Understanding the auctions

[cooked]

I asked this in another thread but really need some input. If the auctions as we understand them are selling dinar, are we in trouble? If Iraq is selling $100000000 USd per day at a rate of 1170dinar/1usd, in one month Iraq has sold 2.34 TRILLION dinar. Why would they be selling that many at all? I thought they would be buying dinar. In just ten months they could theoretically sell all of the dinar they are said to own. Please help me figure out which way these numbers are moving. Thanks.

[dinarx2]

The CBI is selling dollars NOT dinar every auction pulls more of the dinar currency off the street

[cooked]

Some people swear they are selling dinar, so I'm confused about this. Hence my desire for concrete info. Thanks.

[dinarx2]

go back and reads the posts by Doc31 he explains it very well.

[RVDinar4MyFamily]

This is old, but explains why the auctions were sey up and how they work

Central banks in small open economies typically intervene in currency markets

to limit extreme volatility. Currently, the tool used by the Central Bank of Iraq to

influence the exchange rate and control the growth of the domestic monetary base is a

foreign exchange auction, which has occurred on a daily basis since October. The

Ministry of Finance sells dollars from its oil receipts to the CBI, purchasing dinars to pay

for government operations. The CBI then sells some of those dollars in the daily foreign

exchange auctions. Transactions at this auction were typically $10-$15 million a day by

the end of March 2004.

As of mid-2004, Iraq is effectively a dual-currency economy, in which major

consumer purchases are priced and paid for in dollars. Although dinars are preferred

for small-scale transactions, dollars are readily accepted. Consequently, fluctuations in

the exchange rate have an immediate impact on the money supply, real and nominal, as

denominated in a combination of dollars or dinars. In the future, the Central Bank will

be able to undertake open market operations, trading existing Ministry of Finance

securities. For the immediate future, however, the foreign exchange auction is likely to remain the CBI’s primary monetary policy tool.

In the long run, the credibility and independence of the CBI will be vital no

matter what its specific monetary instruments. In March 2004, the CPA and Governing

Council adopted a Central Bank law that incorporates global best practices. Central to

the law is the statement that “[t]he primary objectives of the CBI shall be to achieve and

maintain domestic price stability and to foster and maintain a stable and competitive

market-based financial system. Subject to these objectives, the CBI shall also promote

sustainable growth, employment, and prosperity in Iraq.ʺ

8 In particular, a currency board arrangement would have required that the Central Bank of Iraq

issue new currency only when the bills were fully backed with foreign exchange reserves. But

this approach had practical difficulties. It was difficult to know the correct parity between the

dinar and the dollar. Additionally, central banks can circumvent a currency board through

official borrowing of foreign currency from abroad. Finally, had Iraq been required to fully back

its currency with dollar-denominated assets, it would have been forced to purchase from $2-$4

billion of financial securities that would have been better invested in Iraq’s infrastructure. Once a

currency board was ruled out, a hard exchange rate peg without full backing was ruled out as

well, since it seemed likely to encourage speculators to test the peg by selling dinars for dollars

until the central bank had drained its foreign exchange reserves and was forced to break the peg.

Source - Federal reserve Bank Boston - Economic Policy and Prospects in Iraq

http://www.bos.frb.org/economic/ppdp/2004/ppdp0401.pdf

[ihab fathe]

if cbi sell avarage of 100 million us$ every day they will collecte about 100 billion irqi dinar x 5 days per week, they collecte 500 billion irqi dinar per week x 4 weeks , they have 2 trillion iraqi dinar in month

and the auctions started 8 years ago, 2 trillion iraqi dinar x 12 month = 24 trillion iraqi dinar / year x 8 years = 192 trillion iraqi dinar during 8 years

in this way , there will be no iraqi dinars in the markets

correct me if i am not correct.

[tim5400]

either that is so simple to understand or my math skills end at 1+1

[dinarx2]

The Government then uses the dinar they buy in order to pay for the cost of operating the country so it is a cycle.

[Dalite]

The CBI is selling dollars NOT dinar every auction pulls more of the dinar currency off the street

Have they really sold/bought close to 200 trillion Dinar in the last 8 years?

That would be over 600 trillion Dollar RV if Iraq tries to eventually RV to the previous rate.

I am not sure your premise is valid...

[cooked]

if cbi sell avarage of 100 million us$ every day they will collecte about 100 billion irqi dinar x 5 days per week, they collecte 500 billion irqi dinar per week x 4 weeks , they have 2 trillion iraqi dinar in month

and the auctions started 8 years ago, 2 trillion iraqi dinar x 12 month = 24 trillion iraqi dinar / year x 8 years = 192 trillion iraqi dinar during 8 years

in this way , there will be no iraqi dinars in the markets

correct me if i am not correct.

