Iraq: $58bn in Currency Reserves, Should Redenominate Soon

[Dalite]

Has there been any indication in any docs that Iraq would NOT let their currency float? Most of their ME neighbors are not a democracy either...

Iraq is the first model of a democracy in the Middle East. Try to keep that in mind.

IMF guidelines for fixed peg

IMF

Conventional fixed peg arrangements

4. The country pegs its currency within margins of ±1 percent or less vis-à-vis another currency; a cooperative arrangement, such as the ERM II; or a basket of currencies, where the basket is formed from the currencies of major trading or financial partners and weights reflect the geographical distribution of trade, services, or capital flows. The currency composites can also be standardized, as in the case of the SDR. There is no commitment to keep the parity irrevocably. The exchange rate may fluctuate within narrow margins of less than ±1 percent around a central rate—or the maximum and minimum value of the exchange rate may remain within a narrow margin of 2 percent—for at least three months. The monetary authority maintains the fixed parity through direct intervention (i.e., via sale/purchase of foreign exchange in the market) or indirect intervention (e.g., via the use of interest rate policy, imposition of foreign exchange regulations, exercise of moral suasion that constrains foreign exchange activity, or through intervention by other public institutions). Flexibility of monetary policy, though limited, is greater than in the case of exchange arrangements with no separate legal tender and currency boards because traditional central banking functions are still possible, and the monetary authority can adjust the level of the exchange rate, although relatively infrequently.

[20MillionDinar]

IMF guidelines for fixed peg

IMF

Conventional fixed peg arrangements

4. The country pegs its currency within margins of ±1 percent or less vis-à-vis another currency; a cooperative arrangement, such as the ERM II; or a basket of currencies, where the basket is formed from the currencies of major trading or financial partners and weights reflect the geographical distribution of trade, services, or capital flows. The currency composites can also be standardized, as in the case of the SDR. There is no commitment to keep the parity irrevocably. The exchange rate may fluctuate within narrow margins of less than ±1 percent around a central rate—or the maximum and minimum value of the exchange rate may remain within a narrow margin of 2 percent—for at least three months. The monetary authority maintains the fixed parity through direct intervention (i.e., via sale/purchase of foreign exchange in the market) or indirect intervention (e.g., via the use of interest rate policy, imposition of foreign exchange regulations, exercise of moral suasion that constrains foreign exchange activity, or through intervention by other public institutions). Flexibility of monetary policy, though limited, is greater than in the case of exchange arrangements with no separate legal tender and currency boards because traditional central banking functions are still possible, and the monetary authority can adjust the level of the exchange rate, although relatively infrequently.

This is correct as of right now, assuming that Iraq will in fact remain on a fixed exchange rate system forever is just that, an assumption...

With a possible RV/RD or RD/RV coming up I doubt they are going to remain on a fixed exchange rate. But again, that is only my opinion. It will probably be in their best interest to let supply & demand determine their real value. Right now the rate is being manipulated by the GOI and the CBI.

Edited September 7, 2011 by 20MillionDinar

[R Veyron]

"plan to take off three zeros should help simplify transactions" , this would not only simplify transactions within the country but simplify transactions with other countries when buying goods which they said they are mostly doing at this time. This would seem to head in the direction to having a similar rate of exchange or "purchase power parity".

Edited September 7, 2011 by R Veyron

[dogtrainer55]

I'm sort of new to this knocking off zeros thing. My understanding is that the RV should result in the $3-4 range causing 1,000,000 ID to become $3-4,000,000. If they knock off 3 zeros would that make it $3-4,000?

1. RV likely to come in closer to $1 and likely to rise over the next 5 years to $3 or so.

2. Everything that isn't in an article in the news is just speculation, and even the news articles out of Iraq are not reliable.

[theflash]

I will try my best to answer your question smart guy. By the way, you could answer this yourself instead of "testing" me... But I guess you would rather show what your real intentions here are, right? You are not looking for me to answer your question you are hoping that I answer your question wrong so that you can come back with the right answer which proves me wrong. I'm probably not that far off with my analysis am I? Didn't think so...

Let's look at the USD...backed by what?

The EURO...backed by what?

The Japanese YEN....backed by what?

The GBP....backed by what?

I can guarantee none of these countries are backed by foreign reserves!

