The Chronological documented History of the Pending Revaluation of the IQD

[kahunacabo]

If someone could help me clarify the following I would really appreciate it. My take on the overall intel from this site is that the goal in Iraq is to make the money more usable via smaller denominations. The stated goal of the Iraq govt. or banking system is to chop three zeros off the currency used in Iraq in order to make the money more convenient to use for everyday purchases, (not to chop three zeros off of the exchange rate in the US. How would chopping the three zeros from .00086 help lower the size of the currency in Iraq.) Sorry to say it looks to me like 1,000,000 dinars RV'd at 1 Dinar = $1, my million dinars would be worth $1,000. Any thoughts???????

John..... The 1.17 is taking 3 zero's off the rate .00086 = .86 so if.86 dinars= a dollar then 1dinar=1.17dollars x1million= what?

[Enorrste]

FP

[ccumpiano]

Very well put together, thanks!

[Deacon B]

Your research and commentary is abundantly clear! I think that this explanation should be required reading before anyone gets on the chat line with the 3 zero worries. Thank you for your effort!!

[mayo007]

Man,I am hopping you are correct,only God knows,thanks for the info.

[teacherpr]

Thanks for the info

[drox]

Steve... with all due respect please help set me straight. I read this a little differently.

First, none of your articles addresses the impact or condition of a chapter 7 release. What is it’s significance?

Second, the articles kept referring to 1000 dinar over multiple years. It appears as an initial target rate. Do we need it to hit that benchmark before we see an RV or is it possible that 1000 dinar is the RV goal? That, in essence, makes our dinar worth slightly more than we bought it for right? Like roughly 10%+ more without my calculator.

Third, why do you think it will RV first? I think it would redenominate first to prepare people and get them adjusted to that new line of thinking/spending. After a period of time hopefully it would then RV (at an amount we all hope for) and that will help get the remaining big denom's off the market. If these two huge items happen simultaneously there are going to be a lot of really confused people in daily commerce. Also...it is going to take some time to sift through the counterfeits as well. Cashing in for the smaller currency should create more deposits and opening of bank accounts in itself. If you RV first it could lead to a bull rush that the banks and country would not be prepared for. This is amplified by the fact that 80% of Iraq's money supply is cash in circulation and I believe a big goal is to get citizens to trust in their banks more.

Next, the Feb 10 article stated "the bank has completed 50% of a strategy switch in and out, delete the zeros, the nominal value of the new currency while retaining the cash value and purchase power." Furthermore, that it "will be gradually and spontaneously high and without fanfare." This tells me that a plan isn't even completed yet so why are people predicting it will happen this week? If Iraq doesn't want fanfare they are not going to hit them with an RV at the same time as a redenomination. That would lead to chaos in my opinion. In one of your article quotes it says, “By the END of 2010 the new bank notes will be fully introduced while the old banknotes will be gradually removed from circulation.” Again, it sounds like the redenomination won't start until the end of 2010 yet consensus in the posts are it will be soon.

Your August 2008 article states, ”Finance Ministry has prepared a plan to increase the value of the dinar against the dollar and then delete the three zeroes from the dinar's value to contribute to the advancement of the Iraqi economy during the coming period with the Iraqi central bank denied the rumors making the dollar worth 1000 dinars and said in a statement issued by the Ministry of Finance. These articles have all been slightly difficult to read and inappropriately translated in certain circumstances. Is it possible that “and then” means “and also” or even “whereby”? That would give a whole different significance to the sentence.

Lastly what happened in Turkey that they want to avoid?

I always appreciate your extremely informative posts. I just want to squash my concerns and believe the same as the rest. Pieces of it just don’t make sense though. It is my opinion it will RV lower and will grow exponentially thereafter. I believe Iraq will get investors to cash in low and reap the benefits of the money in their own coffers while the value goes up significantly over time. It takes money out of circulation and gets the big bills off the market. Redenomination kind of would work like a reverse stock split and with a lower RV the Iraqi gov basically is buying back their own shares (so to speak) without giving away the bank. Iraqi people and investors would be happy with any positive change to the RV. Everyone wins. The real value could be the long term investment.

