It's not enough

[MoneyMoney7]

The two are certainly technically disjoint and could happen before during or after each other, but an RV might be politically good as you say, even if a small one.

Printing 100k notes does seem odd if an RD is imminent. Though I'm hard pressed to understand it even without an RD, is 4x really that much of a hassle to need the bigger bill, but not going to say 500k? Maybe.

I think we can be pretty sure the RD will be a power of 10 since prices etc will be in both for a long time, so that makes it really easy. But sure it could be 1000:1 and a rv of .00086 to .001, or an RD of 100 and an RV to .01 etc.

Adam likes the 0.10 value, I think even 1 penny is very hard to imagine. Its the jump and the exchange cost that is the problem. The value of the money supply and the value of the good and services its chasing after in GDP can't get too far out of sync or you either starve the economy or everyone has so much buying power that demand wildly outstrips supply and prices spiral out of control. I've called that last effect inflation before, but it really isn't. Its just demand driven price increases. If an Iraqi has saved your 25M IQD to buy a $2,500 USD scooter (from japan of course) and now their 25M IQD is wroth $250K USD, isn't that $50K USD BMW going to be looking sweet? With a line around the block and 50 people asking to buy each of his 10 cars, is he going to keep the price the same?

Lets say they plan on GDP being double and half the dinars in the relevant money supply (m2? m1? ..) will be taken out of circulation by folks cashing in, but that's only a power of 4, and would already cost maybe 100B USD (say 10T dinars at a penny each). But that leaves M2 still way over valued, we need a factor of 10 and we only have 4 so far. So even a penny seems hard to reach all at once. A dime or a dollar, no way.

These Iraqi's are very poor, and what money they have goes on living each month. You might find 1 or 2 out of a hundred that even have 10,000 dinars left each month, so you will not have many making a lot of money if there is an RV.

Edited August 22, 2011 by MoneyMoney7

[drox]

The two are certainly technically disjoint and could happen before during or after each other, but an RV might be politically good as you say, even if a small one.

Printing 100k notes does seem odd if an RD is imminent. Though I'm hard pressed to understand it even without an RD, is 4x really that much of a hassle to need the bigger bill, but not going to say 500k? Maybe.

I think we can be pretty sure the RD will be a power of 10 since prices etc will be in both for a long time, so that makes it really easy. But sure it could be 1000:1 and a rv of .00086 to .001, or an RD of 100 and an RV to .01 etc.

Adam likes the 0.10 value, I think even 1 penny is very hard to imagine. Its the jump and the exchange cost that is the problem. The value of the money supply and the value of the good and services its chasing after in GDP can't get too far out of sync or you either starve the economy or everyone has so much buying power that demand wildly outstrips supply and prices spiral out of control. I've called that last effect inflation before, but it really isn't. Its just demand driven price increases. If an Iraqi has saved your 25M IQD to buy a $2,500 USD scooter (from japan of course) and now their 25M IQD is wroth $250K USD, isn't that $50K USD BMW going to be looking sweet? With a line around the block and 50 people asking to buy each of his 10 cars, is he going to keep the price the same?

Lets say they plan on GDP being double and half the dinars in the relevant money supply (m2? m1? ..) will be taken out of circulation by folks cashing in, but that's only a power of 4, and would already cost maybe 100B USD (say 10T dinars at a penny each). But that leaves M2 still way over valued, we need a factor of 10 and we only have 4 so far. So even a penny seems hard to reach all at once. A dime or a dollar, no way.

Great comments. I swear I didn't see this post earlier (strange). Anyway, I hear what you are saying about the money supply not getting out of sync with the prices of goods and services in the marketplace. That is a normal economic system. The problem I have is this is not normal. We have to go back 60 years to Germany to find a remotely comparable situation. This is a wealthy war-torn country in terms of asset opportunity but they are living like a bottom tenth world country. Every thing must be rebuilt from both war and 30 years of Saddam's neglect. Not to mention this country is in the heart of the Middle East and there is an opportunity to bring peace to this unconscious region through economics and democracy. They could compete with Saudi Arabia to become the power in this region.

