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Open Market Operations aka "Currency Auctions"


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The only thing is that the CBI directly states that the money supply figures dont include currency that has not been issued or currency that has been returned to the CBI being kept in the vaults, and currency that has been replaced. Whether or not they are following that guideline is another story but thats what they are stating.

keep, I am with you. The CBI is just like our government. I believe everything our government tells me. Like when George Bush said that the war in Iraq was officially over. He didn't lie to us then. Yes, your right. That was sarcastic. Point being our government, like the CBI, will only divulge what information they want you to see. We need to understand this when speculating.

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Wow....if that's the case :blink::huh::unsure: .....then I've never came across someone with an opinon worth less than the Dinar :P

sure you have ,20milliondinar , you've read his posts haven't you . that's worth all the effort that i've ever seen anybody put in who's pumping a product. but using your perspective it'll all happen tommorow , tommorow or tommorow.

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keep, I am with you. The CBI is just like our government. I believe everything our government tells me. Like when George Bush said that the war in Iraq was officially over. He didn't lie to us then. Yes, your right. That was sarcastic. Point being our government, like the CBI, will only divulge what information they want you to see. We need to understand this when speculating.

Central banks are much different then the govt, secondly I don't think its impossible for them to be fudging numbers although it being HIGHLY unlikely just because of everyone who has been up in Iraqs ass watching their every move....I mean the sanctions placed on Iraq required them to be transparent financially which it seems they have been or been trying to follow....my point is that the excuse of the CBI purposely lying about what they hold to the world in the amounts in the trillions of dinars is a stretch to say the least....those financial indicators might not be 100% accurate, but I don't think those numbers are off by tens of trillions....

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keep, I am with you. The CBI is just like our government. I believe everything our government tells me. Like when George Bush said that the war in Iraq was officially over. He didn't lie to us then. Yes, your right. That was sarcastic. Point being our government, like the CBI, will only divulge what information they want you to see. We need to understand this when speculating.

"Like when George Bush said that the war in Iraq was officially over." Or like when Hussein Obama opens his mouth?? LOL

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  • 4 weeks later...

As we know the Iraqi Dinar is now held at a "program" exchange rate as specified by the International Monetary Fund of 1170 dinars per US dollar at the Central Bank of Iraq. However, there is not yet a set international exchange rate and so international banks do not yet exchange Iraqi dinar. The exchange rate available on the streets of Iraq is around 1200 dinars per US dollar.

Typically, a government wanting to maintain a fixed exchange rate does so by either buying or selling its own currency on the open market. This is one reason governments maintain reserves of foreign currencies. If the exchange rate drifts too far below the desired rate, the government buys its own currency in the market using its reserves. This places greater demand on the market and pushes up the price of the currency. If the exchange rate drifts too far above the desired rate, the government sells its own currency, thus increasing its foreign reserves.

The main criticism of a fixed exchange rate is that flexible exchange rates serve to automatically adjust the balance of trade. When a trade deficit occurs, there will be increased demand for the foreign (rather than domestic) currency which will push up the price of the foreign currency in terms of the domestic currency. That in turn makes the price of foreign goods less attractive to the domestic market and thus pushes down the trade deficit. Under fixed exchange rates, this automatic rebalancing does not occur.

Governments also have to invest many resources in getting the foreign reserves to pile up in order to defend the pegged exchange rate. Moreover a government, when having a fixed rather than dynamic exchange rate, cannot use monetary or fiscal policies with a free hand. For instance, by using reflationary tools to set the economy rolling (by decreasing taxes and injecting more money in the market), the government risks running into a trade deficit. This might occur as the purchasing power of a common household increases along with inflation, thus making imports relatively cheaper.

Additionally, the stubbornness of a government in defending a fixed exchange rate when in a trade deficit will force it to use deflationary measures (increased taxation and reduced availability of money) which can lead to unemployment. Finally, other countries with a fixed exchange rate can also retaliate in response to a certain country using the currency of theirs in defending their exchange rate.