[Wayne & Leah High]

Enorrste - THANK YOU so very much for enlightening us with what you know and breaking everything down. I think this meeting between the IMF and Iraq tomorrow 24-Feb-2010 will prove to be what we are all waiting for. Thanks again.

[Tipsey Turtle]

Thanks for the info

[Tipsey Turtle]

and thanks for sharing

[Enorrste]

Drox:

Sorry for the delay in responding to you.

I have stated in previous posts that the RV is a precursor to the release from Chapter VII. More specifically I said that I believed that the RV is the “action plan” referred to in Un Resolution 1905 which is the document that will lead to release from Ch VII. Therefore, since the RV occurs before release from Ch VII it is no longer significant to our investment.

I do NOT believe that the articles referenced indicate a rate of 1000 dinars equaling 1 dollar. It is more possible that the initial RV rate will be at or near a dollar as is indicated by the phrase from Zubaidi where he said “1 dinar would equal 1 dollar, or more than” (paraphrasing). However it is clear that Iraq can afford a higher value and it is my opinion that they want a higher value. My own leaning is that they will come out somewhere between $1.50 and $2.50 and hold that value until all of the large denom notes are brought in and destroyed. At that point the money supply will have been brought under control again and they will then be able to go to a “managed float” for the exchange rate. I foresee it going up to around $3.50 within 2 to 4 years.

The CBI itself has stated that it would “raise the value of the IQD and then remove the large denom notes during the remainder of the year” (again paraphrasing). I am only reporting what they write. The RV comes first, and then over the remainder of the year the large denominated notes are drawn in. This only makes sense and here is why: if you don’t raise the value of the dinar first, why would the people bring them to the bank to exchange them for smaller notes? They wouldn’t. On the other hand, if you raise the value first then the large denom notes aren’t useful in day-to-day business since they are too large; so the people come to the banks to get smaller notes that are more useable in the local markets.

Next, the plan has been evolving since 2005 and is now at the “implementation” phase. When the article says that “the bank has completed 50% of a strategy” I believe that it means that we are half way through a 2 step process. The 2 steps are the RV and then the redenomination. Therefore, since they are completed with the first half, the RV is now ready to be implemented any day now. Then the other 50%, namely the drawing in of the large denom notes, will take place during the remainder of the year.

The process of drawing in the large denom notes begins immediately after the RV is announced. This is necessary for the following reason: if you raise the value of the IQD to, say, 1:1 then the notes in people’s hands aren’t going to work in the market, the smallest being worth $1,000. Therefore they will HAVE to bring them in for exchange at a bank, at which point the smaller notes will be given them. The article is quite clear that “by the end of 2010 the new banks will be fully introduced.” What this means is that the process, which begins immediately at the RV, will be completed by the end of the year.

I have already indicated that the “and then” only makes sense in the manner in which I have presented it, and my expansion on those comments here confirm that this must be the meaning of the phrase. The RV must occur first (giving people a reason to bring in their large bills) and then the removal of the large bills takes place over the next 9 months.

I am not involved with the situation in Turkey. However, the article mentions Turkey ONLY in reference to the fact that large denom notes has to be withdrawn from their economy as well. To draw any further conclusions about the relationship between Iraq and Turkey is to go beyond the intent of the statement, in my opinion.

Steve

[Deneco]

Enorrste's last post to Drox seems to bring everything into perspective, in a way that anyone can understand. Clear, concise, to the point. For all of us waiting on the RV, (IMO) expect it soon. For those fearing the 000 issue, it will clearly be an issue toward the end of the year/first of next year (it's been spoken about for some time now that their new currency will be ready for circulation in that time frame), and we should have had plenty of time to cash in the dinar that we have by then.

