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Thursday, December 3, 2015

Currency Chatter Member Discussion 12-3-15  Part 2 of 2

Post From Currency Chatter 12-3-15

News & Links With Member Discussion Part 2 of 2


Oldwazhisname:    We should not be surprised by this move. It is my guess that this move was under the direction of the IMF and the IMF is “quickly” taking charge of the situation at the CBI. One of the critical issues within the CBI with all of the warning lights blinking, is the draining off of the CBI’s reserves.
 
Those reserves are only 2/3 what they were a year ago and others in Iraq have commented that this represents only maybe 6 months of reserves to continue to fund their deficit situation. I like how the IMF is possibly taking charge of the situation to correct its imbalance situation.
 
Whether this is a precursor to an RV event or just effecting monetary policy that is needed at this time remains to be seen.
 ~~~
In order to understand what this means in the context of how the CBI functions, you have to understand how excess reserves were originally created and how reserves are now being used up. For the better part of the last 6-7 years (until a year and half ago), Iraq enjoyed a surplus in its trade balance as it related to oil sales.
 
Because of the high price of oil and the increase in production, Iraq had monthly increases to its reserve funds as it took in more money than its budget allowed the government to spend. Its fund balance increased each month.
 
All of that changed when oil prices took a dive and as we all know Iraq has a deficit cash flow situation where not enough money is coming in. Just like you and I would, we have three basic choices: cut back on spending, go get a loan to bridge the deficit or try to increase revenues to get back to “breakeven”; otherwise we spend what savings we have to make ends meet. We see all of these at play.
 
Iraq has slashed its budget (but with the high cost of fighting the terrorist war and the civil unrest as a result cutting salaries there is a lot of resistance to this unpopular choice). Iraq has boosted oil sales but the other sources of greater revenues (read things like taxes and tariffs, all supported by increased economic activity in the private, international, agricultural, etc sectors) has come agonizing slow to come on line.
 
We see Iraq trying to borrow more but with limited success. Clearly, these remedies are going to take time to develop into a better situation. I think we would all agree much longer than the 6 month to one year horizon that the cushion would allow.
 
As to this latest move, consider what it does. It is most likely the latest attempt to stop this dangerous trend.As the current “official rate” of 1166 together with the approximate $200 million weekly dollar to IQD auction sales of trying to curb a parallel street rate of 1220 to 1300 IQD to USD rate, there is plenty of incentive to play that spread for profit. The demand for USD is an economic game that is played for great profit by those who can.
 
The USD is significantly more valuable than the IQD making every transaction a stress to the exchange rate. By moving toward devaluation of the IQD, the CBI moves closer to equilibrium between the street rate and the market rate.
 
The demand for USD is slightly abated. Further, all of the government costs that are denominated in IQD (especially salaries) just got a little cheaper. Inflation will be felt in the marketplace as a result.
 
My surprise is that the devalution wasn’t more frankly. This may be a test case to see how the market reacts.
 
I have read articles outside of the dinarland circles that other economist types think the equilibrium point is closer to 1500 IQD to the USD
 
Iraq struggles to get its economic house in order.  Bottom line I see this in the positives that IMF looks like it is increasingly making the tough choices that are needed. Albeit, not what we would like to see with all of us thinking an RV is imminent (this is pretty indicative that that is not the case), nonetheless we can have some comfort that a better expert will move things toward a more stable and successful outcome for the good of Iraq.

 Schizz:    Good post, thanks for sharing :)  I also have seen them talk about the equilibrium being around 1500, love that word...equilibrium  I think we are seeing the big boys make moves to making iraq a more suitable environment for change, sometimes you gotta go down to get ready to go back up again.
 
I think they are getting the market ready for the release of the 50k if that still goes ahead and as you said, this also helps the budget deficit a little.
 
From the articles I have read about the 50k, they had to release it to complete the current monetary structure. To release them they need to make the rate more suitable for its use...hence the small DV (i'm kinda expecting to see it go down more, but we will see)
 
I think the next thing after that to happen in Iraq will be a positive rate adjustment with the release of a new monetary structure....the smaller denoms. (when, aint that the question?) :P
 
This is just guestimation from what I have read and we know how badly the arts translate, so, we will see.