I see this same scenerio. So whats up?

[dinarx2]

The GOI spends the dinar by payying the people inside Iraq with the dinar it buys using dollars

[tommyboy]

I asked this in another thread but really need some input. If the auctions as we understand them are selling dinar, are we in trouble? If Iraq is selling $100000000 USd per day at a rate of 1170dinar/1usd, in one month Iraq has sold 2.34 TRILLION dinar. Why would they be selling that many at all? I thought they would be buying dinar. In just ten months they could theoretically sell all of the dinar they are said to own. Please help me figure out which way these numbers are moving. Thanks.

Why would they be buying dinar? It's not internationally tradable like th US$ is, and the greenback is the coin of the realm and acceptable in just about every country in the world.

They are buying US$ for trade, period.

[dinarx2]

as long as the government takes in more dollars, and turns them into dinar through the auction than it spends paying the bills of the country there is a surplus

At the moment the price of oil is high enough for there to be a surplus

When there is a surplus more dinar are removed from circulation

Why would they be buying dinar? It's not internationally tradable like th US$ is, and the greenback is the coin of the realm and acceptable in just about every country in the world.

They are buying US$ for trade, period.

They have to buy dinar it is the currency of the country and it is what they use to pay the citizens of the country.

[tommyboy]

as long as the government takes in more dollars, and turns them into dinar through the auction than it spends paying the bills of the country there is a surplus

At the moment the price of oil is high enough for there to be a surplus

When there is a surplus more dinar are removed from circulation

I'll drink to that !!

[Kanga]

if cbi sell avarage of 100 million us$ every day they will collecte about 100 billion irqi dinar x 5 days per week, they collecte 500 billion irqi dinar per week x 4 weeks , they have 2 trillion iraqi dinar in month

and the auctions started 8 years ago, 2 trillion iraqi dinar x 12 month = 24 trillion iraqi dinar / year x 8 years = 192 trillion iraqi dinar during 8 years

in this way , there will be no iraqi dinars in the markets

correct me if i am not correct.

Interesting, and I may not have the right picture. I conclude that the central government of Iraq gives dollars to the CBI. The CBI sells those dollars for IQD. The CBI is printing some IQD so it does not run out of IQD.

[MrFnHappy]

if cbi sell avarage of 100 million us$ every day they will collecte about 100 billion irqi dinar x 5 days per week, they collecte 500 billion irqi dinar per week x 4 weeks , they have 2 trillion iraqi dinar in month

and the auctions started 8 years ago, 2 trillion iraqi dinar x 12 month = 24 trillion iraqi dinar / year x 8 years = 192 trillion iraqi dinar during 8 years

in this way , there will be no iraqi dinars in the markets

correct me if i am not correct.

You are incorrect sir.

The dinar the CBI buys at the auctions is then sold back to the GoI for dollars, the dollars the CBI receives from the GoI get sold at auction and the dinars the GoI buys go back into circulation via salaries and gov't funded public projects.....and so it goes.

Hope this helps.

Edited July 11, 2011 by MrFnHappy

[Dalite]

as long as the government takes in more dollars, and turns them into dinar through the auction than it spends paying the bills of the country there is a surplus

At the moment the price of oil is high enough for there to be a surplus

When there is a surplus more dinar are removed from circulation

If they are buying Dollars, why does the CBI publish the Buy/Sell spread for Dinar for every auction?

I think you will find it more likely that they sell at the sell price, buy at the buy price, and convert the spread to dollar reserves.

With that in mind, dollars could be sold to regulate the Dinar in circulation.

Having said that, I cannot see the numbers backing up the claim that they are only auctioning off Dollars.

Maybe they have the potential to do so now that the DFI is accessible, and oil sales revenue is theirs to use. In the past, those dollars went into the DFI ; and I don't believe that made them available for auction.

I would agree it is more likely a two way street, before I would accept that the CBI has only auctioned off Dollars for the past eight years.

I could just as easily be wrong, and would like to know what I am missing here...

[The Machine]

Have they really sold/bought close to 200 trillion Dinar in the last 8 years?

That would be over 600 trillion Dollar RV if Iraq tries to eventually RV to the previous rate.

I am not sure your premise is valid...