RV then RD. RV before election, so as to bolster Maliki to victory. IMHO. Just my thoughts from everything i've been reading over last few weeks.

[drox]

Thank you for your time and responses enorrste. I certainly hope you are right on it all but I just read it so differently. I am not negative and hope my questions only prompt a push for further discussion. The only thing I will dispute is that I believe the reason the Iraqi's will cash in their large denom bills is because there will be a timetable placed on them to do so. I really appreciate your insight. Turkey suffered from severe hyperinflation and revalued after a reprint (redenomination???) Found this below for what it's worth...

Originally Posted by Good_Karma

Turkey got into a series of standby arrangements with the IMF and also revalued. I believe that's why they have over 1000% quota of their fund currency holdings. Most of these came from IMF funding via SBA, I think.

Yes Turkey revalued.......right after a reprint. .000000741 TRL after reprint .741 TRY That series of SBA's Turkey started in 1999 had nothing to do with the revaluation of the lira. The IMF SBA's were finalized only after required fiscal/monetary policy agreements were reached. Turkey had triple digit inflation in the mid to late 90's and a GDP of 400,000,000,000,000,000 - as in 400 quadrillion lira.

[Kent]

Thank you for your time and responses enorrste. I certainly hope you are right on it all but I just read it so differently. I am not negative and hope my questions only prompt a push for further discussion. The only thing I will dispute is that I believe the reason the Iraqi's will cash in their large denom bills is because there will be a timetable placed on them to do so. I really appreciate your insight. Turkey suffered from severe hyperinflation and revalued after a reprint (redenomination???) Found this below for what it's worth...

Originally Posted by Good_Karma

Turkey got into a series of standby arrangements with the IMF and also revalued. I believe that's why they have over 1000% quota of their fund currency holdings. Most of these came from IMF funding via SBA, I think.

Yes Turkey revalued.......right after a reprint. .000000741 TRL after reprint .741 TRY That series of SBA's Turkey started in 1999 had nothing to do with the revaluation of the lira. The IMF SBA's were finalized only after required fiscal/monetary policy agreements were reached. Turkey had triple digit inflation in the mid to late 90's and a GDP of 400,000,000,000,000,000 - as in 400 quadrillion lira.” Their currency/economy would have been the laughing stock of the EU.

Drox, I don't quite agree. Turkey was a redenomination (lop) not a revalue the way people on this site refer to it. My reference is the first paragraph of page 1 and the chart on page 4. It also gives the reason Turkey redenominated at the bottom of page 6 extending to page 7: http://www.unc.edu/~lmosley/APSA%202005.pdf

[drox]

That's good because Iraq wants to avoid what happened there as I read in one of the articles Enorrste provided. I was thinking it meant avoiding hyperinflation but maybe it means not lopping?? Thanks for your post.

[Kent]

That's good because Iraq wants to avoid what happened there as I read in one of the articles Enorrste provided. I was thinking it meant avoiding hyperinflation but maybe it means not lopping?? Thanks for your post.

Candidly, I also read that article differently. All 3 of the countries that were listed at the bottom of the article were countries that loped. The context was to illustrate cases similar to what Iraq would do.

[Enorrste]

Thank you Drox for allowing that this may not be a lop. I may convert you yet!

Let’s look at the single quote that has Turkey mentioned in it. Here it is:

“According to an official source at the ministry The proposal to raise three zeroes from the currency will be in accordance with the right monetary policy is not gradual, as happened in Turkey and this policy will raise the monetary value of the Iraqi currency and will of the Iraqi dinar Strength of cash against all currencies.”

I will come back to this quote at the end of this post. First I want to thank for his link to the great article on redenomination of currencies in underdeveloped and developing countries. I’d like to just paste a few of these quotes here with, hopefully, short comments.