The belief that the fixed exchange rate regime brings with it stability is only partly true, since speculative attacks tend to target currencies with fixed exchange rate regimes, and in fact, the stability of the economic system is maintained mainly through capital control A fixed exchange rate regime should be viewed as a tool in capital control. A speculative attack in the foreign exchange market is the massive selling of a country's currency assets by both domestic and foreign investors. Countries that utilize a fixed exchange rate are more susceptible to a speculative attack than countries utilizing a floating exchange rate.This is because of the large amount of reserves necessary to hold the fixed exchange rate in place at that fixed level. Nevertheless, if a government chooses to maintain a fixed exchange rate during a speculative attack, they risk the chance of severe economic depression or financial collapse.

A speculative attack has much in common with cornering the market as it involves building up a large directional position in the hope of exiting at a better price. As such, it runs the same risk: a speculative attack relies entirely on the market reacting to the attack by continuing the move that has been engineered, in order for profits to be made by the attackers. In a market that is not susceptible, the reaction of the market may, instead, be to take advantage of the change in price by taking opposing positions and reversing the engineered move. This may be assisted by aggressive intervention by a central bank, either directly through very large currency transactions or through raising interest rates, or by activity by another central bank with an interest in preserving the current exchange rate. As in cornering the market, this leaves the attackers vulnerable.

The above tells us that Iraq has extremely large reserves due to the fact that they need to keep their exchange rate stable as it is pegged to the US dollar They do this through their currency auctions. Now, if the IMF (which seems to be the ones who are responsible for keeping them on the fixed exchange rate) allowed the Iraqi Dinar to float then what could happen is the CBI could purchase Iraqi Dinars at their currency auctions and "destroy them" or withdraw them from circulation. This in turn places greater demand on the market and pushes up the price of the currency. Also, if they were not on the fixed exchange rate then they wouldn't have the need for so much extra currency as they wouldn't have to "prop up" or "suppress" their currency on a day to day basis like they have to do now.

Another problem being stuck on this fixed exchange rate is that an automatic balancing of trade does not occur. When a trade deficit occurs, there will be increased demand for the foreign (rather than domestic) currency which will push up the price of the foreign currency in terms of the domestic currency. That in turn makes the price of foreign goods less attractive to the domestic market and thus pushes down the trade deficit. This is what has been happening in Iraq for quite some time. The demand for and excessive use of the US dollar in Iraq is actually making the IQD worth less because of the lack of demand. This also makes foreign goods (imports) less attractive pushing down the trade deficit. A "flexible exchange rate" serves to automatically adjust the balance of trade.

Now, on top of all of this they also need to worry about "speculative attacks" which could be cause by speculators and foreign investors. Yes, this is very possible, especially with a country worth so little bit. $60 Billion USD, this market is easy to corner if you think about it. A couple of major corporations, foreign financial institutions, and major investors could EASILY corner this market should they choose to do so! However, this may be assisted by aggressive intervention by a central bank, either directly through very large currency transactions or through raising interest rates, or by activity by another central bank with an interest in preserving the current exchange rate. As in cornering the market, this leaves the attackers vulnerable.

I personally believe that somebody (USA) has an interest in preserving the current exchange rate. This would leave any potential attackers vulnerable. I don't care who says US is not holding massive amounts of Dinar, I say they are for this exact reason. This market would be easy to corner UNLESS Iraq is being assisted by the US through very large currency transactions. If you think this is impossible then think again! Just because you can't find proof that the US is holding tons of dinars, think about this. It is almost common sense!

Overview:

1) There is excessive amounts of Dinar which is needed at this time to maintain the fixed exchange rate system. This is a major reason for the over inflated money supply.

2) If the Iraqi Dinar is allowed to float then that would allow them to withdraw and destroy trillions of dinar immediately. This in turn creates greater demand for the IQD currency and drives up value. Also, being an internationally recognized currency using a flexible exchange rate puts the currency on the FOREX market giving the currency more liquidity and trade volume is increased substantially! A flexible exchange rate also helps to automatically balance trade.

3) Speculative Attacks: Why hasn't the Iraqi market been cornered? Why hasn't any major corporations, financial institutions, or even governments tried to corner this market? Or have they....? It is very possible that the same entity (USA) who could cause the biggest speculative attack on Iraq be the ones who are preventing this from happening through very large currency transactions as there is a major interest in preserving the current exchange rate. Something to think about folks...

The following was being discussed in another thread but I did not want to lose it with all of the other articles. It also fits in nicely with #2 at the bottom of the Quoted text above:

Look at the following document:

http://www.cbi.iq/do...GE_AUCTIONS.pdf

This has nothing to do whatsoever with the normal fluctuations we see while checking the currency rates at various sites. This has to do with the CBI's rates that they have been pegged at for the past 3-4 years.

