get RD'd at different rates. It's one rate for everything in the currency.

You also greatly misunderstand what happens to bank accounts (all bank accounts in IQD currency) - they'll be "lopped" too when the currency changes from IQD to the new currency. ie, if you have an account with 1m IQD Dinar in it, it will be RD'd down to whatever ratio the new currency is to the old (probably 1000:1 if they're lopping 3 digits), so you'll have 1,000 of the new currency in it (but which is worth 1,000x more than the old so it won't lose its $1,000 value). In no way shape or form will you turn $1k of Dinar into $1m just by sticking it into a bank account during a lop no matter who you bank with any more than sticking $1k's worth of Old Turkish Lira into a bank will magically become $1bn after their 6-digit lop. If that were true, every man, woman and child living in Turkey must all be secret billionaires! Bank deposits are converted at the exchange rate of new for old currencies. They don't keep the same face value (which is precisely why bank notes need to change in the first place - nothing retains its face value after a lop which is the whole point of a lop). There is no "one rule for notes, another for bank accounts". All get lopped at the same rate. This is nothing new - it's happens dozens of times before on every continent on Earth, and the rules for Iraq are no exception just because it has a little oil or some confused / dishonest pumpers say it is.

Also "LOP's only occur during periods of hyperinflation" is another untrue "pumper myth". Most LOP's occur *after* inflation has fallen after a period of chronic / hyper inflation. No-one "lops" during high inflation because it doesn't boost any confidence in the currency if prices continue to rise after the lop. So the fact that inflation is falling in Iraq actually justifies a lop even more.

--------------------------------------------------------------------------------

"70% have been removed-reducing the M2."

Hi Gary. The above is not true. That claim comes from someone confusing M0/M1 figures (only banknotes in circulation) with M3 (total Dinar in circulation). That claim is openly debunked in paragraph 7 of this article we're commenting on itself : "Saleh said there are currently some 29 trillion dinars in circulation in Iraq, represented by some 6 trillion banknotes of various denominations." That 29t in circulation figure is just one week old. It hasn't gone down at all - someone just compared "total money" to "banknotes" and got confused.

It also says "most of them [banknotes] are quite small" which means removing 25,000 won't make any difference because they make up less than 1% of the 6tn Dinar in circulation.

"Also, note through history, including Turkey and the RV of the lira, LOP's or devaluations only occur during times of high inflation."

Turkey didn't "RV" they redenominated. The two things are completely economically different. A genuine "RV" is a peg adjustment (like China "RV-ing" the Remminbi vs the $). Free floating currencies cannot "RV" they can only appreciate. Iraq's inflation has only recently fallen to 7% yes, but in prior years it was high. It's this past inflation not current inflation, that lops take out.

[Broke 62]

What do you think about the dinar we hold in the iraqi bank, will they cut the 3 zeroes there as well even though we do not hold any notes

[keepmwlknfny]

This coming from a blog regarding this person's opinion of an RD not an RV. I left out the remarks by others as it would be too long but you get the jist of this persons's opinion.

by: Brian

June 24, 2011 21:34 ReplyHi Bill, yes "redenomination" means they will remove 3 zeroes from notes. So your 25,000 notes will be exchanged for new 25 notes but at a new ratio of say 1.175:1 instead of 1175:1. You won't lose any money (value is retained minus the trading fees), and in the long run you may make some profit if the Dinar appreciates naturally vs the $, but all these "become a millionaire by changing up $1k worth of Dollars for $1k worth of Dinars" "Dinar pumpers" have been lying and scamming people all along with fake invented "intel", etc. A 99,900% profit has never, ever happened in any RV process. Take a look at what the Turkish Lira (6 zeroes removed), Venezuelan Bolivar (went from 2000:1 to 2:1), the pre-Euro (franc, pesetas, deutschemark, etc) to Euro currency changeover went through to understand the process better. Hope this helps.

No Peter, my explanation of how every single redenomination has worked in history including Iraq's neighbour Turkey isn't "flawed" at all:-

USA : There are $10.2 trillion (last M3 figures) from a country with a population of 310m people. This works out to approx $32,903 printed per American.

Euro : There are €8.5 trillion in existence (ECB M3 figures) from an entire continent with a Euro-using population of 327m people. This works out to approx €26,000 Euro's printed per European.