So... What if the the pricing of goods is already an extremely unbalanced ratio against the consumer because of an overzealous Central Bank hell-bent on single digit inflation numbers and building their reserve? They have been stuck behind the 8ball for 20 years with imports/exports because of sanctions. How do you know that it suddenly is in "sync" anyway? 40% of their income goes to utilities (electric,gas,fuel, water, sewer) alone and they only get electricity for parts of the day I read. The Central Bank and Iraq economists rarely mention the Iraqi people investing in themselves to get ahead and promote jobs. They mostly just mention outside international investment and promote that avenue. The lending tendencies and tax laws all provide incentive to International investment but put their own people at severe disadvantages to the foreigners on these fronts. The Iraqi people's interests ALWAYS appear to come last from the leadership in the GOI and Central Bank. I suppose they figure they have been suffering this long and getting by so lets build a foundation and just ignore them for a bit.

But all of a sudden they realize that we can't do this without the people. If they don't stop using dollars vs. Dinar then an RD will do us no good at all. Shabibi is a wizard but make no mistake he accomplished what he did by walking on the backs of the impoverished Iraqis to make it happen in such a short time. So did the GOI. What happened in Egypt, Tunisia, and Libya can happen here too if they don't start helping the people. That was the wake up call. My point is that the average income in Iraq is about $3000 a year. Check out the GDP purchasing power parity or (GDP per Capita)and world rank grid below which I hand selected:

Country GDP per capita World Rank

Iraq $3800 160th

Kuwait $48,900 10th

UAE $49,600 9th

Saudi Arabia $24,200 55th

Bahrain $40,300 21st

Qatar $179,000 1st

Turkey $12,300 94th

Iran $10,600 104th

Can you spot the trend here? Which one of these kids is doing their own thing c'mon can you guess which one. An RD will keep the same ratio won't it? So it doesn't solve the problem. Looking at the list above I would say $20,000 to $45,000 is about the range Iraq could fit in. 10 times $3800 is $38,000 right? So is it illogical to assume that the exchange rate couldn't also be worth 10times what it is today knowing the GDP growth potential based on comparable Arab states? That would put us roughly in the ballpark of a penny wouldn't it? So which will come first... the chicken or the egg?

[drox]

Interesting perspective Drox. I guess it would make more sense to me if they hadn't put out so many articles describing exactly what they plan to do, and the reasons for it. I really believe that if they had any intention at all of doing any type of straight RV, there would have been absolutely no public discussion about it. Logically, something like that would be highly confidential, and simply occur in the middle of the night. Speculation resulting from a leak would undoubtedly be extremely destructive to their economy.

At this point, I'm hoping that they decide to increase the value over and above the 1,000 times it automatically increases with a removal of the three zeros. I think it makes a great deal of sense to do it simultaneously, and they could easily justify a sizable increase. This would reduce the confusion and likely speculation which would occur if they were to do it after the fact. Let's hope.

Hey Legolas...

I agree. I am not sure if the tails wagging the dog or the dog the tail. An RD without an RV makes not sense at all to me. The 1 thing about Iraq I do know is that their government can't agree on squat. I am counting on that and maybe Shabibi is too?? Don't you find it funny that he is sneaking in the 100k notes though? He did it so nonchalantly too while we were looking at his right hand in the air he was putting the rabbit in the hat with his left. Why would they MINT 500 and 1000 Dinar coins? Usually coins are built to last. Makes no sense except maybe he is counting on using the same existing currency for a long time. That would also mean they are snubbing their noses at the constitution again too unless they put it on the 100k note and these coins? Guess we will see. I just see an RD as a waste at this time.

Edited August 22, 2011 by drox

[dinarck]

Drox say they RV to .01 tomorrow. In your opinion would they still bring in lower denoms? Seems to me they wouldnt. Would they then print new 000 notes with the new languages? Been thinking about that and would love your opinion on it. Thanks Drox. Great thread.

[Mr. Mont]

Clearly... the Iraqi's still prefer the security of the US Dollar versus the Dinar even after some stability has been brought forth to curb inflation. However, Iraq has the difficulty of dealing with Trillions in money supply and ridiculously cheap value for each Dinar (currently at 1170 per $1). Transactions are also tricky because they are dealing with large number denominations... yada yada yada. But is Shabs being honest that an RD is the best solution?

Even if Shabs and the GOI agree to RD the currency, exchange rate, and money supply by removing 3 zeros will it really help dollarization? I say no. It will certainly make using Dinar easier and will give the illusion that they are at par with the Dollar, but it will not keep Iraqi's from using the Dollar, will it?

Why? Because Iraq still does not trust the GOI, the CBI, or the banks. Aside from the cosmetic change that occurs, nothing really will change in the marketplace. There is nothing in it for them. The value against the dollar does not increase so the lipstick on the pig will not change Iraqi's perception of it. They are not stupid. The ONLY thing that will influence Iraqi's to support the use of Dinar is IMPROVING the value of the Dinar against a seemingly DE-VALUATING trend of the US Dollar. Therefore... it would be a complete waste of time, energy, and money for Iraq to RD the currency without first revaluing the exchange rate to a much higher number than 1170. You must have incentive for the Iraqi's to embrace the Dinar. Increasing the rate of Dinar...against a decreasing Dollar will do the trick.

