Tlar Thanks Mike, but the reasons for the decline in reserves was to be expected. Less US dollars coming into the CBI with oil revenues dropping, while continuing to sell US dollars in record numbers dollarizing Iraq. So the supply of dollars in the CBI reserves had been reduced as a result of this.
There are fewer physical dinars in circulation because of the continued dollarization and the auctions have been selling just dollars, not dinars.
When the Parliamentary Finance Committee recognized the reduction in reserves as a problem, they thought they could fix it if they put a ceiling of no more than $75 million USD to be sold at any given auction, meaning per day.
This did stop the hemorrhaging of the dollar reserves but created a massive liquidity problem for the streets. With fewer and fewer dinars in the streets every day, Iraqi's had turned to the dollar as their principal medium of exchange.
~~~
There are fewer physical dinars in circulation because of the continued dollarization and the auctions have been selling just dollars, not dinars.
When the Parliamentary Finance Committee recognized the reduction in reserves as a problem, they thought they could fix it if they put a ceiling of no more than $75 million USD to be sold at any given auction, meaning per day.
This did stop the hemorrhaging of the dollar reserves but created a massive liquidity problem for the streets. With fewer and fewer dinars in the streets every day, Iraqi's had turned to the dollar as their principal medium of exchange.
~~~
By reducing the dollars coming into streets from the auctions , all the sudden the supply and demand for the dollar became out of wack. Too much demand with a limited supply with which to satisfy demand.
Hence the dollar prices in the street went up creating a temporarily clear devaluation of the dinar. Quite simply it takes more dinar to buy a dollar when the demand out strips supply as more people compete to get their share of the limited supply.
The drop in the street value of the dinar was a direct result of the CAP that had been put on the CBI by parliament. We did see the reserves grow quickly during this period which was the aim of this move by parliament but it was a bad move as we now have seen.
The quick increase in reserves was a direct result of more dollars coming into the CBI than $75 million per day they were selling at auction.
That decision has now been temporarily rescinded by both the CBI and Parliament because Parliament realized that they had caused the disparage between the program and street rate.
The reason the CBI is planning for a more valuable series of bank notes is because this will help solve the liquidity problem because as these notes are introduced, the hope is that they will temporarily reduce the need for higher note USD. that is principally being sold at the auctions.
Remember the CBI only printed 5 trillion dinar consisting of all denominations. Most was the 500, 1000 and the 250 which is the bulk of dinar notes in circulation.
They did print the 5000, 10,000 and 25000 as replacement notes but there is not enough of these printed to solve the liquidity problem.
Next the CBI has also decided to 'JUICE' the independents with 5 trillion dinars. This is to get some more money into the economy by allowing and encouraging the banks to make loans to small business.
So as we see Parliament aggravated the liquidity ;problem but temporarily has backed of because they created an unworkable situation for the CBI. The CBI is scrambling to fix the liquidity problem but that will take time. Money has to work its way into the economy. They can't just dump it in.
Personally I think the program to produce these big notes is dead before it begins especially if it will take until 2016 to start to introduce them. Too little too late. They need to do something now and that something in my opinion is to get the RV into high gear now.
We are starting to see articles from other economists that feel the same way. Introduce a smaller note with value. No good argument can be made for introducing a large note at this time.
If someone is going to attempt to counterfeit a small note, surly they will also counterfeit a larger note with large value. Introducing a new note is still introducing a new note and counterfeiters are more likely to try to produce a big note.
Personally I think it would make much more sense to just RV NOW, rather than wait until 2016 to introduce the large notes. I think that is what they will do. tlar
Tlar One more thought. If the CBI is waiting on the security situation as so claimed, that is a big mistake in my opinion. First off the CBI and the government has issued cards to make government payroll.
They are not sending cash into mosul or any city that is under the control of ISIS. If Iraq eventually runs ISIS out of the county, undoubtedly ISIS will take their spoils with them, especially cash.
ISIS has to know that at some point Iraq will delete the zeros so even though it has been mostly USD they have stolen from the banks, they must have some dinar. That dinar is already lost or moved.
The likelihood or repatriating it is as remote as getting the Iraqi oil they stole and sold out of the country.