Iraq : There are 29 trillion Dinar's in existence from a country with a population of 31m (Iraq). This works out to 935,483 Dinar's printed per Iraqi (blatantly obvious hyperinflation).

If you remove 3 digits, yes you get 29bn Dinar but those Dinar will be valued at say 1.17:1 instead of 1,170:1. The dollar value will not change - just as the Iraq Central Bank have openly stated it won't back in April as reported on Iraqi Alsumaria TV. It's only a few vested interested conmen who just happen to sell Dinar who keep pumping the "instant millionaire" nonsense. If holding just $1k worth of Dinar will make you a millionaire, then by extension, you must believe every Iraqi who owns a house / car will be given between $50m-100m each if they sold it and changed the 50m-100m Dinars up at an FX outlet, and that the average $2k-$4k Iraqi income will become $2m-$4m. Um, no. That's not how it works at all.

Just to add, Peter : Countries can't and don't just magic 99,990% more money into thin air through an RD (re-denomination). The "rumored" value of $3-4 you mention was the value of what were known as "Swiss Dinar's" under Saddam Hussein. They got their name from the Swiss printing plates used (which were of much higher standard than the 3rd hand ones Iraq otherwise had), and this was the currency used prior to the 1990 Gulf War (the first one) after which they ceased to be legal tender. Since the supply of Saddam notes increased while the supply of Swiss Dinar notes remained stagnant (even decreased because of torn / damaged notes without replacement), the Swiss Dinar appreciated against the Saddam Dinar notes (which is exactly what "inflation" is that some pumpers absurdly claim "doesn't affect Iraq and thus makes it 'different'"). In fact, the northern part of Iraq (Kurdish) which continued to use Swiss Dinars partly evaded inflation, which ran rampant throughout the rest of the nation. The old Dinar was $3.33 against the $ because it WASN'T inflated. The Saddam Dinar fell below 1100:1 against the $ due to inflation during the economic sanctions (if you can't borrow or trade then you can only print). The $3-4:1 from the 1980's also involved Saddam picking an arbitrary value to peg the Dinar to which is also not the case with the market valued NID today. The reason the Dinar is so weak is because it's overprinted. It really is that simple.

Bill, the Iraqi Central Bank have openly stated "re-denomination" multiple times, and "revaluation" not once. Only Dinar salesmen with vested interests are using "RV" over and over whilst the ICB are saying RD (lop) over and over. They do intend to appreciate the Dinar somewhat on top of the RD, yes, but not the 99,000% some people have got confused with (and it won't happen overnight either).

Angela, you're confusing the Kuwaiti Dinar with the Kurdish (Old Iraq) Dinar. They're not the same. You're also seriously misunderstanding how redenomination works. It doesn't take 99% of wealth away from people, but nor does it magic 99,900% of wealth out of nothing. Purchasing power is retained so businesses don't lose anything. What happens when zero's are lopped is that prices are readjusted to match:-

For example, if current 25k Dinar notes are turned into 25 Dinar notes, prices are adjusted by same. So eg, a 75m Dinar house now becomes a 75k Dinar house. A 1,000 Dinar loaf of bread becomes a 1 Dinar loaf of bread, etc. Look at what happened to Turkey to understand the process better - they lopped 6 zeroes off. Of course Turkish bread was not still priced at 1,000,000 Lira when 1m Lira banknotes changed to 1 Lira, it was repriced down to 1 Lira along with the new banknotes. This is the whole point of a redenomination : get prices of thing (in terms of zeros) back to sanity and parity with other countries which boosts confidence in the currency & economy.

Also, not only is your fact on Iraq's oil reserves "being the largest" incorrect...

http://www.nationmas...gy-oil-reserves

...but it's also irrelevant to the value of the Dinar because it is just as much a FIAT currency as everyone else's. Just because a nation has a nationalized oil industry doesn't mean its currency is backed by anything (any more than the $ is backed by Chevron or the £ is backed by BP). That's the first mistake first-time Dinar gamblers usually make : confusing nationalized oil with a specie currency. They are not the same thing at all. The Iraqi Dinar is a unbacked FIAT currency (which is precisely why it was so overprinted and devalued in the first place). What's more, most of the world's oil is purchased in $ not Dinars (hence the origin of the term "petro-dollar"). And on top of that, many of Iraqi's oil fields are part-owned by non-Iraqi's (remember the 2009 oil services contracts?), so even if the Dinar was oil-backed (which it won't be for as long as buying countries are using FIAT currencies of their own), you can't just pick a figure and say "lets print ourselves all that wealth now before we've even dug it up, and then try and earn it all again when we actually do sell it in years to come". That's not how the Forex market works at all.

