A Good Read on Dinar

[Biker]

Sunday, December 19, 2010

Iraq's Currency ~ In Depth Explanation about Iraq's Currency Redenomination and Exchangeability ...

bumped ~

Iraqi Currency Redenomination and Exchangeability

There have been a tremendous number of inquiries about the recent news that Iraq will be increasing the value of their currency and, at the same time, introduce new denominations into the Iraqi economy sometime in 2010 (currently planned).

Specifically, it has been reported that the Iraq Finance Minister issued a statement saying they have prepared a plan to increase the value of the dinar against the dollar and will introduce 25, 10, 5, 1, 1/2, ¼, and smaller (possibly 1/10 or 1/20) dinar banknotes and/or coins. He said that successful fiscal policies pursued in Iraq have contributed to increasing the value of theIraqi dinar against the dollar, noting that the U.S. Dollar dropped significantly in value during the current year. Of note, he also said in a press statement that the bank has been following with great interest the phenomenon of low demand for the U.S. Dollar in the local Iraqi currency exchange markets.

Mudhhir Muhammad Salih, a member of a Central Bank advisory panel, said by the end of 2010, new banknotes will be fully introduced while the current banknotes will be gradually removed from circulation. He did not specify when the new banknotes would be issued. Both (current and new) denominations will be legal tender in Iraq until the current banknotes are completely withdrawn over a period of time.

Economic analyst Hilal al-Tahhan was quoted as saying “the bank's move is overdue.” He said he expects the currency change to go smoothly because of the decision to allow both the current and new banknotes to coexist during an extended exchange period, leading to less turbulence in the economy.

What does all this mean? Overall, this news appears to be very positive and possibly points to some significant changes in the value of the Iraqi Dinar. It has long been the opinion of many Iraqi Dinar investors that the Iraqi Government must introduce new lower denominations into their economy before the value of their currency increases. If the value (buying power) of the dinar increases significantly or rapidly, the largerdenominations currently in circulation would be impractical for use during everyday transactions in the Iraqi economy.

If the Iraqi Dinar increased in value to 10 cents (.1 USD), the smallest banknote in Iraqi would have a value of $5 USD. There would no practical way to purchase everyday items inthe economy and no way to make change---the currency would be impractical and unusable. If a soda in Iraq has a value of 50 cents now, it will still have a value of 50 cents if the value of the dinar increases---there has to be a denomination in the Iraq economy to pay for it. The current problem is that Iraq doesn’t have any currency in circulation to pay for normal day-to-day products if the dinar rises significantly in value---Iraq must have smallerdenominations moving forward.

Also from the recent news, it appears as though all denominations (current and soon to be issued) will be in circulation at the same time and no immediate exchange will be necessary. Hopefully, theIraqi Dinar will be on the world exchange market soon to allow for even easier exchange in the near future. Expectations are that Iraq is moving as fast as they can to rebuild their economy and wealth, and join the international economic community.

There have also been rumors about the future exchangeable value of some current Iraqi banknote denominations, and limited time periods for exchange of current Iraqi banknotes. It has been falsely rumored that perhaps the 25,000 dinar banknote will be exchanged at a different exchange rate than current smaller Iraqi banknotes. Another false rumor suggests there will be a very short period (days or weeks) of exchange for the current Iraqi banknotes after a significant change of value and introduction of lower denominations .

Well, to address these rumors, let’s look at currency from a basic level: Countries issue their own currency. They issue their currency with a responsibility to honor it and redeem it. The currency must be accounted for. When a country issues currency (the US as an example), they borrow against the currency and issue debt to support it. The US recently printed a significant amount of currency in order to finance stimulus funding. In order to do this, the US government had to borrow the money with an obligation to pay it back.

One of the main functions of the US Treasury Department is to manage the U.S. national debt (the amount of money which the federal government owes to its creditors). China owns much of our debt as do US citizens and other countries---we must honor our issued currency and our debt. If a country doesn’t honor its debt, creditors (other countries and investors) lose faith in the defaulting country and a country will end up in financial ruins. Iraq, as a responsible member of the world economic community with a goal of getting their currency online with the rest of the world currencies, has issued currency with an obligation to honor it----all of it---not just certaindenominations.