It is my belief the GOI will deny the RD and strongly encourage Shabibi to increase the rate. Therefore, an RD won't occur without a significant bump to the rate. So... Why change the currency denominations before experimenting with a new rate first? I think that is why we will see the new 100k notes. To make transactions easier in the marketplace in the meantime. The RD will be pushed back or eliminated by the GOI and a new rate will emerge soon in lieu of working with the same existing currency. Japan and India operate very successfully at a penny or two to the Dollar. Even at an RV of a penny, your $1000 per million Dinar investment will grow to $10,000 per million. Not too Shabibi!! At a penny, couldn't the CBI consider dropping 2 zeros instead? If it went to .10 (ten cents) you would make $100,000 per Million IQD... could the CBI consider dropping only 1 zero then? We have lots of options here I think.

The illusion is that it must be at par with the Dollar to eliminate dollarization. That is simply not true. It must be a better return irregardless of the nominal number for Iraqi's to choose Dinar over Dollars. Doesn't it? The time is now for Mr. Shabibi to reveal his true cards and unite this nation! We have entered the sweet spot time IMO.

I really like your post! So just that I'm with you on your thinking I have a couple questions. One are you just using the penny to a dime as a example ? I think I'm getting that you think they might do this to see how things go with the citizens using the Dinar instead of the dollar but I could be off. I have always thought if it comes in that low that anyone with money would be buying Iraq up real fast, due to the obvious the rate is way below what they are capable of sustaining. On the other hand I also feel if it comes in to high they could really hurt them selves economical because they will not be able to produce fast enough, whether it be goods, oil or whatever. So my thinking is even a penny over the actual value of the dollar would be a nice starting point for the initial value raise and then they could gradually increase the value as they increased there production. This is just my thoughts and I liked your post so I was wondering what you may think. Thank you

[ashtray]

they have 27 trillion dinars now .. so if they devide it by 1000 .. like they are pretending .. that leaves them with 27 billion dinars ..

30 million iraqis in iraq .. if they start saving their money in a coffee can at home to buy a car or a home ,,, how long do ya think it would take before iraq has no dinars on the streets .. because its all sitting in a coffee can ..since they dont trust banks .. they have no credit history so they have no credit ..

now they go to work and they start paying them in us dollars again ?.. id say 3 months at the most .. and the govt of iraq will be screaming at the cbi for dinars to run their govts 90 billion dinar budget .. with 27 billion dinar total in country ..

they cant eliminate three zeros it will be illegal to disolve our dinars then just simply print up more

they cant devide and end up with 27 billion then just print up another 100 billion new ones out of air the imf will be all over that

i just dont see how 27 billion dinar can work if the per capita wealth in iraq is 4000 dollars right now and expexted to be 9000 by next year ...lets see 27 million times 9000 equals 243 billion thats the projected per capita for next year .. but iraq will only have 27 billion dinars.. and the govt will be using that within the first 4 months with their budget .. they pay foreign contractors .. they cash in their pay in their home country bank ..electronically of course and their govt decides to keep that currency as a foriegn reserve ..knowing its value

so ya think iraq will just use a printing press to pay its bills ?

[Legolas]

Hey Legolas...

I agree. I am not sure if the tails wagging the dog or the dog the tail. An RD without an RV makes not sense at all to me. The 1 thing about Iraq I do know is that their government can't agree on squat. I am counting on that and maybe Shabibi is too?? Don't you find it funny that he is sneaking in the 100k notes though? He did it so nonchalantly too while we were looking at his right hand in the air he was putting the rabbit in the hat with his left. Why would they MINT 500 and 1000 Dinar coins? Usually coins are built to last. Makes no sense except maybe he is counting on using the same existing currency for a long time. That would also mean they are snubbing their noses at the constitution again too unless they put it on the 100k note and these coins? Guess we will see. I just see an RD as a waste at this time.