Scroll down all the way to the bottom, now you will see a total of 7 columns. The 3rd column over to the right is what needs to be observed here. As you can see the last two rows at the very bottom show 1166, however, if you look above you will see 1170 all the way up to January 18, 2009. Prior to January 18, 2009 the IQD was "floating" and was increasing in value little by little on basically a day to day basis.

In September the value was roughly 1450 Dinars to $1 (1450:1) and slowly went down to 1170:1 during a period of roughly 2 years.

NOW: Two days ago the PEG of 1170:1 was removed! You folks need to understand that this is HUGE for us. Now what we are hoping for is a gradual increase in value like we saw before. <br

From 1450:1 in 2 years and 3 months....

Pegged at 1170:1 for almost exactly 3 years...

Now we are seeing a gradual increase in value again. This is NOT an overnight RV of their currency, however, this is better than nothing!

I personally see this as very IMPORTANT and is definitely not a normal fluctuation in the value of the IQD which we see on different FOREX sites!

***So, what we should be watching for during the next few weeks is the increase in value of the IQD. Let's hope that it doesn't stop at 1166!***

Edited by 20MillionDinar
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Unfortunately we don't have access to those figures at this time.

What we can do is try to figure out how much U.S. dollars is sold at a "typical" currency auction. Once we find those numbers, we figure out how many auctions are going on during a months time. Then we could have a very rough estimate as to how much currency they could bring in during a one month time frame.

Let me give it a shot.

**Disclaimer: Do not take this at face value. This is only an EXAMPLE I am using to make it easier with the numbers.

$100,000,000 ($100 Million Dollars) = 116,950,000,000 Iraqi Dinars (roughly 117 billion dinars)

It is safe to say that an average currency auction that takes place in Iraq ranges anywhere from $60,000,000 being sold up to $200,000,000 USD being sold. I am not exactly sure but let's go with an average of $100,000,000 per auction. I think we are safe to say that is an "average" currency auction.

So if they are able to bring in roughly 117 Billion Dinars per auction. they would need about 10 auctions to bring in a Trillion Dinars. That would be roughly 2 weeks.

2 weeks for 1 Trillion Dinars. So the CBI could technically bring in 2 Trillion Dinars a month right?

24 trillion in one year's time.

Ah, someone else gets it too. I've been pushing this idea forward the past year and usually got shot to hell with those that think the auctions are selling dinar. It's so good to see this issue front and centre again!

great Post!!! :D

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Ah, someone else gets it too. I've been pushing this idea forward the past year and usually got shot to hell with those that think the auctions are selling dinar. It's so good to see this issue front and centre again!

great Post!!! :D

Yep! Page 2 Post #37 on this thread proves that they do in fact sell US dollars at the majority of the currency auctions in return for Iraqi Dinar. HOWEVER, there is no proof at this time as to whether or not they have been withdrawing the IQD's from circulation. BUT, when the time comes should they decide to do so, they have the means to do it! And in a pretty short amount of time at that!

So if the dinar keeps increasing in value during the next few months they could definitely keep some of the IQD's from getting back into the market thus reducing the overall amount of currency in circulation. This is what I have been waiting for...

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Yep! Page 2 Post #37 on this thread proves that they do in fact sell US dollars at the majority of the currency auctions in return for Iraqi Dinar. HOWEVER, there is no proof at this time as to whether or not they have been withdrawing the IQD's from circulation. BUT, when the time comes should they decide to do so, they have the means to do it! And in a pretty short amount of time at that!

So if the dinar keeps increasing in value during the next few months they could definitely keep some of the IQD's from getting back into the market thus reducing the overall amount of currency in circulation. This is what I have been waiting for...

We could make an assumption that if the dinar keeps going up, they may indeed be starting/continuing to shrink the money supply. Time will tell. It is very good news!

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  • 1 month later...

Central banks are much different then the govt, secondly I don't think its impossible for them to be fudging numbers although it being HIGHLY unlikely just because of everyone who has been up in Iraqs ass watching their every move....I mean the sanctions placed on Iraq required them to be transparent financially which it seems they have been or been trying to follow....my point is that the excuse of the CBI purposely lying about what they hold to the world in the amounts in the trillions of dinars is a stretch to say the least....those financial indicators might not be 100% accurate, but I don't think those numbers are off by tens of trillions....