Hi Angela, thanks for your comment. As mentioned previously, the Dinar is "undervalued" because it's overprinted and the cure for that is not a further 1,000x expansion in the money supply (turning a $27bn Dinar supply into a $27tn supply by giving every 1,000x more for their Dinars than they bought) - that will just result in another Zimbabwe (where everyone's a billionaire but the price of a loaf of bread is 1.3m).

I can only repeat what I mentioned earlier : The Dinar is a FIAT currency, and like other FIAT currencies, it's value is derived by how many are printed and traded. What's underground and won't be sold until 2015-2020 is as irrelevant to the current Dinar value as untapped Texan oilfields are to the Federal Reserve $ or undiscovered Canadian "shale oil" is to the CAD. Norway has a lot of oil, and neighboring Denmark hardly has any, yet both currencies (NOK & DKK) are within 5% of each other. Simply finding oil does not magic a currency's value up by x0,000%. That smaller influence occurs when it is actually sold and money changes hands (and only then if it's actually sold in its native currency and not "petro-dollars"). You can't sell the same barrel of oil twice (once to yourself by printing yourself imaginary wealth now, and once again when you actually dig it up and sell it for real in a decades time).

Kathryn's excellent post (UK) correctly addresses the issue : Over 103 other countries on Earth also have oil and / or natural gas reserves in some form. There is absolutely nothing whatsoever unique about Iraq's. Every country on Earth has debt-based money (FIAT currencies) including the Iraqi Dinar. No country has an asset backed anything and hasn't for decades since the world came off the gold standard in the 1970's.

To those who think oil will magically sustain 1,000x more Dinars, here's a Mid-East reality check : There are only 1tn Saudi Riyals (approx $266bn) in circulation for a country that has more than 4x Iraq's oil reserves and more than 5x Iraq's daily oil production. There are also only 985 UAE Dirham's (approx $268bn) in circulation.

$29tn worth of Dinars would also mean that people who claim the Dinar will be "RV'd" to near 1:1 vs the $ are basically saying that a 3rd-world war-torn country smaller than Canada should have a monetary supply that's larger than all US & Canadian Dollars, Euros, Renminbi, Rubles and Yen *combined*, and approx 60% of the entire planets global combined GDP (even though Iraq sells less than 5% of the worlds oil), not to mention a currency that's 116x higher than Saudi Arabia) just because they found a little oil that 100 other countries also have and because they sell slightly more oil than Algeria and less than Mexico or Brazil. It literally defies all common sense, and basic mathematics / economics.

No matter how you "cut the cake", you simply cannot print yourself more wealth because the more you print, the weaker the currency gets. Take a look at Zimbabwe for a nation of "self-declared paper millionaires". Iraq won't stay poor in the long run because they can reinvest oil sales - but the point is that it's the *sale* of oil revenue already sold today not an RV/RD that generates wealth. An RD won't make Iraq wealthier no, but that's not its intention (and nor is it possible for any country to become 1,000x richer just by declaring it), and the only people who have been sucked into believing an RD = "a millionaire for $1,000" are confused amateur first-time Forex gamblers who do not understand the process, have never held any other currency through a similar RD before, and are being "bounced" around from one confused Internet "pumper" to another.

"Back to readjusting their prices to match their currency, what happens if the prices do get readjusted but someone only has a 25,000 note wanting to buy something that is only worth 25 notes? Does that mean the cashier will have to hand back that person 24,975 banknotes in lower denomination notes? "

No, no, no. OK it's clear there's some confusion here, so I'll explain the 3 steps of a redenomination : A redenomination (RD) simply means taking the zeroes out of the economy. Three things are done:-

1. All old banknotes are swapped for new lower denom ones at a fixed ratio (usually 1,000 for ease of exchange) within a fixed time-frame (3 months for prior Iraq banknote swaps). Eg, 25,000 Dinar notes are swapped for 25 Dinars. Iraqi's will change their old for new notes at their banks. The below article explains what happened during Iraq's prior bank-note swap when the "Swiss Dinar" was taken out of circulation in the Kurdish region for good during 2003 and Saddam's face removed from notes. When the time-limit is up, any old notes not exchanged for new are demonetized and become worthless.