Not changing the value of the currency as quickly as they can IMO, will cost them as a country more in the long run than if they change it now.
It retards their economy and the economy is more important to get going than protecting any dinars they might loose from ISIS. So as an argument to hold the project up at this time IMO doesn't make sense to me. tlar
hi-five Tlar, We've all been missing you. Thanks for the post, and don't be a stranger!
An article came out today where Keywords was saying they were going to release the 50,000 and 100,000 in 2016. The release of higher denoms does not make sense to me if the intent is to add value to their currency soon. There's a lot of conflicting articles lately - - time will tell.
rDiddy: What is your point in bumping this? - mrs d
http://ift.tt/1AIH0vj
ISIS And Oil: Iraq’s Perfect Storm – Analysis
January 11, 2015 Published by the Foreign Policy Research Institute
Mike: I bumped it because of the content in the beginning of the thread, the author knew what Iraq was facing and was offering comments on what course they could take. Five months later, we know Iraq didn't change anything and the results are a stagnant economy, lower reserves and a declining dinar.
The combination of falling world oil prices and the ISIS conflict has resulted in the most serious fiscal and exchange rate challenges since the 2003 invasion.
It is tempting for the new government of Prime Minister Haidar al-Abadi to seek only limited modifications of fiscal and exchange rate policies so as not to run the risk of further destabilizing an already complex situation.
And if low – sub-$100 a barrel – oil prices are a temporary phenomenon with higher oil prices returning in 2016, then this limited strategy should work.
However, if deceased oil demand from the BRIC countries combined with an increased oil supply driven by both the fracking revolution in the United States and Saudi Arabian attempts to rein in the world oil market, then Iraq may face several years of oil prices substantially below $100 a barrel.
It should be noted that, even after adjusting for inflation, the world recently experienced two decades, 1985-2005, of sub-$60 a barrel oil.
A future of low oil prices will require difficult and, to a great extent, irrevocable decisions about both fiscal and exchange rate policies. Rich countries with long histories of stable government can afford to make stupid decisions. Iraq cannot.
Tlar basically hit all the high spots and I agree with everything except the reserves, I don't think they're increasing. Iraq's out of balance right now, the reserves are dropping like they did in 2014 and Iraq can't maintain the balance between the dollar and the dinar.
Upon request, dollars from Iraq’s oil exports are transferred from the DFI to the MoF.
At this point, a divergence occurs. Over half – about 60% in 2013 – of the dollars flow out again to the rest of the world as payments for government imports, debt service, and miscellaneous transactions.
The remaining dollars are sold to the Central Bank of Iraq (CBI) for dinars at a rate of 1166 Iraqi Dinars per US Dollar. The MoF then uses these dinars to pay for the Government of Iraq (GoI) expenditures in the Iraq economy such as salaries, pensions, social safety net, security, etc. The dollars accumulated by the CBI through these dinar sales are, of course, the nation’s international reserves. dinars-dollars
Hence the dollar prices in the street went up creating a temporarily clear devaluation of the dinar. Quite simply it takes more dinar to buy a dollar when the demand out strips supply as more people compete to get their share of the limited supply.
The drop in the street value of the dinar was a direct result of the CAP that had been put on the CBI by parliament. We did see the reserves grow quickly during this period which was the aim of this move by parliament but it was a bad move as we now have seen.
The quick increase in reserves was a direct result of more dollars coming into the CBI than $75 million per day they were selling at auction.
That decision has now been temporarily rescinded by both the CBI and Parliament because Parliament realized that they had caused the disparage between the program and street rate.
The reason the CBI is planning for a more valuable series of bank notes is because this will help solve the liquidity problem because as these notes are introduced, the hope is that they will temporarily reduce the need for higher note USD. that is principally being sold at the auctions.
Remember the CBI only printed 5 trillion dinar consisting of all denominations. Most was the 500, 1000 and the 250 which is the bulk of dinar notes in circulation.
They did print the 5000, 10,000 and 25000 as replacement notes but there is not enough of these printed to solve the liquidity problem.
Next the CBI has also decided to 'JUICE' the independents with 5 trillion dinars. This is to get some more money into the economy by allowing and encouraging the banks to make loans to small business.