 
Please don't anyone be panicked by this move at the cbi, it doesn't mean anything for us in terms of what we wait for, it may actually be a positive step in the right direction to currency reform and a new monetary structure
 
Mike:   Good stuff, OWHN. In every IMF consultation they talk about how the spread between official and market rates need to be within 2%, Iraqs had a difficult time making that happen. For me, this feels like an IMF shortcut to get the street and official rates within that band quickly.
 
Oldwazhisname:    Mike, I agree that this is likely a part of the reasoning.  The pace of needed moves certainly seem to have quickened and taking this step may very well have moved the spread issue into compliance "overnight".  We'll have to see it the street rate remains down or if it slips as the locals lose confidence in the IQD value.

Schizz:    here's hopin Mike....the current cbi guy is clueless it seems, feel really confident now the imf is there, i'm sure they will have some short cuts that they can only do to get things rolling in iraq
 
Mally:    They can move the rate negative all they want.  If they stay in this closed auction system the street rate will always lag behind because there is money to be made buying and selling the more desirable dollar.     
 
It only fixes the 2% spread issue in a snap shot in time type thinking, I cant see how that is needed for anything.  The 2% spread arguement never made sense to me, its to prevent varying exchange rates to protect imports and exports of countries, ie a dual currency rate system. 
 
Iraq doesnt even really have a currency to have a dual rate with, they use the dollar still to buy all imports.  Once the dinar is convertable and they are buying imports with it then the 2% spread would be a must. 
 
Maybe they will open up and say the dinar is international at 1180 or whatever figure and then make changes to the rate a little later.  Seems like putting the cart before the horse to me but this is Iraq.
 
G-Lin:    Mally I agree 100% on the 2% issue. That applies to the MCP.
 
Rockstar:    Absolutely G-Lin and Mally. Most don't seems to really know what this 2% refers to and have come to wrong conclusions. Mally has said exactly what this means with regards to MCP. Thanks so much for posting again Mally! Countrygal and Pose have been spot on with their assessment and research of the 2%!!

Mally:    I have no idea Mike.  There is a lot in those IMF reports which seem more like general monetary policy lip service.  In Iraqs unique position of being an oil rich country selling a commodity in dollars and having a currency in a state of limbo which they dont use to buy anything externally I personally dont think there is much emphasis put on that even though it is always mentioned because its not really important.
 
 If money traders thought they would make money buying the dinar today the swing would go the other way.  I think we often take things too literally jmo and I realize it always mentioned after those imf consultations so by all means I get where youre coming from
 
Mike:    I would agree, Mally, it pobably won't stick, the folks that are selling the dollar will probably just make a small adjustment and the spread will likely move again.  Here's what the IMF said for the 2015 Article 4 consultations:
 
The authorities have appropriately maintained the exchange rate peg. Liberalization steps taken by the Central Bank of Iraq led to a decline in the parallel market spread to less than 2 percent by end-2014. The imposition of new restrictions triggered significant market volatility and a sharply wider spread in the first months of this year, but their recent removal has helped narrow the spread back to 4 percent by July.
 
and this:
 
Foreign exchange market conditions improved in 2014, but worsened this year following the imposition of new restrictions, which have been since partly lifted. Steps toward liberalization taken by the CBI in the course of 2013–14 resulted in a decline in the parallel market spread to less than 2 percent in December 2014, despite the security crisis. 
 
In January 2015, however, the CBI reduced the volumes of cash currency sales and imposed a 15-day advance deposit requirement for foreign currency transactions. In addition, the government introduced a 5 percent customs duty advance payment and a 3 percent presumptive income tax to be paid at the time of request for foreign exchange to finance imports. 
 
In June, because of the negative impact on the parallel market (the spread rose to a record 16 percent) the authorities removed this measure and shortened the advance deposit requirement to five days. As a result, the spread quickly declined to about 6 percent by end-month.
 
 As of end-April, the CPI-based real effective exchange rate (measured using the official rate) appreciated by about 16 percent since end-2012, largely because of the strengthening of the U.S. dollar.
 
http://ift.tt/1hLxyPv 
 
Mike:    For now, Iraq is in Article XIV, it's a prelude to Article VIII.  This is the stage where Iraq proves to the world and the IMF that they have a handle on their currency and it gives them a chance demonstrate it.  
