Open Market Operations aka "Currency Auctions"

[Darin]

Came back tonight to catch up on this thread and I want to thank everyone for the great discussion and research. This is one of the best threads I have read on this site. My head hurts just from reading, can't imagine the thought and research behind it. I hope to check back tomorrow for the continuing saga. Thanks again!! BRAVO!

Your telling me.. I hate when you understand a concept in your head, but you fail to properly type it out in text to explain it.

Your either over-descriptive, or lack details.

[DinarDana]

Your telling me.. I hate when you understand a concept in your head, but you fail to properly type it out in text to explain it.

Your either over-descriptive, or lack details.

It's been a very long Monday. Sorry. Simply put, good work, good discussion.

[20MillionDinar]

Attached is the trimmed down Key financials for 2011.

They should print out in a landscape format.

Each page should have all the info from the columns.

It will take at least 2 landscape pages to print the rows.

This is in .xls format, then zipped to be accepted as an attachment.

I don't know if this will be a benifit or not

Dalite, thank you for the Financial Indicators document. So much easier to understand now.

[YourIntelSux]

Dinarck,

This is where we need your head buddy! We all know it has a chance of the rd, but that's not what were here for. And I'm not saying succumb to every article and try to spin it ( which I know you wouldn't). We need your brain teaming up with 20 mil,sonny, dalite, scooter, etc to figure out how this can work. Y'all are sharp fellas. We need ya!! Great respectful discussion TEAM.

Edited August 9, 2011 by YourIntelSux

[Dalite]

Dalite, thank you for the Financial Indicators document. So much easier to understand now.

YW..

The document file I uploaded earlier in the thread has the explanations for each of the descriptors.

[20MillionDinar]

Well the value isnt rising so we can assume that they are not removing any from circulation. What about the remaining currency? Say they bring in from the auctions 10 trillion dinar. Then they remove the 21 trillion. That would leave 38 trillion. Still a good chunk. What you are saying is at that point the exchange rate should change to 600 to 1 since almost 50% of their currency would have been removed. So it would cost them 31 billion dollars to bring their exchange rate to that not including the speculators that would need to be paid out at that rate. Just thinking while typing here.

Dinarck, I also wanted to say that I am not 100% positively sure that they are and have been actually removing currency from circulation. Their M1 figure say that they technically aren't. However, I just wanted to point out that they do in fact have the ability to do so should they choose. This is shown through the CBI's "bank reserves" figures. Still a little unclear to me...

Darin pointed out the obvious fact that the exchange rate is still 1170 which COULD & DOES bring in IQD's in large volumes on a consistent basis. Fact is though, if the CBI is still printing and releasing new IQD notes then they are not decreasing the M1 money supply via the currency auctions. That would be stupid! LOL. Print more money then destroy them after bringing them in via the currency auctions. However, if/when printing stops of the IQD, this contractionary policy is a solid and effective option that the CBI can use in order to decrease the money supply.

What I am waiting to see are the new financial indicators. If the M1 & M2 has decreased then I feel good about everything that I have previously discussed coming into effect. If the numbers have grown, well....we all know what CAN happen.

However, we do know for a fact that they have "Raised Reserve Requirements" for the commercial banks and the CBI does perform currency auctions which do in fact sell USD and bring in IQD. These two tools are used during a "Contractionary" time. Not the opposite, at least not combined together.

What we do not know is if they are still printing new currency. If they are in fact "destroying" the IQD's that they bring in through the currency auctions. Lastly, we do not know what they plan to do as far as the possible RV / RD goes. Does anybody have any 2012 notes? Not sure if they would be printed at this time anyways, I think 2012 cars are already on the market... LOL

It would be nice to get some exact figures on the current M1 & M2 money supply. Also, if things don't "add up" we should try and debate the situation thoroughly to see what we can come up with. Dalite, thank you for posting the new financial statement. I will review the document later tonight.

[20MillionDinar]

I think (if I'm not mistaken) that Darin was referring to the current exchange rate of 1170 and the ability to "soak up" more IQD in a shorter period of time through the currency auctions if need be.

If the rate was 500 dinar to $1 USD then it would take twice as long to bring in IQD's through the currency auctions.