The same people that control our federal reserve own the CBI.

These people have been fudging numbers and giving out deceptive information for decades now.Whats so special about the CBI?

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Once again 20 million,

Outstanding work. Best article I have read all week. I sure appreciate your diligence and hard work. Article like these keep me coming back for more! ++++++

Aside: shhhh . . . Great to see you this morning, QL!! :) Later, my friend. (Now we return to the thread)

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  • 1 month later...
  • 3 months later...
  • 3 months later...

LOL. We all know the problem is there, too much currency in circulation. So I am focusing on learning about different solutions and possibilities.

If the consensus is there is too much currency in circulation then let's revalue and let the market decide fair value.

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  • 2 months later...

Unfortunately we don't have access to those figures at this time.

What we can do is try to figure out how much U.S. dollars is sold at a "typical" currency auction. Once we find those numbers, we figure out how many auctions are going on during a months time. Then we could have a very rough estimate as to how much currency they could bring in during a one month time frame.

Let me give it a shot.

**Disclaimer: Do not take this at face value. This is only an EXAMPLE I am using to make it easier with the numbers.

$100,000,000 ($100 Million Dollars) = 116,950,000,000 Iraqi Dinars (roughly 117 billion dinars)

It is safe to say that an average currency auction that takes place in Iraq ranges anywhere from $60,000,000 being sold up to $200,000,000 USD being sold. I am not exactly sure but let's go with an average of $100,000,000 per auction. I think we are safe to say that is an "average" currency auction.

So if they are able to bring in roughly 117 Billion Dinars per auction. they would need about 10 auctions to bring in a Trillion Dinars. That would be roughly 2 weeks.

2 weeks for 1 Trillion Dinars. So the CBI could technically bring in 2 Trillion Dinars a month right?

24 trillion in one year's time.

They have been doing these auctions for quite some time now. Like for years and years... I think it is safe to say that if they wanted to remove physical currency in circulation they could do it using the methods they are using on a daily basis. Simple as that.

Who can prove they are not using Contractionary Policy to decrease their Money Base via Open Market Operations aka Currency Auctions? Anybody?

 

It has seemed the answer given by lopsters such as Keep is this - they are not only selling dollars and collecting dinar, theya re also doing the opposite, to a point, so there is a balancing act...I may be wrong on this...

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20Million,

I've tried to argue that bank reserve figures in the past and how they could be easily subtracted from overal financial indicators at the blnk of an eye. I think the figures are inflated or manipulated.

Imagine the idea of the artificial program rate:

1/1170 (13 dinar fees) = 1183

If the CBI were indeed drawing in IQD (Which I believe they are) they will be greatly reducing the overall money supply by what is in circulation.

They could increase the exchange rate, but than they woud not be drawing in as much IQD.

If the exchange rate were 1/500 (13 dinar fees) = 513

They would be taking over twice as long to hit any target amount they desired.

Drawing in 1170 per dollar will reduce the overall supply rather quickly. Would you not agree?

Now, if the value of dinars accounted for, yet not truly in circulation were to be destroyed, deleted, removed, soiled, or whatever... The value would of said destroyed notes would be equally distributed to the existing notes.

To put this into better perspective

If 60T of M2 = $50Billion USD = 1200 (Exchange rate, similar to the 1170)

If 30T of M2 = $50 Billion USD = 600 (Exchange rate, similar to the 1170)

The contraction of the money supply would only work so far domestically. This would not work to contract a money supply for what is held outside the country. To contract "that" money supply would likely require an adjustment in the exchange rate. (IMO)

 

They could increase the exchange rate, but than they woud not be drawing in as much IQD.

If the exchange rate were 1/500 (13 dinar fees) = 513

They would be taking over twice as long to hit any target amount they desired.an if they 

Drawing in 1170 per dollar will reduce the overall supply rather quickly. Would you not agree?

 

OK I like this idea - the program rate since 09 allows them to take in dinar, sell USD at a much faster rate than if they had let it float higher in recent years - setting the currency up for an RV

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I think since they are not descriptive on their actions we are left with the unknown(s) of their exact process.

The auctions are basically a big circulation of their money.