We start with the “Abstract”:

“I find, not surprisingly, that inflation is an important predictor of redenomination. Redenomination also is related to political variables, including governments. time horizons, the governing party.s ideology, the fractionalization of the government and legislature, and the degree of social heterogeneity.”

Iraq does NOT fall in the inflation category but MIGHT fall in one of those highlighted above.

“These redenominations generally involve reducing the value of the currency by a factor of ten. For instance, in January 2005, Turkey replaced its currency (the Lira) with the .New Turkish Lira. (YTL), with a conversion rate of one million old lira to one new lira.

Here we see two things: Turkey REDUCED the value of the Lira by a factor. Second, the Lira was “replaced” with the New Turkish Lira. This is not happening in Iraq. In Iraq the dinar is the dinar is the dinar. There is NO replacement involved.

“Currency redenomination also can be a means by which governments attempt to reassert monetary sovereignty. If citizens lose confidence in the national currency, they may begin to use foreign currencies, particularly those with greater prestige. This may be both a psychological and an economic blow to the government: with widespread foreign currency substitution (or, more extremely, full dollarization), the central bank no longer controls the money supply, rendering it unable to provide lender of last resort functions (Cohen 2004).”

Clearly this situation above does NOT apply to Iraq. The Dinar has been held stable for 15 months by the CBI. It is TOTALLY in control.

“if citizens are confident that the new Turkish lira will hold its value, they may be willing to shift from using euros and dollars to using lira.”

So we see that dollarization was a problem in Turkey and that Turkey was having trouble contolling the exchange rate. Again, this is NOT the case in Iraq.

Now this is a long article and I won’t go any farther in it, although I clearly could. The point I want to make is that the situation in Turkey is no where near the situation in Iraq. I could point out at least 6 other ways in which it is totally different. Therefore we need to go back to the original quote from the CBI and see just how the Turkish situation might be referred to.

Here again is the quote:

“According to an official source at the ministry The proposal to raise three zeroes from the currency will be in accordance with the right monetary policy is not gradual, as happened in Turkey and this policy will raise the monetary value of the Iraqi currency and will of the Iraqi dinar Strength of cash against all currencies.”

We know from above that the situation is essentially NOT like Turkey. So we need to see if this statement is in line with that reality. Indeed it is. The statement says “the monetary policy is not gradual, as happened in Turkey”.

Therefore we can see that the “context” is limited to the DIFFERENCE between Iraq and Turkey. Finally, then, we cannot compare the Turkish situation to the Iraqi situation since our only quote that uses the word Turkey refers to a difference in circumstance and not a similarity.

Steve

[Kent]

Oops, you guys are referring to a different article. Sorry. I had my wires crossed. I was thinking of the one that had 3 countries mentioned at the bottom. Not at the office or I would get the link, but it doesn't matter. Point taken.

[Kent]

Enorrste, I acknowledge that the article you are referring to was showing a contrast, not a comparison when they referred to Turkey, however I wouldn't agree with your conclusions about the Mosley study. She evaluates the statistical correlation of several hypothesis and then makes her conclusions. Personally I find strong similarity between the circumstance in Iraq and her conclusions. Obviously that doesn't mean there will be a redenomination in Iraq, but it does indicate that the circumstances are ripe for one. Most particularly, she makes it clear that inflation is a causal factor, but that countries often wait as much as a decade after monetary policy has succeeded in improving the economy before redenomination. Then governments use a redenomination to tell their people and the world that the problems are in the past and everyone can have confidence in the currency. Her Causal factors where I personally find a similarity between Iraq and the study?

1). A history of inflation (she makes it clear that redenomination has no influence on inflation directly).

2). IMF Influence had a significant statistical impact in her study.

3). Capital account openness "capital account openness positively and significantly affects the hazard rate for redenomination: countries with full market openness are more than four times as likely to redenominate as others."

4). A right leaning party in power.

5). A heterogeneous society (tribal and sectarian religious in the instance of Iraq) "high inflation in the presence of ethnic diversity