Fixed advantages

A fixed exchange rate should reduce uncertainties for all economic agents in the country. As businesses have the perfect knowledge that the price is fixed and therefore not going to change they can plan ahead in their productions. Inflation may have a harmful effect on the demand for exports and imports. To ensure that inflation is kept as low as possible the government is forced to take measurements, to keep businesses competitive in foreign markets. In theory a fixed exchange rate should also reduce speculations in foreign exchange markets. In reality this is not always the case as countries want to make speculative gains.

Fixed Disadvantages

The government is keeping the exchange rate fixed by manipulating the

interest

rates

. If the exchange is in danger of falling the government needs to increase interest rates to increase demand for the currency. As this would have a deflationary effect on the economy the demand might decrease and unemployment might increase. A government has to maintain high levels of foreign reserves to keep the exchange rate fixed as well as to instill confidence on the foreign exchange markets. This makes clear that a country is able to defend its currency by the buying and selling of foreign currencies. Fixing the exchange rate is not easy as there are many variables which are changing over time if the exchange rate is set wrong it might be hard for export companies to be competitive in foreign countries. International disagreement might be created when a country sets its exchange rate on a too low level. This would make a countries export more competitive which might lead to a disagreement between countries as they might see it as an unfair trade advantage.

Advantages

The following advantages are widely cited as motivations for adopting this system:

• Reduces fluctuations in relative prices
• Eliminates exchange rate risk
• It imposes discipline on the monetary authority
• Facilitates international trade and investment flows between countries

So my thoughts are unless the current rate is actually LOWER then the fixed exchange rate is a good thing. If it is actually worth more than what the current exchange rate says it is then I would think it would be an advantage for us speculators to see this transition from a Fixed rate to a "Flexible" rate of some sort.

Criticisms

• The need for a fixed exchange rate regime is challenged by the emergence of sophisticated derivatives and financial tools in recent years, which allow firms to hedge exchange rate fluctuations.
• The pre-announced exchange rate may not coincide with the market equilibrium exchange rate
• The Central Bank needs to hold stocks of both foreign and domestic currencies in order to adjust and maintain exchange rates and absorb the excess demand or supply

As far as "Long Term Effects" let's just look at all of the major countries in the world. USA, Europe, Japan, Great Britain, etc... Yep, that about says it all. However, democracy and the "fiat money system" which runs the world is not going anywhere anytime soon. If it is, then we can expect major changes in the entire world financial system.

Legen....... WAIT FOR IT...... Dairy

[HopefulTxn]

You guys are all forgetting one major factor here. Once the IQD is taken off of the "fixed exchange rate" they don't HAVE to back their currency 100% with reserves!

That is only a requirement when having a fixed exchange rate / program rate... I believe they have it at this time to show stability to foreign nations, companies, and investors. They will not be on the fixed program rate forever which means they do not need to back their currency 100% with reserves forever either. Yes that is a fact.

Unfortunately, since the inception of the dinar in the 1930's it has had a fixed exchange rate. First it was fixed to the pound and then to the dollar. The IQD has never had a market driven currency. Kuwait is about the closest in that region that does, which their currency is based on a basket of other currencies. The rest of the middle east seems to either be pegged to the USD, or in the case of Bahrain is pegged to the Saudi Arabian riyal which is pegged to the USD.

[20MillionDinar]

Unfortunately, since the inception of the dinar in the 1930's it has had a fixed exchange rate. First it was fixed to the pound and then to the dollar. The IQD has never had a market driven currency. Kuwait is about the closest in that region that does, which their currency is based on a basket of other currencies. The rest of the middle east seems to either be pegged to the USD, or in the case of Bahrain is pegged to the Saudi Arabian riyal which is pegged to the USD.

I was just about to say wait for it.....HopefulTxn is here. Boy was I right

**Iraq was never a democracy either. First democratic model in the ME

Where'd you go Hopeful? Come back, please tell me I'm wrong...

Edited September 7, 2011 by 20MillionDinar

[Dalite]

This is correct as of right now, assuming that Iraq will in fact remain on a fixed exchange rate system forever is just that, an assumption...

With a possible RV/RD or RD/RV coming up I doubt they are going to remain on a fixed exchange rate. But again, that is only my opinion. It will probably be in their best interest to let supply & demand determine their real value. Right now the rate is being manipulated by the GOI and the CBI.

I believe that as long as they are beholding to the IMF and are pegged to the dollar that they are encouraged to adhere to this.