Yeah, I have to agree Drox. The 100K note makes no sense in EITHER scenario - RD or RV. With RD at 1:1 it's worth roughly $86,000 Dollars. With RV, it's the same or more..... essentially useless either way. It only makes sense if they don't change the value at all, and don't RD. I suspect that the 100K scenario is from an old article that has been regenerated to cause confusion. I'm pretty sure that the 500 and 1000 coins are "fils" which would be valued at .5 Dinars and 1 Dinar respectively. Those would be logical in either scenario. The RD makes perfect sense to me, but I really think they need to use the opportunity to further increase the value simultaneously. If they don't, we're screwed. We would lose money with a 1:1 RD after exchange fees. Unless they've already printed the new notes, I think it's going to be a while before we know for sure. Based on the most recent articles, it sounds as though the new currency has been designed, but not printed, and is waiting on a decision from Parliament.

Edited August 22, 2011 by Legolas

[estewart]

AFTER an RD (if Parliament allows it to occur) the Dinar and the USD will have parity. And THAT is what Iraq most wants. They've said so. And that FACT makes it EXTREMELY unlikely Iraq will eliminate any established and desired parity. So, no RV. It wont be needed, therefore also won't be wanted.

This type of thinking I just outlined above is what you call: Facing Reality.

[dinarck]

I went ahead and started you off with a + estewart because I know you are about to get smashed on that post. Lol

[WILLB]

got a link???

[Laid Back]

Great post.

Thanks drox and DV community.

GO RV, GO STRONG

[DAME1]

Hey how much are they paying you naysayers to hang out on a forum and stir up the pot?????

I mean really....... if you think this is a bust ...why are you just hanging out???you might want to set the bar a little higher

[kjwayne]

OK! In simple english, here it is; Iraq is in the on deck circle of this NEW ballgame at 1170 to 1USD. To get to home plate,$3 plus, they first have to come up to bat ,at some new rate, then they have to make it to first base. That has to be done. You can't steal first base. Now ,when they make it to first base, say $.86, then they can watch their manager,Shabbi, to see what the signs are going to be, hit and run ,straight steal, or wait for the next hit. Iraq could go from first to third and be safe at some new rate like Scooters, $1.45 to $2.35 from the trifecta articles. The next hit might be what is needed to let Iraq come in home, safe ,say at $3.41. Somewhere in all of this he said she said they said stuff, is a game plan. I will sit in the dug out and watch and wait for my turn to bat. I hope this helps someone! IMO

[Dalite]

Hey how much are they paying you naysayers to hang out on a forum and stir up the pot?????

I mean really....... if you think this is a bust ...why are you just hanging out???you might want to set the bar a little higher

The pay stinks, but the fellowship is great...

[mixingking]

I like te way you think!!!

roll tide!!!!!

[zigmeister]

The pay stinks, but the fellowship is great...

[HopefulTxn]

they have 27 trillion dinars now .. so if they devide it by 1000 .. like they are pretending .. that leaves them with 27 billion dinars ..

30 million iraqis in iraq .. if they start saving their money in a coffee can at home to buy a car or a home ,,, how long do ya think it would take before iraq has no dinars on the streets .. because its all sitting in a coffee can ..since they dont trust banks .. they have no credit history so they have no credit ..

now they go to work and they start paying them in us dollars again ?.. id say 3 months at the most .. and the govt of iraq will be screaming at the cbi for dinars to run their govts 90 billion dinar budget .. with 27 billion dinar total in country ..

they cant eliminate three zeros it will be illegal to disolve our dinars then just simply print up more

they cant devide and end up with 27 billion then just print up another 100 billion new ones out of air the imf will be all over that

i just dont see how 27 billion dinar can work if the per capita wealth in iraq is 4000 dollars right now and expexted to be 9000 by next year ...lets see 27 million times 9000 equals 243 billion thats the projected per capita for next year .. but iraq will only have 27 billion dinars.. and the govt will be using that within the first 4 months with their budget .. they pay foreign contractors .. they cash in their pay in their home country bank ..electronically of course and their govt decides to keep that currency as a foriegn reserve ..knowing its value

so ya think iraq will just use a printing press to pay its bills ?

It will be illegal? Don't think so. Its a process that has happened dozens of times in a number of countries, many, if not all, were members of the IMF at the time they did it. Check Turkey, Israel, Argentina, Poland, Romania, Peru, etc.

Their current budget is for 90+ trillion dinar, last years was 80+ trillion dinar, 2009's budget was just under 80 trillion dinar - they have never had enough dinar to cover their budget. Much of their budget doesn't even get paid for in dinar. They are not going to be paying for military equipment, foreign contracts (workers, equipment, services, etc) in dinar. Much of the budget would most likely be paid in USD, Euro, SDR's, etc.