It also states in the final two questions : "Q:Can dollars also be exchanged for new Iraqi dinars What will be the conversion rate for dollars?

A:Dollars will not be converted directly into new dinars during the official exchange. Following the exchange, dollars will be convertible directly into new dinars at the market exchange rate" and "Q:Will it be possible to exchange currency outside of Iraq? A:No. The only official currency exchange locations will be located within Iraq":-

2. The currency is adjusted by the same factor for the *new notes only*. Eg, a 1170 vs the $ becomes 1.170 vs the $. You won't be paid $1m for handing in $1k worth of old notes, you'll just be given the equivalent in new notes (1k Dinars at 1.17 in place of 1m Dinars at 1170). This is what confuses many amateur Dinar speculators the most.

3. Prices in Dinars are also adjusted by the same factor. Eg, a 75m Dinar house becomes a 75k Dinar house. A 1,000 Dinar loaf of bread becomes 1 Dinar. 250,000 Dinar average rent becomes 250 Dinar rent, etc.

This doesn't have to be in multiples of exactly 1,000, it could be anything. But the PP (Purchasing Power) of *current* notes doesn't change the same way some "pumpers" are hyping it. The Iraqi Central Bank have openly stated the Dinar RD will be "based on Turkey". For those who don't remember Turkey's RD / lop, here's the official brochure explaining it:-

People weren't given $1m in cash just for holding $1 worth of Old Turkish Lira during their 6-zero RD/lop. And likewise, people won't be given $1m in cash just for holding $1,000 worth of Iraqi Dinar during their 3-digit RD/lop. The Dinar may appreciate in time when their oil exports increase in time and demand for Dinar rises, but not by silly 10,000% figures purported by some dishonest Dinar salesmen preying on FX first-timers. Hope this helps.

PS: Kathryn, my occupation isn't economic related, but I have and do trade in the Forex market before (both paper and metals). Thanks.

Hi Angela, yes that's absolutely how it works. You're not alone in this as there's an obscene amount of fraud and disinformation in the amateur investment community that makes even 2nd hand car dealers look honest!

As far as taking larger banknotes out of circulation are concerned before the RD, some people have got the wrong idea in thinking it means they're being torn up whereas in reality, many are being used for inter-bank transactions instead of public circulation. I don't think any "RV" is likely before a lop because there's simply nothing to RV. A "revaluation" simply means "moving a peg" (like China have revalued the CNY vs the $). The Dinar's low value genuinely does match the huge 29tn worth of currency created, and the only way of bringing that down is an RD. Iraq's 29tn money supply is already 30x higher than Saudi Arabia's whilst their economy is 5.5x smaller. That fact alone is enough to make the Dinar worth 165x less than the Riyal even without taking their 80% destroyed infrastructure and state of near civil war into consideration, or the fact much of their current economy is imported $ driven subsidies and foreign aid rather than Dinar driven exports.

I do believe the Dinar will go up in the long run, but not radically so. Many Forex "newbies" are confused and believe a country's currency should match its resources. This isn't the case anywhere on Earth because a fiat currency is a liquidity measurement (how much money is needed for ongoing trade at any one time) - not a "gold standard" full reserve bank of every potential mineral export for the next millenium up to 3011AD (and supposedly unique only for Iraq!) all squeezed into 2011's money supply valuation! Oil isn't owned by central banks either.

Saudi Arabia has $27tn of proven oil reserves yet only $266bn worth of Riyals in circulation. Kuwait has $11tn of oil but only approx $120bn of Kuwait Dinar in circulation. UAE has over $10.3tn of oil yet only $268bn worth of Dirhams. Russia has $7.8tn of oil yet only $720bn worth of Rubles. Nigeria has $4tn of oil but only $75bn worth of Naira. Venezuela has $10.3tn of oil yet under $175bn worth of Bolivars, etc. People thinking "well Iraq has around $12-15tn of oil sales for the next century therefore it must have $12-29tn worth of currency in circulation today" are seriously misunderstanding how the world works.

Iraq's net export economy would only be $12-15tn if they sold the whole lot at once all in one year without using a single drop for themselves or importing a single thing (which is impossible). And then when it ran out after a year, they'd sink like a stone. Iraq may have $12tn, $15tn or even $20tn worth of oil, but it won't be selling even 1/10th of it at any one time even with restored infrastructure (and won't be exporting it all either). And that's assuming every drop of oil is sold in Dinar's, whereas it's usually sold directly in $. And most of the currency earned is simply sent straight back out again in the form of imports.