Not sure, but this is what it always seems to come to.

[20MillionDinar]

I believe that as long as they are beholding to the IMF and are pegged to the dollar that they are encouraged to adhere to this.

Not sure, but this is what it always seems to come to.

Right, as long as they are pegged to the dollar.

I was just about to say wait for it.....HopefulTxn is here. Boy was I right

**Iraq was never a democracy either. First democratic model in the ME

Where'd you go Hopeful? Come back, please tell me I'm wrong...

What is democracy? While this concept is easily “felt” by any Westerner experiencing its benefits in his/her native country for years, it is quite difficult to define “democracy” for those who have been living their whole lives in a totalitarian system as, for example, under the regime of Saddam Hussein or a communistic rule. Yea, I think things are entirely different now that they are choosing to operate their country as a democracy. Can't compare other M.E. countries to Iraq in every instance anymore... That is now like comparing apples to oranges, doesn't work!

[20MillionDinar]

i would say that a rather large indication is that they are not letting it float so far. Iraq is a democracy like no other, try to keep that in mind.

Key Words: SO FAR

Regardless, they ARE a democracy! You can't argue that Xyzzy!!!!!

The people of Iraq took the first major step toward the democracy: they went to vote in an election which, as imperfect as it was, offered them more than one choice. They did it, because they wanted for their voices to count and be heard. Now, as long and painful as this process might be, they must learn that democratic benefits come with individual responsibility. Saddam Hussein is no longer there to censor their dreams and actions, they must do it themselves in the atmosphere of mutual understanding, tolerance, and respect. Once Iraq was a cradle of civilization – this time she has a chance to become a cradle of democracy.

Under Saddam Hussein people voted with their blood: either in his favor in official polls by pricking their thumbs before pressing them on the ballot or by opposing his actions in any shape or form which led to their blood being shed.

Edited September 7, 2011 by 20MillionDinar

[20MillionDinar]

I don't argue that, I am only saying that the fact that democracies tend to let their currencies float, does not mean Iraq will do so, or at the very least any time soon (i.e. years).

That is only an opinion, it doesn't mean anything. It was floating only 3-4 years ago on a daily basis. I watched it go from 1450:1 down to 1170:1. They dropped about 2-5 dinars on a daily basis for quite some time. That is a fact.

By the way, if you are looking to debate anything and everything on this site you might want to look around your community for a local "Speech and Debate" team. I know most high schools have one... just a thought.

Edited September 7, 2011 by 20MillionDinar

[Spud]

How does the DFI effect their reserves? They have control of it but it is kept in US accounts. Was 250 billion when it was released right?

[20MillionDinar]

How does the DFI effect their reserves? They have control of it but it is kept in US accounts. Was 250 billion when it was released right?

I don't know of too many details regarding the DFI fund and what exactly was released. Sorry, wish I could help. Maybe somebody else could chime in on the matter.

[Spud]

I don't know of too many details regarding the DFI fund and what exactly was released. Sorry, wish I could help. Maybe somebody else could chime in on the matter.

Thanks.

[HopefulTxn]

I was just about to say wait for it.....HopefulTxn is here. Boy was I right

**Iraq was never a democracy either. First democratic model in the ME

Where'd you go Hopeful? Come back, please tell me I'm wrong...

Did I state anything otherwise? No. I simply pointed out the fact that Iraq has never had anything but a pegged rate. But please show where they have shown an intention in any manner to change that. At the same time. please show any evidence that because a country becomes democratic that they get to do whatever they choose in regards to global economics.

[Raleighwood]

I actually posted a ton of facts which prove that they DO NOT follow islamic banking / 100% full reserve banking in Iraq.

http://dinarvets.com/forums/index.php?/topic/78752-iraqi-bank-reserve-requirements/page__gopid__611879entry611879

Read through that thread.

That has to do with the CBIs requirement for the banks throughout Iraq....not the CBI's own laws/regulations/policies on their own reserves

I am aware that its not a standard with all the different banks....many do not follow Islamic style banking, but they have mentioned a few

How does the DFI effect their reserves? They have control of it but it is kept in US accounts. Was 250 billion when it was released right?

Apparently there was only about 15 billion in actual funds or money.....there were assets involved as well, and they admitted they didnt keep 100% accurate reports, but that is money that the govt uses to run off of....

I think the 250 billion was more like a total accumulated but that account worked just like any other checking account like you or me would have.....