So as we see Parliament aggravated the liquidity ;problem but temporarily has backed of because they created an unworkable situation for the CBI. The CBI is scrambling to fix the liquidity problem but that will take time. Money has to work its way into the economy. They can't just dump it in.
Personally I think the program to produce these big notes is dead before it begins especially if it will take until 2016 to start to introduce them. Too little too late. They need to do something now and that something in my opinion is to get the RV into high gear now.
We are starting to see articles from other economists that feel the same way. Introduce a smaller note with value. No good argument can be made for introducing a large note at this time.
If someone is going to attempt to counterfeit a small note, surly they will also counterfeit a larger note with large value. Introducing a new note is still introducing a new note and counterfeiters are more likely to try to produce a big note.
Personally I think it would make much more sense to just RV NOW, rather than wait until 2016 to introduce the large notes. I think that is what they will do. tlar
Tlar One more thought. If the CBI is waiting on the security situation as so claimed, that is a big mistake in my opinion. First off the CBI and the government has issued cards to make government payroll.
They are not sending cash into mosul or any city that is under the control of ISIS. If Iraq eventually runs ISIS out of the county, undoubtedly ISIS will take their spoils with them, especially cash.
ISIS has to know that at some point Iraq will delete the zeros so even though it has been mostly USD they have stolen from the banks, they must have some dinar. That dinar is already lost or moved.
The likelihood or repatriating it is as remote as getting the Iraqi oil they stole and sold out of the country.
Not changing the value of the currency as quickly as they can IMO, will cost them as a country more in the long run than if they change it now.
It retards their economy and the economy is more important to get going than protecting any dinars they might loose from ISIS. So as an argument to hold the project up at this time IMO doesn't make sense to me. tlar
hi-five Tlar, We've all been missing you. Thanks for the post, and don't be a stranger!
An article came out today where Keywords was saying they were going to release the 50,000 and 100,000 in 2016. The release of higher denoms does not make sense to me if the intent is to add value to their currency soon. There's a lot of conflicting articles lately - - time will tell.
rDiddy: What is your point in bumping this? - mrs d
http://ift.tt/1AIH0vj
ISIS And Oil: Iraq’s Perfect Storm – Analysis
January 11, 2015 Published by the Foreign Policy Research Institute
Mike: I bumped it because of the content in the beginning of the thread, the author knew what Iraq was facing and was offering comments on what course they could take. Five months later, we know Iraq didn't change anything and the results are a stagnant economy, lower reserves and a declining dinar.
The combination of falling world oil prices and the ISIS conflict has resulted in the most serious fiscal and exchange rate challenges since the 2003 invasion.
It is tempting for the new government of Prime Minister Haidar al-Abadi to seek only limited modifications of fiscal and exchange rate policies so as not to run the risk of further destabilizing an already complex situation.
And if low – sub-$100 a barrel – oil prices are a temporary phenomenon with higher oil prices returning in 2016, then this limited strategy should work.
However, if deceased oil demand from the BRIC countries combined with an increased oil supply driven by both the fracking revolution in the United States and Saudi Arabian attempts to rein in the world oil market, then Iraq may face several years of oil prices substantially below $100 a barrel.
It should be noted that, even after adjusting for inflation, the world recently experienced two decades, 1985-2005, of sub-$60 a barrel oil.
A future of low oil prices will require difficult and, to a great extent, irrevocable decisions about both fiscal and exchange rate policies. Rich countries with long histories of stable government can afford to make stupid decisions. Iraq cannot.
Tlar basically hit all the high spots and I agree with everything except the reserves, I don't think they're increasing. Iraq's out of balance right now, the reserves are dropping like they did in 2014 and Iraq can't maintain the balance between the dollar and the dinar.
Upon request, dollars from Iraq’s oil exports are transferred from the DFI to the MoF.
At this point, a divergence occurs. Over half – about 60% in 2013 – of the dollars flow out again to the rest of the world as payments for government imports, debt service, and miscellaneous transactions.