Iraq currently exports $49.1bn - but they also import $42.56bn so the net export is only $6.54bn, which isn't much money at all. (To keep things in perspective, Russia's net export is $139bn, oil production is 10m bbd and the Ruble is only 27:1 vs the $). $6.54bn per year is the real trickle rate at which Iraq as a whole is getting richer from oil. Total oil reserves for all countries make little impact on their paper fiat currency valuations. It's total amount of money created (M2/M3 figures) that determine a currency's value relative to another, and at 29 Trillion, Iraq has printed more for its 31m population than USA + Europe + China + India combined have for 3.4bn people which is why it's so weak and devalued.

As for US debt forgiveness, a lot of that has to do with "favors for oil contracts" politics in my opinion. I'd like to thank you too for this great conversation!

Hi Angela. "Balance sheet items" usually refers to debt owed to other countries. Although there's been some voluntary debt write-off by some countries, Iraq's debt is still quite high. The main purpose is to stop the Dinar tanking the day it starts trading (due to countries and other foreign entities all trying to cash in on the debt at once). The wording seems to talk about revaluing Iraq's debt for those countries who haven't written it off.

As said previously, the Dinar will probably appreciate in time as their GDP increases (as long as "growth" isn't just oil sold for $ but goods that are actually priced in Dinars). What is wrong and what I do speak out against is the deliberate fraud committed by some Dinar conmen "pumpers" (named because they're doing a classical "pump and dump" on the outgoing old Dinar notes) who openly and deliberately missell the Dinar as having a 99,900% ROI profit and creating fake "intel" to "support" that when the Iraq Central Bank has repeatedly and clearly stated it will do an RD (lop).

One popular licensed pumper (like many others) sells $85 worth of Dinar's (100,000 Dinars) for $185. That's an insane 115% spread. Normal FX cash spreads are under 5-10% whilst pro-Forex trading is in "pips" (a "pip" is 1/100 of a cent). Even higher denom trades are a total ripoff, ie, selling 1m Dinar's ($854 worth) for $1,220. On top of that, they also charge a minimum $150 per 1m Dinar's ($854) fee when changed back leaving people spending $1,220 and getting back $704. Between 40-80% of the investment would have been swallowed up in outrageous trading spreads & fees. At those fees, the Dinar could "RV" up a whopping 70% and many still wouldn't break even.

This has happened to many folks including elderly people who gambled their pensions on it and have since been evicted from their homes (after people mislead and lied to over how and when it would happen). Needless to say, this popular "Dinar Trade" has since stopped trading Dinars after rumors of a lawsuit being filed by one group of people and "strong" demands (threats) for refunds came from a few others. And that's a licensed one! Unlicensed ones using Dinar's smuggled in from Jordan are illegal, and heading for jail on federal fraud charges:-

"A South Dakota man who banked hundreds of thousands of U.S. dollars by selling Iraqi dinars to investors outside the state has been indicted on federal fraud charges... What dinar dealers don’t say, according to Jim David of South Dakota’s Better Business Bureau, is that *Iraqi currency cannot be exchanged for dollars in the U.S*. "It seems as if people don’t realize that they’d have to take it to Iraq to get anything out of it,""

Hi Gary. There's a great deal of misunderstanding with the removal of high-denom notes. The Iraq govt isn't going around stealing them from people and giving nothing in return, they're simply printing more lower denom notes, ie, replacing 1x 25,000 note with 5x 5,000 notes. This doesn't reduce the money supply in the way some pumpers claim it does. Europe has done the same thing by withdrawing the 500 Euro note that was targeted by counterfeiters - but it hasn't made the Euro value go up a ridiculous 99,999%. The vast majority of denomination banknotes printed in any currency are the lower commonly used notes. The highest denominations usually make up just a fraction. As an example of the Euro, there are only 56 million 500 Euro banknotes printed out of 6 billion total banknotes (approx 0.1%). Same is true of Iraq with the 25,000 notes. It simply doesn't make any difference as different denomination banknotes don't get RD'd at different rates. It's one rate for everything in the currency.