 
Before the world begins trading with them in dinar they're going to want assurances that the dinar is stable and can hold it's band within 2%.  I'm not going to make any snarky comments, but this is where the reader has to choose, they have to read and believe what the IMF has stated repeatedly, or they can go with country gal and pose.   My moneys on the IMF.
 
Mally:    If Iraq came out and said they will raise the value of the dinar vs other currencies in a rather matter of fact way what do you think would happen to the street rate of the dinar? 
 
I agree that run away depreciation of the dinar is and was concerning to the imf but I just dont believe they care that much if its 2% or 4%.  The 2% band is a rule of thumb for countries using their currency.  Iraq is in an artifical bubble and yet they are being read the general playbook for developing countries. 
 
I really dont think whats said behing closed doors and whats put out for public consumption is similar at all, were just kinda getting the general imf playbook read to us and we are hoping for a totally unique thing. 
 
I havnt read cg or pose since they posted on pd so so those were just my thoughts.  Appreciate your thoughts Mike.
 
Gsjr:    China is doing well but the Euro is also having trouble.  Since January of this year, the euro has dropped 8% against the U.S. dollar. Since April of 2014, the currency has fallen 24% and since its peak at $1.58 in 2006, the euro has plunged 33% against the U.S. dollar.
 
Skylimit:    Blah, blah, blah, that 2% spread is total nonsense with an artificially low currency at a fixed rate set by a conquering country. This is an 80 to 90% political event vs. the balance of an economic event by a country with such overwhelming oil and natural resources that the currency can be priced at wherever the players agree to put it. Christine Lagarde is O's buddy and together they will decide with Iraq what is best.
 
I'm tired of reading all of the analytical nonsense everyday when this is based on politics and perception. The world's greatest debtor nation of all time is now considered to have the safest currency (i.e. US$) based on perception, will it change, sure at some point in the future. Randy K. is alot more right than many of you could possibly know.
 
High-Five:    Skylimit and Mally, I tend to agree with you.   I also have not understood how the 2% spread rule could apply to a currency under the following:
 
1)  A program rate
2)  A dual currency country
 
They are dealing in the US dollar in Iraq, and the auctions are used to draw in dinar and sell US dollars for street use and business.  So, it follows that there is a good spread between the dinar program rate and the market rate because in the market, the dinar rate is even more worthless than the program rate.
 
 It will always be that way until they turn the currency on.   How can the dinar spread be fairly evaluated as long as the USD is in the mix?    Their economy is in a mess, and the demand for the dollar is high. 
 
If the CBI would add value to the dinar, the 2% spread issue would come under control, and my guess is the auctions would stop since Iraq would be transitioning to a single currency country. 
 
Mike:    I think we give Iraq way too much credit, they are a third world, ME country, occupied by an invader they can't remove and their only source of revenue just lost 2/3s of its value. Iraqs not getting a pass to Article VIII, there are international guidelines they have to follow and adhere to. In the end, who really knows, it's just difficult to ignore the recommendations of the IMF. IMO
 
Rockstar:   Amazing thoughts Mally as they are almost identical to what Pose and CG posted on their forum!! Brule posted the link but it won't work unless you join. Anyway your thoughts and knowledge on the subject are right on in my opinion as well. Skylimit nicely stated thanks for your thoughts once again!
 
Flyboy:   Mike, these folks have been ignoring advice for years...just nuts...! Sitting on top of all that wealth and they don't seem to be able to hit their face with either hand...go figure?
 
Skylimit:    mike, the world is now in a crisis period and the rule of law replaced by the political expediency of the day. The US Constitution is trashed by Executive Orders when Congress won't go along and nor will Congress stand up to sitting presidents.
 
US companies build businesses in other countries and after the investments are made find that the host countries governments in some instances have expropriated their assets.
 
Hoplessly indebted Western countries and ruthless ME countries sponsoring terrorism and few human rights have currencies of substantial value. Propaganda is used to shape perceptions which creates a value based on that perception.
 
The real truth, objectivity, and standards are a casualty of today's dumbed down political world. The ability to collaterize the assets of Iraq are more that enough to create a booming economy and create the perception that Iraq commands a strong currency and in today's world of toilet paper currencies that perception maybe closer to the truth than we realize.