Then there were the articles about the reserves hitting 250, but that was the new capital reserves that the banks were required to have.....didnt have much to do with the foreign currency reserves that back the dinar...

[tommyboy]

I actually posted a ton of facts which prove that they DO NOT follow islamic banking / 100% full reserve banking in Iraq.

http://dinarvets.com...79entry611879

Read through that thread.

Has there been any indication in any docs that Iraq would NOT let their currency float? Most of their ME neighbors are not a democracy either...

Iraq is the first model of a democracy in the Middle East. Try to keep that in mind.

I thought Iraq was a republic, like the USA. Could be wrong, but I don't think so. There's a BIG difference between the two. Google it.

[20MillionDinar]

Did I state anything otherwise? No. I simply pointed out the fact that Iraq has never had anything but a pegged rate. But please show where they have shown an intention in any manner to change that. At the same time. please show any evidence that because a country becomes democratic that they get to do whatever they choose in regards to global economics.

Right, and I pointed out that Iraq was never a democracy before.

I don't need to show that until you show me otherwise. In fact, they weren't on a "program" rate all the way from 2003 until now. It was floating, I watched it drop from 1450:1 to 1170:1 within only a few years. Then they pegged it.

I did not say that a country can do whatever the choose in regards to global economics so I won't get into that either. Thanks for the reply.

That has to do with the CBIs requirement for the banks throughout Iraq....not the CBI's own laws/regulations/policies on their own reserves

I am aware that its not a standard with all the different banks....many do not follow Islamic style banking, but they have mentioned a few

Apparently there was only about 15 billion in actual funds or money.....there were assets involved as well, and they admitted they didnt keep 100% accurate reports, but that is money that the govt uses to run off of....

I think the 250 billion was more like a total accumulated but that account worked just like any other checking account like you or me would have.....

Then there were the articles about the reserves hitting 250, but that was the new capital reserves that the banks were required to have.....didnt have much to do with the foreign currency reserves that back the dinar...

Go back to my original post "You guys are all forgetting one major factor here. Once the IQD is taken off of the "fixed exchange rate" they don't HAVE to back their currency 100% with reserves!

That is only a requirement when having a fixed exchange rate / program rate... I believe they have it at this time to show stability to foreign nations, companies, and investors. They will not be on the fixed program rate forever which means they do not need to back their currency 100% with reserves forever either. Yes that is a fact."

If / When Iraq, as in the country, decides to take themselves off of the fixed exchange rate the CBI (central bank of Iraq) DOES NOT HAVE TO back their currency with 100% reserves! That was it. Yes that is a fact. What is the USD backed by? Nothing. What is the Yen backed by? Nothing. In fact, the closest thing to a "commodity backed" currency that is not on a fixed exchange rate is the Australian Dollar and the New Zealand Dollar.

The CBI does not practice Islamic Banking. They are a Central Bank, operated very similar to how the Federal Reserve works.

Bottom line is, if/when the IQD is taken off of the fixed exchange rate system and then starts to operate using a flexible exchange rate system which is dictated by supply and demand then they do not necessarily have to back their currency 100% with foreign reserves. Does that make sense? Hope so.... Can't make it any simpler for you to try and understand. Don't try and twist words and make this more complicated than it is.

I thought Iraq was a republic, like the USA. Could be wrong, but I don't think so. There's a BIG difference between the two. Google it.

I know the difference. Do you really believe that the USA is still a republic? If so, well our conversation ends here...

Edited September 7, 2011 by 20MillionDinar

[tommyboy]

20 Mill, no I don't. It is in name only, but this election in 2012 could change all that. I know who I'm voting for, and he WILL change it.

[20MillionDinar]

20 Mill, no I don't. It is in name only, but this election in 2012 could change all that. I know who I'm voting for, and he WILL change it.

I understand completely. I also hope this changes for all of us. Ron Paul?

[HopefulTxn]

Right, and I pointed out that Iraq was never a democracy before.

I don't need to show that until you show me otherwise.

I did not say that a country can do whatever the choose in regards to global economics so I won't get into that either. Thanks for the reply.

Sorry, but here is a post of yours in this thread that claims something as 'fact' that you are saying you won't (can't) backup:

You guys are all forgetting one major factor here. Once the IQD is taken off of the "fixed exchange rate" they don't HAVE to back their currency 100% with reserves!