Just an FYI, the US budget in 2010 was for about $1 trillion USD more physical currency than there was in circulation (w/ deficit was over $2 trillion more). It's because not everything is paid for with hard currency, or even that country's national currency.

[estewart]

I went ahead and started you off with a + estewart because I know you are about to get smashed on that post. Lol

Thanks. I know my Facing Reality message would not be all that welcome. But like I always say, Truth Hurts.

However, after the RD there will be a twenty cent difference between the Dinar and the USD. And I'm thinking they may do a minor RD to correct for that. But if they did, would that hurt us or help us?

The pay stinks, but the fellowship is great...

Good one. Worth a +1.

[drox]

Drox - the 60 trillion is in reference to M2 figures.

The 30 trillion - that is hard currency.

So the remaining balance is likely, electronic funds, deposits, reserves, etc. etc.

But, I think many can agree that most use hard currency on a daily basis.. 95% is likely a reasonable #.

So, a majority that is considered a liability would be hard currency.

But, what is the ISX valued at? Those stocks are likely paid for by IQD & hold a value.

Thanks. The CIA fact book says it is 51.51 Billion in 2010 up from about $38 Billion in 2009. Big jump. They rank Iraq 67th in the world for M2 or Broad money. You should take a look at that list. This number is pretty small in comparison to many countries I would consider less attractive in growth. Here's the link please take a look. Look at Japan and India that have exchange rates around a penny or 2. Their broad money numbers and their population. Those markets have no problem at these rates. Iraq should be able to sustain at least that shouldn't they? https://www.cia.gov/...=mde&rank=67#iz

Always great to see you here Drox. I can understand both sides (RD vsRV) but I truley believe that they will adjust the rate with a managed float to get Iraqis to use the dinar more and when it gets to a certain point, introduce the lower denominations at the same time removing the 000's. What point do you think they will introduce the lower denoms?

You too D&R! Honestly I don't personally believe the lower denominations exist. I think the only lower denominations would be if an RD would occur. The reason I am focusing on only a penny to 10 cents is trying to take in all factors I believe must be present to consider what it could reasonably RV at. I believe that if you remove 3 zeros that it is relative to all the numbers and not just the currency. If they remove 3 zeros from currency they must remove it from the exchange rate and the money supply too.

Drox say they RV to .01 tomorrow. In your opinion would they still bring in lower denoms? Seems to me they wouldnt. Would they then print new 000 notes with the new languages? Been thinking about that and would love your opinion on it. Thanks Drox. Great thread.

Thanks Dinarck... great questions. I don't think they would have much need for lower denominations if they did that. I think they could evaluate for a period to measure the effect that kind of an RV would have on the economy. They could reconsider bumping it up more, introduce it to the interbank markets, Re-denominating at that point, or just accepting it as it is. There is no reason that Iraq can't add that language on to the existing notes we have now and just introduce it slowly that way. Kind of like the US did with all of their new designed notes. Using them both until the old disappears in time. That would appease everyone and be cost effective.

I really like your post! So just that I'm with you on your thinking I have a couple questions. One are you just using the penny to a dime as a example ? I think I'm getting that you think they might do this to see how things go with the citizens using the Dinar instead of the dollar but I could be off. I have always thought if it comes in that low that anyone with money would be buying Iraq up real fast, due to the obvious the rate is way below what they are capable of sustaining. On the other hand I also feel if it comes in to high they could really hurt them selves economical because they will not be able to produce fast enough, whether it be goods, oil or whatever. So my thinking is even a penny over the actual value of the dollar would be a nice starting point for the initial value raise and then they could gradually increase the value as they increased there production. This is just my thoughts and I liked your post so I was wondering what you may think. Thank you

Thanks... I hope you know I just have opinions from lots of reading and learning from others. I am not in the know on anything here. So take it with a grain of salt. In my opinion, I would say that supply and demand will dictate that for us. I don't think big money investors will swoop in and buy it all up. The CBI can control that to a certain extent with their awesome set of tools: Auctions, drop interest rates, print more money, reducing bank reserve requirements, etc. If the CBI comes in too high they won't be able to back it up with the reserves they have so it is all about finding the right balance. I personally don't think it will come into the really high numbers many folks think it will. I think a penny to ten cents is an unbelievable return for all of us compared to most investments out there but I would be secretly rooting for it to get up near the Saudi Riyals around .27 cents. Who knows what Forex and interbank listing the Dinar could do. It might stay right where it is or go up or down. I like staying grounded by positively looking for how it could go up. I know most folks want a buck or higher. I certainly hope they are right but can't see that at all.