Throughout modern history, I can't think of one instance where a country honored some denominations , but not others---it doesn't make sense---people and other countries would lose faith in that country's responsibility to respect their debt and honor their issued currency---who would trade with them, exchange with them, or conduct business with them? To limit the time period for currency exchange in order to force the de-valuation of currency in circulation in order to reduce debt doesn't happen and wouldn't be tolerated by the world financial community. Countries have to be accountable for all of their currency and they can't play games with exchange timelines to try and prevent people for exchanging. Remember, in addition to individual investors, large governments and banks outside of Iraq hold Iraqi currency. Money from all over the world has flowed into Iraq through the purchase ofIraqi Dinar . The Iraqi Government will honor that investment in their economy, or there will never be faith in their economy and they will never be accepted by the world financial community

[FlintNPebbles]

Nice opinion piece. Sure does make sense.

[srdedeaux]

Very good read Biker; Thanks for the post...........................! GO RV.................................! B)

[sugga10]

thanks for the nice reminder. GO RV or RI

[Carrello]

Biker, this is a good opinion piece, and thank you for bringing it over for us. News is one thing and an opinion is another. Either way, I like to know the author and affiliation of anything that I read. Do you have a link, please?

[jeepguy]

good job biker ---- in your thoughts do ya think the 1/10th notes and 1 20th notes would actually hit the streets,,,, i think they have the 1 10th notes now ------- current dinars but still a good read thanks buddy

[SSI]

Good article, but check the date: 12/19/10.

[joseroque]

This a year old post in which none of the "predictions" materialized. We are in the same boat now but the recent events are much diffferent now than last years, so it seems we are in a better position to see the RV soon. Another note: The new denominations are to be released during a two year period begining in 2012, so it should be completed sometime in 2014!! The RV can't wait that long.

[seetrader1]

This a year old post in which none of the "predictions" materialized. We are in the same boat now but the recent events are much diffferent now than last years, so it seems we are in a better position to see the RV soon. Another note: The new denominations are to be released during a two year period begining in 2012, so it should be completed sometime in 2014!! The RV can't wait that long.

Recent articles point to 2013 as the start to release the lower denoms.

From 2 days ago...Sorry I lost the link.

.................................................................................................................................................................................................................................................................................

The central importance of the Iraqi parliament to convince deleted 3 zeroes from the dinar

16.12.2011

The center of divergence of views, economists about the timing and feasibility of the project to delete three zeros from the dinar, the official predicted that the Central Bank of Iraq is the implementation of this project in 2013. The Central Bank of Iraq discuss the details of the project with the Commission on the economy and investment in the Iraqi Council of Representatives.

Deputy Governor of the Central Bank of Iraq appearance of Dr. Mohammed Saleh In a statement made by Radio Free Iraq, confirmed that the atmosphere of the discussions were positive, and the bank was able to answer all questions and inquiries of the Parliamentary Committee, which heard a detailed explanation on this subject, and convinced of the project and its positive effects on the economy Iraq, adding that the project is also referred to the Economic Committee in the Cabinet for discussion.

He expected the Deputy Governor of the Central Bank of Iraq that is to start the execution of the deleted 3 zeroes three of the coin with the development of the budget year 2013, pointing to the bank’s plan to implement the project will continue for two years and depends on offering new dinar with the current currency in order not to get the economy or the citizens harm.

Economic expert, Dr. Hilal Al-Taan consistent with the Central Bank of Iraq in the importance of this project and its economic feasibility, and finds that the current monetary bloc of 27 trillion Iraqi dinars, it is necessary to delete three zeros to become a mass 15 billion Iraqi dinars, which facilitates financial transactions daily.

However, the economic expert, Aladdin short does not agree with Taan, but finds that the project to delete 3 zeros will not contribute to improve the economy, but on the contrary, because of the security conditions and the economic situation deteriorating, and the absence of development programs, and the lack of a sound banking system, in addition to corruption and bureaucracy in state institutions.

Amid the varied opinions of observers of the economic affairs of Iraq about the effects of positive or negative for the deletion of three zeros from the dinar, warned an economic advisor in the government Abdul Hussein Al-Anbuge that the process of removing three zeros from the dinar will increase the phenomenon of money laundering, and that the government is working to convince the central bank need to stop working the implementation of the project.

But economist Dr. Hilal Al-Taan respond to these warnings and fears as unfounded, because the process is controlled by a careful and deliberate

[skitealwedrop]

Interesting perspective. Thanks for the post.

[new york kevin]

Yada yada yada. Blah blah blah. Not in dec 2011. Not 6/2012. Possibly 2013. eh. Aint no thang on this notation that has not already been there b4 in one form or another. Later.

[Carrello]

Yada yada yada. Blah blah blah. Not in dec 2011. Not 6/2012. Possibly 2013. eh. Aint no thang on this notation that has not already been there b4 in one form or another. Later.

Hopefully, much later.