So, if the time comes, and this is what the CBI plans to do, then the Open Market Operations aka Currency auctions can and will brong in more IQD which could in turn be "deleted" from the current money supply.

I could be wrong, but I think that is what he was referring to as far as the difference in exchange rates and their current possible effect...

Darin, please correct me if I'm wrong.

[Dalite]

Here is another indicator.

The 1183 exchange rate is used when the CBI Is making a public offering. It includes a 13 dinar per dollar commission.

This chart shows public rate trends, and may shed some light on the origins of the 1200:1 ratio we see in a few of the later press releases.

http://cbi.iq/documents/exchange_rates_chart.gif

The link below gives dates and amounts on currency autions

http://cbi.iq/documents/CBI_FOREIGN_EXCHANGE_AUCTIONS.pdf

These auctions move Dinar from the CBI to the member banks. The same dinar may show up in multiple auctions in a week, month, etc. As they are circulated through the region.

This is one of those things that makes it so hard to get hard numbers to go from.

The 2011 printing of currency hasn't shown up, as of the last time the pic showing how to ID bills was posted.

The most recent held by DV. Members then (in the last 45 days) showed print date of 2010.

Currency "soiling", or "street life" has been described as short as 90 days, up to 18 months. This gives an idea of how often currency is expected to last before being replaced. The 90 day figure was from direct conversation with a currency dealer that seemed to be fairly well versed in paper quality and durability. Again; another unknown quantity in terms of street life and paper currency turnover.

This is another thing that coin would help alleviate. So far, the denominations of coin to be released have also been a subject of differing interpretations.

Not trying to just introduce negatives, just showing some of those variables that are so elusive to quantify.

Any mechanism to remove currency from M1 would almost have to be obvious; based on the numbers needed to be moved.

A thought on the belief that money (large bills) having been removed from circulation is that since they would be replaced by available denominations, it wouldn't show up in M1 figures..

Also, consider that the completion percentages of earlier press releases may have referred to the progress in preparing the plan, rather than actually removing larger bills..

Again, an unknown quantity...

Not trying to rain on any parades, just throwing in items that have already been determined to be elusive, based on previous discussions...

Will keep looking for fresher numbers..........

[Bigchclte]

20 Million Sir you did your thing on this one! Read it this morning while at work about 4AM. Excellent info, thank you!!

[the wolf]

Great thread! Thanks to all who have contributed.

[Darin]

I think (if I'm not mistaken) that Darin was referring to the current exchange rate of 1170 and the ability to "soak up" more IQD in a shorter period of time through the currency auctions if need be.

If the rate was 500 dinar to $1 USD then it would take twice as long to bring in IQD's through the currency auctions.

So, if the time comes, and this is what the CBI plans to do, then the Open Market Operations aka Currency auctions can and will brong in more IQD which could in turn be "deleted" from the current money supply.

I could be wrong, but I think that is what he was referring to as far as the difference in exchange rates and their current possible effect...

Darin, please correct me if I'm wrong.

You basically summed up the theory, which makes sense, don't you agree?

You provide a stable market, with a higher exchange rate, you could use the currency auctions to draw in a large/vast amount of bills.

So if in reality, the value should be rising due to an improving economy, your reducing the bills in circulation.

Anyways, I need to re-read in-depth on how the CBI does their spreadsheet. I heard from a very knowledgeable person last night that the way I view it is all wrong.

It includes the idea that currency (hard & electronic) is considered a liability - which is subtracted from the figures.. Leaving the figures we see & want to see become smaller, we should be hoping for bigger.

I don't recall the exact details on this - but it was very interesting.

[lizabeth1]

good read thank you very informative....

[dinarck]

Some of the items brought to light in this thread lead me to wonder if the purpose of the auctions is to truely bring in IQD for the purpose of reducing the amount in circulation or if in fact they are simply selling dollars and then disributing the IQD to banks throughout Iraq for the purpose of loans and daily banking transactions. Seems that wouldnt add up since not many Iraqis use banks but any who run businesses or want to start a business would. Plus how can we assume that when they auction off USD that IQD is what they get in return? If in fact alot of the transactions are done electronically then we could assume that they are done from different regions of the world meaning foriegn currencies would be exchanged for USD unless I am missing something here.