The remaining dollars are sold to the Central Bank of Iraq (CBI) for dinars at a rate of 1166 Iraqi Dinars per US Dollar. The MoF then uses these dinars to pay for the Government of Iraq (GoI) expenditures in the Iraq economy such as salaries, pensions, social safety net, security, etc. The dollars accumulated by the CBI through these dinar sales are, of course, the nation’s international reserves. dinars-dollars
However, many of these dollars immediately flow out again. The CBI holds daily auctions to provide dollars to the Iraq economy.
Financial institutions buy dollars from the CBI in order to provide them to individuals and organizations that want dollars as a more secure savings asset, to facilitate domestic transactions, to purchase legal and illegal imports, and for capital flight.
This demand for dollars is quite large. For example, during the first 14 auction days of December 2014, CBI dollar sales totaled $2.25 billion. Those Iraq individuals or organizations that are forbidden by the CBI to directly access the currency auction must purchase dollars at a premium in the parallel currency market.
On December 18, 2014, the exchange rate in the parallel market was 1199 Iraqi Dinars per US Dollar – about 3% higher than at the CBI auction.
In every year but one over the last decade, the inflow of dollars to the CBI from the MoF exceeded the outflow of dollars through currency auctions resulting in an increase in the country’s international reserves.
For example, in 2013 the MoF sold about $55 billion to the CBI while about $53 billion flowed out again through the currency auctions resulting in about a $2 billion increase in international reserves.
The large increase in international reserves since 2004 has been the major support for the country’s enviable exchange rate stability. However, the results for 2014 were grim
Iraq is out ouf balance, there are more dollars going out in auction than coming in which is resulting in a loss of reserves. Iraq is at a crossroads, they've tried everything to find some kind of happy medium and nothing is working.
The problems in this article will continue to worsen until they make some kind of change and I don't think a 50 or 100K will solve anything, neither is kicking the can down the road until 2016.
Today's street rate is 1327-$1, a steady decline over the past week. Here's hoping Iraq takes some kind of positive move towards an open market economy and adding value to the dinar, otherwise, I see the reserves continuing to drop and the dinar lose value.
http://ift.tt/1AIH0vj
Source: ISIS And Oil: Iraq’s Perfect Storm – Analysis January 11, 2015 Published by the Foreign Policy Research Institute
http://ift.tt/14Rp6aW
Financial institutions buy dollars from the CBI in order to provide them to individuals and organizations that want dollars as a more secure savings asset, to facilitate domestic transactions, to purchase legal and illegal imports, and for capital flight.
This demand for dollars is quite large. For example, during the first 14 auction days of December 2014, CBI dollar sales totaled $2.25 billion. Those Iraq individuals or organizations that are forbidden by the CBI to directly access the currency auction must purchase dollars at a premium in the parallel currency market.
On December 18, 2014, the exchange rate in the parallel market was 1199 Iraqi Dinars per US Dollar – about 3% higher than at the CBI auction.
In every year but one over the last decade, the inflow of dollars to the CBI from the MoF exceeded the outflow of dollars through currency auctions resulting in an increase in the country’s international reserves.
For example, in 2013 the MoF sold about $55 billion to the CBI while about $53 billion flowed out again through the currency auctions resulting in about a $2 billion increase in international reserves.
The large increase in international reserves since 2004 has been the major support for the country’s enviable exchange rate stability. However, the results for 2014 were grim
Iraq is out ouf balance, there are more dollars going out in auction than coming in which is resulting in a loss of reserves. Iraq is at a crossroads, they've tried everything to find some kind of happy medium and nothing is working.
The problems in this article will continue to worsen until they make some kind of change and I don't think a 50 or 100K will solve anything, neither is kicking the can down the road until 2016.
Today's street rate is 1327-$1, a steady decline over the past week. Here's hoping Iraq takes some kind of positive move towards an open market economy and adding value to the dinar, otherwise, I see the reserves continuing to drop and the dinar lose value.
http://ift.tt/1AIH0vj
Source: ISIS And Oil: Iraq’s Perfect Storm – Analysis January 11, 2015 Published by the Foreign Policy Research Institute
http://ift.tt/14Rp6aW
via Dinar Recaps - Our Blog http://ift.tt/1AIH2Dz
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