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Pumpers/Guru's VS Media


Nightwalker
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New Dinars for Old

Posted on 05 July 2011. Tags: iraqi dinar, ISX, Redenomination

At the end of last month, a spokesman for the Central Bank of Iraq (CBI) told reporters that a plan to redenominate the Iraqi dinar will be presented to the Council of Ministers in the near future. (See here and here.) The Council is then expected to submit the relevant legislation to Parliament for a vote. If the lawmakers approve the project, all existing banknotes will be replaced with new currency at the rate of 1,000 old dinar for one new over some unspecified period of time.

Given Parliament’s current backlog, this change can hardly be imminent. Still, you might think they could get around to voting on the CBI’s proposal some time before the end of this year. In that case, the redenomination could presumably be completed by the end of 2012.

The process will necessarily involve both the exchange of new banknotes for old and the restatement of contractual obligations in terms of the new currency. Among other things, three zeros will have to be eliminated from the share capital of the ISX listed companies as well as from the number of shares each has outstanding. (This will keep the par value at one dinar.)

I’m told this should be a relatively straightforward change for the depository center to make. Trading should not have to be suspended for more than a few days and it may be possible to proceed in phases of a few names at a time so that the entire market does not have to shut down during the transition period.

Similarly, it seems reasonable to expect the CBI to exchange new dinars for US dollars at one thousandth the rate for old dinars. In other words, if the original rate were IQD 1170 = US$ 1, post-redenomination this would become IQD 1.170 = US$ 1.

All of this seems reasonably straightforward for anyone holding assets such as currency or shares inside the country. For those holding dinar cash outside Iraq, however, things may not be so simple. How and on what terms their old dinars will be convertible into the new currency remains an open question.

http://www.iraq-businessnews.com/category/investment/mark-de-weaver/[/b]"]My linkhttp://www.iraq-businessnews.com/category/investment/mark-de-weaver/

At least the media is black on white !

It's time for proof...... OR BACKOFF

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I doubt you will see much response to this.

Many already consider it a very likely outcome.

The others just want to see this scroll off the current posts pages.

It does kinda lay it all out in fairly straight forward terms.

The Go RV! Crowd sees this as negativity; bad JuJu.

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You know the drill. Pro RV people say all the press is "smoke and mirrors" (means outright lies) to dissuade dinar investors just before an RV. It's just a misinformation campaign. Interestingly, it doesn't seem to occur to them that pro-RV rumors could be a disinformation campaign to prop up the sale of that nearly worthless pretty red paper at the CBI auctions (which has been a brilliant tool to increase CBI reserves in dollars). I have a tendency to believe most of the pro-RV people and even most of the guru's aren't "pumpers" working for the dealers. They just believe what they hear and sometimes the things they hear come from people in-country.

We'll have to wait and see. Some are wrong and some are right. Much about what is said by RVers about re-denomination is blatantly inaccurate. Personally, I am with you and lean toward the "black and white" view as the most likely. In the long run, the currency will strengthen if the country continues to develop. That is unfortunately different from an RV. Personally, I may not stay invested much longer.

Kent

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Please don't get me wrong... I own Dinar, and would like an RV to happen more than anything else, BUT, I would think that because WE ARE ALL IN THIS TOGETHER, we would rather want the truth and be done with it... than believe some "GURU" or "PUMPER" that make money of the 99% of us. Real Facts about our investment..... (even if its a rumor, because "IT IS DONE" - is not a rumor)

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I read and re-read this several times; considering it's a repeat article that I read after it was first published. After a little research, I discovered this is an op-ed piece.

It is the reporter's personal opinion, and the opinion is based on previous CBI statements and basic economics.

When reading this article, it would be best that one go back and understand the meaning of par value in economic terms in referring to currency and stocks. As I write this, I'm not saying the personal opinion of this reporter is wrong or right. I do personally feel that the reporter should have better explained his personal opinion though.

Here is a link from Wikipedia about par value, and helps to provide a basic and good understanding. http://en.wikipedia.org/wiki/Par_value

The paper notes according to the reporter would be exchanged at a rate of 1000 old to 1 new. I wouldn't disagree with that statement, as that would indicate the CBIs intention to change the nominal rate of the currency; meaning the CBI has somewhere between 27 to 57 trillion in circulation and after the 1000 to 1 exchange would lower the amount in circulation down to somewhere between 27 to 57 billion dinar. This would inable the CBI to change the real value of the currency while controlling the nominal value or lessening the amount of dinar in circulation.

To better understand, what I feel the reporter fails to grasp and explain is the difference between real and nominal value in an economics sense.

Here is the link from Wikipedia about real and nominal value. It is just a basic explanation, but it will give someone the basics in understanding. http://en.wikipedia.org/wiki/Real_versus_nominal_value_(economics)

This is the quote directly from the piece, "Similarly, it seems reasonable to expect the CBI to exchange new dinars for US dollars at one thousandth the rate for old dinars. In other words, if the original rate were IQD 1170 = US$ 1, post-redenomination this would become IQD 1.170 = US$ 1."

This is a change in the 1000 to 1 marginal change in the nominal rate and and indirect change in the real rate of the currency. The real rate changes would be minor to say the least at a rate of 1.17 to $1. The value would only have adjusted by a fractional amount in the dinar.

The problem with that is that would be a contradiction to what the government claimed in a news piece recently in which they stated the value of the dinar would not be changing any time soon. The greatest threat and issue facing Iraq under that scenario would be the it not having an effect on the economy or the inflationary problem, which was directly caused most recently by adding the zeros to the currency in 2003/2004. Adding zeros is a tool used by Keynesian Economists to munipulate currency and manage inflation against an unbacked currency. Being a Austrian Economists style thinker, I'm not and have never been a fan of unbacked currency or the corrupt tools they use to munipulate economies.

Either way though, no significant real value change in the dinar will not help their inflationary problems or spur their economic development. I personally feel the CBI will perform a nominal value change of 1000 ot 1 exchange and that will be coupled with a higher real value being placed on the new lower denominations specified by the CBI, in accordance and agreement with the IMF and World Bank. This is only my personal opinion, but that is both in laymans terms a LOP and revalue all at the same time. It is the most logical and most likely scenario currently given the state of Iraq. Again, this is only my educated personal opinion, just like the reporter who wrote this op-ed peice gave his/her personal opinion.

I've said it before and will say it again. I will be happy with ever the good Lord chooses to bless me with when this is all said and done. I'm just thankful that I was given the opportunity to learn about and participate in this investment. Before people start to tear me apart for my opinion, just remember no one is actually correct until all is said and done. This is just my op-ed piece.

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