[Dalite]

Some of the items brought to light in this thread lead me to wonder if the purpose of the auctions is to truely bring in IQD for the purpose of reducing the amount in circulation or if in fact they are simply selling dollars and then disributing the IQD to banks throughout Iraq for the purpose of loans and daily banking transactions. Seems that wouldnt add up since not many Iraqis use banks but any who run businesses or want to start a business would. Plus how can we assume that when they auction off USD that IQD is what they get in return? If in fact alot of the transactions are done electronically then we could assume that they are done from different regions of the world meaning foriegn currencies would be exchanged for USD unless I am missing something here.

Unfortunately, your assessment seems to be the prevailing wisdom.

The past discussions seem to point in the direction of the Currency auctions are a tool to keep balance in the region that accepts Dinar.

Some days they buy, some days they sell.

The Dinar flows from the banks to the street, where it may go back as dinar, or be exchanged for dollars.

As the banks get more Dinar than Dollars, the seek an auction which is selling Dollars, which means buying Dinar.

The converse is true in the opposite situation of more Dollars than Dinar.

Some of the region banks (Jordan, Kuwait...) may make part of the circulation available to currency dealers abroad, but the CBI would have to regain the balance those shortages indicate by releasing more Dinar to regain the balance needed to keep the exchange rate stable..

It would appear that the amount of Dinar in print, the program rate, inflation rate and the country's current production are all so closely dependent on each other that any change in one will affect one or more of the others..

The above four variables are the ones we are aware of in the discussions, and I am sure there are more. But these variables seem to be the ones that directly affect the value.

Anyways, I need to re-read in-depth on how the CBI does their spreadsheet. I heard from a very knowledgeable person last night that the way I view it is all wrong.

It includes the idea that currency (hard & electronic) is considered a liability - which is subtracted from the figures.. Leaving the figures we see & want to see become smaller, we should be hoping for bigger.

I don't recall the exact details on this - but it was very interesting.

Darin,

I think his point is that currency is a liability until it is spent or loaned into the economy.

I believe this accounts for the reserve surplus shown on the spreadsheet.

Foreign reserves, I believe, would fall into the assets category. Maybe someone can confirm.

Debt is an asset. Money sitting the bank is a liability, as it does no work while static.

Try to print the document explaining the descriptors, and use it along with the compacted spreadsheet.

Hope you find something good...

I think it will only be 5 pages total to get a fairly full picture...

[Darin]

Some of the items brought to light in this thread lead me to wonder if the purpose of the auctions is to truely bring in IQD for the purpose of reducing the amount in circulation or if in fact they are simply selling dollars and then disributing the IQD to banks throughout Iraq for the purpose of loans and daily banking transactions. Seems that wouldnt add up since not many Iraqis use banks but any who run businesses or want to start a business would. Plus how can we assume that when they auction off USD that IQD is what they get in return? If in fact alot of the transactions are done electronically then we could assume that they are done from different regions of the world meaning foriegn currencies would be exchanged for USD unless I am missing something here.

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, the CBI could be drawing in currency from circulation.

We really don't have proof they are doing it, but we also don't have proof they're not doing it.

[dinar-racer]

Good Job ...Thank's

[dinarck]

Thanks Dalite and Darin. At least there is hope that a process is available to the CBI to implement what we all want which is a major reduction in IQD. Although it is still yet to be seen if it is occuring it does bring hope of its possibility.

[richwithdinar]

i thank all of you for this thread. Best thread i have read on the dinar, by far. I bought into this investment, not really clear on how it would work. After riding the rollercoaster, i was frustrated. Then i read a couple of 'lop articles a few days ago and really began to wonder if we were all sold a dream. After reading thorugh this well-organized discussion, i see that this is a real possibility.

Keep it up guys!

[Dalite]

Here is a good write up on daily auction results and totals.

It paints a good overall picture and provides some idea of what the daily auction totals include..

Note the 1183 rate, and the destination.

My link

CBI down on Tuesday

8/9/2011 2:36 PM

BAGHDAD / Aswat al-Iraq: The Central Bank of Iraq (CBI) has sold 135 million US dollars in its auction to sell and buy foreign currencies on Tuesday, on basis of 1,170 dinars per dollar, down from Monday sales that reached 179 million dollars, according to the CBI’s daily bulletin.