That is only a requirement when having a fixed exchange rate / program rate... I believe they have it at this time to show stability to foreign nations, companies, and investors. They will not be on the fixed program rate forever which means they do not need to back their currency 100% with reserves forever either. Yes that is a fact.

You are the one claiming it as fact, yet state that you do not have to back up what you claim to be so. Why is that? IMO, it's because you can't, which means it is not fact at all.

You keep stating that Iraq is the first democratic style government in the M.E. What is your point to that if you are claiming now that being such does not mean they can do things on a global economic scale that others won't/don't?

Just trying to understand why you mention Iraq being a democratic style of government in any manner dictates how they value their currency, and how that means that other countries will accept the value they place upon their currency.

Edited September 7, 2011 by HopefulTxn

[tommyboy]

20 Mill

Abso-doggone-lutely !!!

Edited September 7, 2011 by tommyboy

[20MillionDinar]

Sorry, but here is a post of yours in this thread that claims something as 'fact' that you are saying you won't (can't) backup:

You are the one claiming it as fact, yet state that you do not have to back up what you claim to be so. Why is that? IMO, it's because you can't, which means it is not fact at all.

You keep stating that Iraq is the first democratic style government in the M.E. What is your point to that if you are claiming now that being such does not mean they can do things on a global economic scale that others won't/don't?

Just trying to understand why you mention Iraq being a democratic style of government in any manner dictates how they value their currency, and how that means that other countries will accept the value they place upon their currency.

It is simple Hopeful: Tell me what backs the US Dollar and that will answer your question. Why can we print more USD anytime we want? Why are we no longer on the gold standard? What backs our currency?

If/when Iraq is taken off of the fixed exchange rate system then they do not need to back their currency with 100% reserves. If you disagree then you are saying "well some countries can and others can't...." Sounds like some lame reasoning to me.

Also, you said earlier: "No. I simply pointed out the fact that Iraq has never had anything but a pegged rate." So I came back and said "well they have never had a democracy either." Meaning, things can change and are changing.

Edited September 7, 2011 by 20MillionDinar

[HopefulTxn]

It is simple Hopeful: Tell me what backs the US Dollar and that will answer your question. Why can we print more USD anytime we want? Why are we no longer on the gold standard? What backs our currency?

If/when Iraq is taken off of the fixed exchange rate system then they do not need to back their currency with 100% reserves. If you disagree then you are saying "well some countries can and others can't...." Sounds like some lame reasoning to me.

Are you seriously trying to compare the US dollar to Iraq? Faith is what keeps the USD where it is at, which has dropped in global value. But we pay over $20 BILLION per MONTH simply in interest on what we owe to help keep that faith in the value and its overall worth.

What has Iraq done to show that they should have such faith in their massively overprinted currency? What do they have to instill that faith from other countries? And if you think it's oil, I would simply ask you to do the math.

Lame excuse? You claimed something as a fact, and I am simply asking for any evidence of that fact. Can you or can you not back up you statement in any regard? It's actually a simple request of information.

[20MillionDinar]

Are you seriously trying to compare the US dollar to Iraq? Faith is what keeps the USD where it is at, which has dropped in global value. But we pay over $20 BILLION per MONTH simply in interest on what we owe to help keep that faith in the value and its overall worth.

What has Iraq done to show that they should have such faith in their massively overprinted currency? What do they have to instill that faith from other countries? And if you think it's oil, I would simply ask you to do the math.

Lame excuse? You claimed something as a fact, and I am simply asking for any evidence of that fact. Can you or can you not back up you statement in any regard? It's actually a simple request of information.

You guys always seem to compare Iraq to Venezuela. Or Iraq to Brazil. Or Iraq to Turkey, so yes I am going to make this analogy. Oh and your interest payments you speak of is either tax money or money which is created out of thin air by the Fed and then loaned to the U.S. treasury with the intention of not ever being paid back. You should know that by now... It's not real!

I stated it as a fact, how about you dispute it? Prove it wrong... Bet you can't. All you said was "are you seriously trying to compare the US dollar to Iraq?" Yes you are right, Faith is what keeps the USD where it is at. Not 100% reserves. So you answered the question. Not every country needs to back their currency with 100% reserves. Bottom line...

You answered the question: Faith is what is backing the USD, not reserves. Don't bother responding, the question has been answered by yourself!

Edited September 7, 2011 by 20MillionDinar