 
PreacherMan:    The price of foreign currencies in Iraqi dinars for Thursday December 3 2015     Wrote: December 3, 2015 LINK

 US dollar of US $ 1 = 1,102.3100 Iraqi dinars
1 IQD = 0.0009 US dollars
euro 1 euro = 1,167.5256 dinars Iraqi
1 IQD = 0.0009 euros
Sterling £ 1 = 1,645.3125 Iraqi dinars
IQD 1 = 0.0006 pound
Canadian dollar CAD $ 1 = 827.0199 Iraqi dinar
IQD 1 = .0012 Canadian Dollar
Australian Dollar A $ 1 = 806.5250 dinars
IQD 1 = 0.0012 AUD
JPY 1 = 8.9349 Japanese yen Iraqi dinars
IQD 1 = 0.1119 Japanese yen
 
 
UoflGuy:       Preacher Man - I always appreciate your posts as they are upbeat but not ridiculous.  We all want the same thing and your angle is a positive but not phony angle on articles and information - for that THANK YOU!  Now, this latest tidbit of info that you posted about yesterday being 1182 and today is 1102...were those rates from the same site on these last two days?  If so...that is amazing news and something that we all need to watch...THANKS again for great posts!
 
PreacherMan:   You dont know how I appreciate that comment.  I almost just stopped posting, but, when I get emails from a few, looking for a little bit of light and confidence, it keeps me a going. I did notice CBI has not updated yet, for today, but, will be looking to see if the numbers are the same, some of the news articles are all over the place, I try to decide in my mind, should I, or shouldnt I, post it. Again a big Thanks !! to you, it made my day..
 
G-Lin:    DIFFERENT SOURCE SAME RATE. BTW CBI IS CLOSED UNTIL SUNDAY]
The price of foreign currencies in Iraqi dinars for Thursday December 32 015
Economy and Tenders Since 03.12.2015 at 09:37 (GMT Baghdad)
 
BAGHDAD - scales News   LINK
 
US $ 1 = 1,102.3100 Iraqi dinars
 
1 Iraqi dinars = US $ 0.0009
 
1 euro = Iraqi dinars 1,167.7879
 
IQD 1 = 0.0009 euros
 
£ 1 = 1,645.6465 Iraqi dinars
 
1 Iraqi Dinar = 0.0006 pounds
 
1 CAD = 826.5548 dinars
 
1 Iraqi Dinar = 0.0012 Canadian dollars
 
Australian $ 1 = 806.1298 dinars
 
1 Iraqi Dinar = 0.0012 Australian dollars
 
1 JPY = 8.9391 Iraqi Dinar
 
1 Iraqi Dinar = 0.1119 Japanese yen  
Dinarblowyourhorn:     It seems clear something is happening....haha   I do hope it goes well for us.  For my money, almost any movement is good movement.  We have been pretty static for a long long time.  Thanks for the posts PM, GLin, et.al.

Mally:    Ya Im excited something is happening.  Did they make the move to article 8?  So excited I might fill that fbi form in and tell them about this dinarblowyourhorn fella

Aloha Alex:     Appreciate all who post - you too PM!
Pardon my ignorance, but could the fluctuations have something to do with the daily changes in the dollar? Evryday there is some movement, up or down, a little or a little more. I don't buy into the 'dollar gonna collapse hype better get gold now' jargon. Been hearing that since the 70's. US still is the biggest economy in the world, probably always will be.
 
But I sure like - love - the fact the IMF are in the inside now directing traffic. Heck, a lot better than waking up and reading "no quoram so meeting cancelled!" 
 
Greg:    Something Fantastic is underway!!! I spoke with my Kurdish friend last night and I will speak to him again in greater detail tonight and then write a post about it. I will keep this shortt for now, but if you follow Millionday, she seems to be dead on accurate with what my friend told me last night. I will let you know more in about 12 hours but it sounds like we will all be happy within a month or so..
 
Skylimit:    At the risk of breaking my brain for the 1000th time on Iraq, what did Millionday say?
 
McDuff82:    She said the adjustment  to 1180   was something the cbi said they were going to do  before going international,but I could not find in her posts where the cbi said that.  she was very excited. ,but that is not new


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