 

“The total size of the demand on the US dollar on Tuesday had reached 135 millions and 525,000 dollars, covered by the CBI on basis of 1,170 dinars per dollar,” the bulletin reported.

 

The CBI sales during Monday session had reached 179 millions and 110,000 dollars, the bulletin stressed.

 

“The CBI’s cash sales for the day had reached 4 millions and 30,000 dollars, on basis of 1,183 dinars per dollar,” the bulletin added, whilst the foreign transfers had reached 131 millions and 495,000 dollars, on the rate of 13 dinars per dollar.”

 

The bulletin repeated its daily comment that none of the 16 banks that shared in the day’s auction did not share in offering any dollar for sale.

 

The Central Bank of Iraq holds 5 sessions per week, beginning on Sunday and ending on Thursday, to sell and buy foreign currencies, scoring a commission of 13 dinars per dollar on its cash sales, whilst it charges another 13 dinars on every dollar, transferred abroad.

 

SKH (TI)/SR

 

Edited August 9, 2011 by Dalite

[20MillionDinar]

Thanks Dalite and Darin. At least there is hope that a process is available to the CBI to implement what we all want which is a major reduction in IQD. Although it is still yet to be seen if it is occuring it does bring hope of its possibility.

This is really the key point. There is a process available to the CBI. We don't have proof that they are in fact withdrawing dinars from circulation but we don't have proof that they aren't either!

I know that these monetary "tools" available to them make it a possibility to drastically decrease the amount of currency in circulation if/when they need to.

Even if we follow the currency auctions consistently, it doesn't tell us that they are technically "removing" the IQD's from circulation. However, it is pretty clear at this point that the participating banks are Iraqi Commercial Banks. It is also very clear that the CBI is auctioning off USD to these banks and in return take in IQD. Not too sure what they are doing with the IQD's though.

They could either be keeping them reserves but also keeping them "in circulation." Or they could be keeping them in their reserves and be removing them from circulation." Their financial indicators could be a little misleading...or maybe we are reading them wrong.

Darin, I'm curious to hear about what you said earlier. Let me know if there is another way to look at these financial statements.

[20MillionDinar]

Here is a good write up on daily auction results and totals.

It paints a good overall picture and provides some idea of what the daily auction totals include..

Note the 1183 rate, and the destination.

My link

CBI down on Tuesday

8/9/2011 2:36 PM

BAGHDAD / Aswat al-Iraq: The Central Bank of Iraq (CBI) has sold 135 million US dollars in its auction to sell and buy foreign currencies on Tuesday, on basis of 1,170 dinars per dollar, down from Monday sales that reached 179 million dollars, according to the CBI’s daily bulletin.

“The total size of the demand on the US dollar on Tuesday had reached 135 millions and 525,000 dollars, covered by the CBI on basis of 1,170 dinars per dollar,” the bulletin reported.

The CBI sales during Monday session had reached 179 millions and 110,000 dollars, the bulletin stressed.

“The CBI’s cash sales for the day had reached 4 millions and 30,000 dollars, on basis of 1,183 dinars per dollar,” the bulletin added, whilst the foreign transfers had reached 131 millions and 495,000 dollars, on the rate of 13 dinars per dollar.”

The bulletin repeated its daily comment that none of the 16 banks that shared in the day’s auction did not share in offering any dollar for sale.

The Central Bank of Iraq holds 5 sessions per week, beginning on Sunday and ending on Thursday, to sell and buy foreign currencies, scoring a commission of 13 dinars per dollar on its cash sales, whilst it charges another 13 dinars on every dollar, transferred abroad.

SKH (TI)/SR

OK. So this tells us that:

1) The CBI sold 135,000,000 USD to the participating banks and in turn received IQD's. This auction was on Tuesday.

2) The CBI sold 179,000,000 USD to the participating banks and in turn received IQD's. This auction was on Monday.

3) This part was a little unclear to me. It says “The CBI’s cash sales for the day had reached 4 millions and 30,000 dollars, on basis of 1,183 dinars per dollar,” the bulletin added, whilst the foreign transfers had reached 131 millions and 495,000 dollars, on the rate of 13 dinars per dollar.” Does this mean that they sold $4 million dollars worth of dinars? It looks this way because it was at a rate of 1,183 dinars per dollar, hence the 13 dinar spread. If this is correct, then they auctioned off roughly 4 billion dinar...