GOI receives $$$ from Crude Exports

GOI goes to CBI exchanges $$$ for IQD (To pay for government expenditures which may include fees, salaries, etc)

The CBI than takes and sells those same $$$ to private banks and draw in IQD.

Its just a big cycle.... But somewhere along the lines, thualize CBI could be drawing in currency from circulation.

 dn in the vaults

We really don't have proof they are doing it, but we also don't havit woulde proof thdey're not narit.se year

  See if I can conceptualize this - they seem to be circulating dinar and dollars, surely. But they may be putting some extra dinar in the CBI vaults each time (not all of circulated dinar) saving it for RV day when its value would rise, but it would not be circulated liability (it's in the vaults) -  in this way they are removing a portion of dinar (not destroying ALL of it either, but a portion) over all these years.

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  • 2 weeks later...

Yes the cbi is selling dollars at auction.......but where do you think there dollars are coming from...ie...to do the daily auctions and build foreign reserves with usd??

The ministry of finance is selling dollars from oil sales to the cbi..........so the cbi gives the mof dinars....to pay for the budget.

unfortunately....the contractionary policy is offset by the cbi having too put out dinar to the mof.

the solution would be.........if the mof would pay the budget in dollars......then rapid contractionary policy could follow

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  • 1 month later...

Super conversation.  I just added to my stockpile this morning after reading this:

 

 MP Faizullah likely return of the exchange rate of the dinar against the dollar to normal
29-03-2013 01:16 PM

 

Baghdad (news) .. Likely Vice-Chairman of the Finance Committee MP / coalition of Kurdish blocs / Ahmed Faizullah, the return of the Iraqi dinar exchange rate to its natural price against the U.S. dollar, the central bank requirement to take the necessary procedures and the use of international expertise to support the national currency.

Said Faizullah (of the Agency news): The country is suffering from floundering his policy monetary and economic terms that the money that goes out of the country for imports more than the money that comes to the country from oil sales, etc., in addition to there other funds wasted in various ways.

He added: that the central bank demands take its necessary measures to recover the value of the Iraqi dinar to its natural price against the U.S. dollar, and the use of international expertise should benefit from the recommendations of the International Monetary Fund to support the national currency.

 

Add 20M's comments and research, I believe we are getting closer to the RV/RD.

Lets add something to the mix:  Oil exports have now increased to 4M barrels a day.  The Iraqi's will at some point want to capitalize on this increased exports.  Especially considering the pressure from Kuwait and its port sharing problems.

 

And then there is the political tug -o-war and the prevailing corruption at the CBI which at some point has run out of money and hence any RV will just make more $$'s available for them to continue their life style.

 

And then there is the US move out of the region entirely.  Our presence brought in a lot of money and enterprise.  With that now dwindling, Iraq has to be innovative.  RV seems the most likely solution.

 

Just my thoughts!

 

Everything points to a favorable change of direction
 

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Read this and thought I would share.

 

Multiple meetings have been taking place at Wells Fargo and other banks today preparing execs for the imminent RI of the IQD. I received a specific bit of info today from a Wells Fargo officer who gave some important advice to all of us.

1. If you are a customer of WF, there will be no exchange fees. In other words, whatever the normal exchange rate the bank has is what you will receive -- no 1.5% fee tacked on. ...

2. You will see an 11% currency exchange tax taken out by the IRS on any amount you exchange. You may also be charged a state tax -- depending on where you live.

3. DO NOT -- and I repeat, DO NOT -- tell them that you want to "cash in" some IQD. You are there to "exchange" the IQD for USD.

If you use the phrase, "cash in," depending on where you are and whoever happens to wait on you, your transaction could be treated as "cashing in an investment."

4. Two FINCEN forms have been provided by the IRS. One specifically identifies these transactions as "currency exchange" transactions.

The other refers to them as "currency investments." DO NOT UNDER ANY CIRCUMSTANCES sign any document which treats your exchange as a "currency investment" or you will wind up paying as much as 39.5% in taxes!

This is an important distinction, and if you want to avoid paying through the nose to the IRS, avoid any references to the word "investment" on any document that you sign at the bank (or broker, or currency-trader).

I have no objection to paying a fair and reasonable tax on any transaction, but I'm not the least bit interested in someone finessing the phraseology in order to trick me into paying more tax than Congress has signed onto. Hope that's a help to everyone. Blessings on you.

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