The central bank buy's and sell's currency all the time ...... there are only 27 trillion dinar in physical currency in existance at the moment not 200 trillion ...... now if the CBI is buying back there own currency they can have it destroyed prior to any RV thus reducing the 27 trillion, Iraq does not need 27 trillion to operate even at the current rate of $1 = 1170 IQD .....

the 200 trillion is just what they bought back from the market place over the 8 years ..... this money does not just sit in a vault lol it gets used for other stuff and gets back in the market when needed, the currency auctions are a tool to control inflation.

A big auction is a good thing, I have always thought that comming up to an RV the Auction sales would would be huge, and why not if you knew you were about to revalue your currency and you had a daily auction where you could buy it back would you buy back as much as you could before you revalued it ....... of course you would.

Edited July 11, 2011 by The Machine

[Dalite]

You are incorrect sir.

The dinar the CBI buys at the auctions is then sold back to the GoI for dollars, the dollars the CBI receives from the GoI get sold at auction and the dinars the GoI buys go back into circulation via salaries and gov't funded public projects.....and so it goes.

Hope this helps.

Help me understand, where does the GOI get the Dollars?

I can understand that now the DFI is accessible there will be petro dollars available, but that doesn't account for the last 8 years.

I don't know if the DFI ever contained enough dollars for the CBI to access and auction; or even if they had that kind of access..

[MrFnHappy]

The GoI gets dollars from the sale of oil. Yes from the DFI. The sale of oil revenues goes into an account (previously the DFI) from which the GoI operates.

I think many believe the DFI was a savings account, when it is really the checking account for the GoI.

Edited July 11, 2011 by MrFnHappy

[Dalite]

The central bank buy's and sell's currency all the time ...... there are only 27 trillion dinar in physical currency in existance at the moment not 200 trillion ...... now if the CBI is buying back there own currency they can have it destroyed prior to any RV thus reducing the 27 trillion, Iraq does not need 27 trillion to operate even at the current rate of $1 = 1170 IQD .....

the 200 trillion is just what they bought back from the market place over the 8 years ..... this money does not just sit in a vault lol it gets used for other stuff and gets back in the market when needed, the currency auctions are a tool to control inflation.

A big auction is a good thing, I have always thought that comming up to an RV the Auction sales would would be huge, and why not if you knew you were about to revalue your currency and you had a daily auction where you could buy it back would you buy back as much as you could before you revalued it ....... of course you would.

But, you have to sell your currency, in order to be able to buy it back.

If they are selling dollars, and buying Dinar 5 days a week, where did the dinar come from?

I didn't know it was internationally tradable.

If not tradable, it has to be bought from somewhere.

The claims that all CBI auctions are selling dollars assumes there is an unending supply of dinar that was never sold by the CBI.

The GOI spends the dinar by payying the people inside Iraq with the dinar it buys using dollars

Where did the dinar come from, if it was never auctioned by the CBI, and is not a world tradable currency?

[MrFnHappy]

But, you have to sell your currency, in order to be able to buy it back.

If they are selling dollars, and buying Dinar 5 days a week, where did the dinar come from?

I didn't know it was internationally tradable.

If not tradable, it has to be bought from somewhere.

The claims that all CBI auctions are selling dollars assumes there is an unending supply of dinar that was never sold by the CBI.

Where did the dinar come from, if it was never auctioned by the CBI, and is not a world tradable currency?

Read my post on the previous page.

Edited July 11, 2011 by MrFnHappy

[The Machine]

ok think of it like this ..... you get paid form your employer , where does he get the money from ... a bank .... where do the banks get there money from , the central bank ..... how does the central bank get there money back the buy up excess from the banks when cash is deposited, there is no need for the banks to hold vast reserves of cash.

Edited July 11, 2011 by The Machine

[Dalite]

The GoI gets dollars from the sale of oil. Yes from the DFI. The sale of oil revenues goes into an account (previously the DFI) from which the GoI operates.

I think many believe the DFI was a savings account, when it is really the checking account for the GoI.

I can fully accept that. The DFI was protected for the benefit of all Iraqis.

But, this doesn't address where the Dinar they are buying came from.

If they are selling dollars from the DFI, and building Gold reserves, this doesn't feed the people or enhance the rebuilding of infrastructure; which is what I thought the DFI was supposed to provide for.

Again, if the CBI never auctioned Dinar, and the Dinar isn't a tradable currency, where did the Dinar they are auctioning off come from.

I think the missing element here is what percentage of these auctions are limited to banks in Iraq, or the region that does accept the Iraqi dinar as payment.

If the Auctions never leave the area that accepts the Dinar as payment, the claim that all auctions are for selling Dollars begins to get legs.

However, that doesn't explain where your or my Dinar came from, if the CBI never auctions Dinar...

[cw2]

I have left Doc31 a message asking if he has time today to weigh in on the auction.