You also greatly misunderstand what happens to bank accounts (all bank accounts in IQD currency) - they'll be "lopped" too when the currency changes from IQD to the new currency. ie, if you have an account with 1m IQD Dinar in it, it will be RD'd down to whatever ratio the new currency is to the old (probably 1000:1 if they're lopping 3 digits), so you'll have 1,000 of the new currency in it (but which is worth 1,000x more than the old so it won't lose its $1,000 value). In no way shape or form will you turn $1k of Dinar into $1m just by sticking it into a bank account during a lop no matter who you bank with any more than sticking $1k's worth of Old Turkish Lira into a bank will magically become $1bn after their 6-digit lop. If that were true, every man, woman and child living in Turkey must all be secret billionaires! Bank deposits are converted at the exchange rate of new for old currencies. They don't keep the same face value (which is precisely why bank notes need to change in the first place - nothing retains its face value after a lop which is the whole point of a lop). There is no "one rule for notes, another for bank accounts". All get lopped at the same rate. This is nothing new - it's happens dozens of times before on every continent on Earth, and the rules for Iraq are no exception just because it has a little oil or some confused / dishonest pumpers say it is.

Also "LOP's only occur during periods of hyperinflation" is another untrue "pumper myth". Most LOP's occur *after* inflation has fallen after a period of chronic / hyper inflation. No-one "lops" during high inflation because it doesn't boost any confidence in the currency if prices continue to rise after the lop. So the fact that inflation is falling in Iraq actually justifies a lop even more.

--------------------------------------------------------------------------------

"70% have been removed-reducing the M2."

Hi Gary. The above is not true. That claim comes from someone confusing M0/M1 figures (only banknotes in circulation) with M3 (total Dinar in circulation). That claim is openly debunked in paragraph 7 of this article we're commenting on itself : "Saleh said there are currently some 29 trillion dinars in circulation in Iraq, represented by some 6 trillion banknotes of various denominations." That 29t in circulation figure is just one week old. It hasn't gone down at all - someone just compared "total money" to "banknotes" and got confused.

It also says "most of them [banknotes] are quite small" which means removing 25,000 won't make any difference because they make up less than 1% of the 6tn Dinar in circulation.

"Also, note through history, including Turkey and the RV of the lira, LOP's or devaluations only occur during times of high inflation."

Turkey didn't "RV" they redenominated. The two things are completely economically different. A genuine "RV" is a peg adjustment (like China "RV-ing" the Remminbi vs the $). Free floating currencies cannot "RV" they can only appreciate. Iraq's inflation has only recently fallen to 7% yes, but in prior years it was high. It's this past inflation not current inflation, that lops take out.

For everyone who is confused about what a RD/LOP/removing the zeros really is, they surely need to read this......this is about as cut and dry as you can put it.....this is an exact explanation of what a RD is, and what it does.......Now if only the gurus would stop pumping the lies about a RD so that more would take the time to learn what it really is, then there wouldnt be so much confusion....

Cant break it down any better then this......

What do you think about the dinar we hold in the iraqi bank, will they cut the 3 zeroes there as well even though we do not hold any notes

Yep, everything is adjusted.....

[Jim1cor13]

For everyone who is confused about what a RD/LOP/removing the zeros really is, they surely need to read this......this is about as cut and dry as you can put it.....this is an exact explanation of what a RD is, and what it does.......Now if only the gurus would stop pumping the lies about a RD so that more would take the time to learn what it really is, then there wouldnt be so much confusion....

Cant break it down any better then this......

Yep, everything is adjusted.....

Hi Keep

Agreed. As much as it is not what we would like to read or see, what

has been presented is fully in line with what the CBI has stated, and it indeed

cannot be any clearer. The fellow makes the point as clear as can be, along with

how the "other side" manipulates and uses each moment and date to take advantage

of people via twisting every detail to suit their motives.

Thank you babyorca for the post and actually, at least to me, it is refreshing to read what

is likely to be expected, and I will take fact based logical opinion and historical data and details

any day over being constantly lied to. As always, we can only hope for the best, but to ignore what

is right before us, is to our own folly.

Have a safe weekend!

All my best!

Jim

---

[cranster]

babyorca thanks for the red pill... disconnecting tubes now. I'm somewhat disappointed but awake, and finally some sanity and sense for why the rumors never have and never will come to pass. The bright side is I have enough in dinar to by a nice synth for my recording studio. Good bye dream, hello reality.

It makes perfect sense why chexmate, tony and blaino have started charging for their sites. They know that is the only way they will make money in the dinar world.

Edited July 2, 2011 by cranster