There were 16 participating banks in the auctions and none of them offered to sell USD. They only offered to sell IQD back to the CBI in return for USD.

"The Central Bank of Iraq holds 5 sessions per week, beginning on Sunday and ending on Thursday, to sell and buy foreign currencies, scoring a commission of 13 dinars per dollar on its cash sales, whilst it charges another 13 dinars on every dollar, transferred abroad."

This tells me that the roughly 4 billion dinars that were sold were actually sold to financial institutions "outside of Iraq" due to the fact that they say "...whilst it charges another 13 dinars on every dollar, transferred abroad."

So they technically pulled in about 300 billion dinars in the Monday and Tuesday currency auctions and sold about 4 billion dinars.

Now the real questions are:

1) What are they doing with the IQD that they pull in?

2) Do they remove it from circulation?

3) Do they keep it in their reserves and keep it in circulation?

Edited August 9, 2011 by 20MillionDinar

[dinarck]

OK. So this tells us that:

1) The CBI sold 135,000,000 USD to the participating banks and in turn received IQD's. This auction was on Tuesday.

2) The CBI sold 179,000,000 USD to the participating banks and in turn received IQD's. This auction was on Monday.

3) This part was a little unclear to me. It says “The CBI’s cash sales for the day had reached 4 millions and 30,000 dollars, on basis of 1,183 dinars per dollar,” the bulletin added, whilst the foreign transfers had reached 131 millions and 495,000 dollars, on the rate of 13 dinars per dollar.” Does this mean that they sold $4 million dollars worth of dinars? It looks this way because it was at a rate of 1,183 dinars per dollar, hence the 13 dinar spread. If this is correct, then they auctioned off roughly 4 billion dinar...

There were 16 participating banks in the auctions and none of them offered to sell USD. They only offered to sell IQD back to the CBI in return for USD.

"The Central Bank of Iraq holds 5 sessions per week, beginning on Sunday and ending on Thursday, to sell and buy foreign currencies, scoring a commission of 13 dinars per dollar on its cash sales, whilst it charges another 13 dinars on every dollar, transferred abroad."

This tells me that the roughly 4 billion dinars that were sold were actually sold to financial institutions "outside of Iraq" due to the fact that they say "...whilst it charges another 13 dinars on every dollar, transferred abroad."

So they technically pulled in about 300 billion dinars in the Monday and Tuesday currency auctions and sold about 4 billion dinars.

Now the real questions are:

1) What are they doing with the IQD that they pull in?

2) Do they remove it from circulation?

3) Do they keep it in their reserves and keep it in circulation?

Excactly 20mil that is the question and I dont see how we would get that answer unless we had access to the inner workings of the CBI or we could compare financial data from previous CBI reports and add up the totals from auctions during those time periods to get an idea of where some of those dinar went. Of course that wouldnt tell us where it is going now but it would give us a better understanding of how it was done in the past. Man the updated financials would be nice.

[Darin]

I believe the IQD pulled in is sold to the GOI for USD. (USD received from Crude Sales)

But if the GOI is not asking for as much IQD -- eventually the CBI will have to start using USD out of their own reserves to draw in IQD.

It is basically just a big circle procedure. But, I still think there are tools that could be used to reduce the circulation.

They wouldn't be some epic # like 179 billion on a daily basis.

Maybe more-so like 1 billion a month...

[tommyboy]

I totally agree with 20Mill and have been saying for a long time that the CBI is not selling dinar at their auctions, but buying dollars. Don't think many believed that, but 20Mill took the time for the research and presented it skillfully. Congrats. Wish I could have accomplished the same months ago.

[20MillionDinar]

Excactly 20mil that is the question and I dont see how we would get that answer unless we had access to the inner workings of the CBI or we could compare financial data from previous CBI reports and add up the totals from auctions during those time periods to get an idea of where some of those dinar went. Of course that wouldnt tell us where it is going now but it would give us a better understanding of how it was done in the past. Man the updated financials would be nice.

Oh what I would do to be able to "job shadow" Mr Shabibi for a day or two...