Wednesday's post from Memphis at KTFA:
ome supporting statements before I get into details of this post...
1) It was stated in the Monday's CC that the last four auctions by the CBI had zero USD sold.
2) Delta also made it clear that the CBI wants to protect it's reserve of USD as it supports [or undergirds] the value of the IQD
3) An article [not from CBI] stated several days ago that the reserve value fell by 2B USD in just one month this year.
4) The news [stated by the CBI] just yesterday contradicted point #3 by stating a reserve level of 62B USD [an INCREASE from their past statements of a 60B reserve level]
5) Multiple articles this week have indicated that the IQD [local exchange] value has dropped to an all time low of 1290 IQD : 1 USD
6) The CBI has artificially created #5 by restricting the USD supply.
7) There is [and has been] a problem of USD crossing the border into neighboring countries
Read More Link on Right
The finance committee held an 'urgent' meeting yesterday and many big players were at the table. They stated it as:
"a meeting [was] held yesterday between the Finance Committee and
the Central Bank and general manager of the government banks to discuss the repercussions of the financial crisis and the depreciation of the
dinar exchange [rate]Iraqi and [were briefed on] a study at the Central Bank on how to control the issue of exchange." This supports item #5
and the crisis was defined like this:
"the dollar is getting difficult [to find] and [commerce is increasingly] complicated in Iraq and thus [by choking off the supply of USD this has] increased its value against the Iraqi dinar and this is something negative on the reality of the economy. ...And that "all goods [have] increased [in price] during the past few days and we expect to see a [further] rise over the coming days that [or because] the government did not find immediate solutions for the Mhmlh [growing problem and that is to] provide hard currency in the markets."
...The proportional amount of foreign currency [USD] offered [banks thru auction has varied] inversely with the [readily] available local currency [IQD] in the currency markets, the [choking of] hard [currency available is causing the] Iraqi dinar [vs. the USD] exchange rate is high The crisis has its roots in the Iraqi Central Bank and [their recent] control over the financial liquidity of foreign currency [USD] to the measures taken by the bank last month to curb the smuggling of hard currency to neighboring countries. So we see the CBI's actions of choking off supply of USD in circulation is causing demand for it to rise and THAT at the expense of their own currencies value 'on the street'.
they also stated their response TO the 'urgent financial crisis' [the outcome of the 'urgent' meeting] as being thus:
And bankers [now] expect to see [in] the coming [few] days,
a rise of the Iraqi dinar exchange rate against the dollar because of the
actions [to be] taken by the Central Bank.
the General manager of the gov't banks got some education on 'the plan' and I expect this change or 'action' by the Central bank to be one that we can observe. It must be one of two things that will solve this 'untenable, urgent crisis' :
a) They RV the currency. This action would protect all seven (7) items listed above.
b) Or they abandon the pattern established in #1 above, forsake the objective of
#2, reverse their auctions and begin to pump out USD which begins the abandon of #4, the renewed problem of #7 and the solution of #5 that THEY caused by #6.
When we read the article just referenced [with our dinar goggles on] it is
easy to dismiss conclusion "b" and assume the RV. It must be allowed tho that
they can achieve the goal of raising the 'street value' of the IQD by releasing
USD into circulation. I am asking myself "have they finally reached the point
where they must show their hand?" Is option "b" available or are they tending
towards...."a" Can they simply respond by dumping the USD back into the
streets [option "b"], a move they surely stand opposed to long term?
Let's dig further into yesterday's news...
The Central Bank has the ability to stave off speculation on the Iraqi dinar which saw its value vis-à-vis the dollar declining in the past two weeks.
...The dinar’s depreciation has prompted the Central to intervene by increasing supply of the greenback and withdrawing dinars from the market.
...It has forced the bank’s senior officials to give statements to assure markets that the country has massive reserves of hard cash, more than enough to cover the dinars in circulation. This certainly STATES that their solution is to simply reverse their policy and dump USD in auction. This is the equivalent of them stating: "Ummm we are sorry for the inconvenience citizens, we didn't forsee this problem and so we are going to do the opposite now to correct this oversight.....sorry again for the inconvenience, who's idea was this anyway?..." They continued in the article to say:
Saleh acknowledged that there has been a rise in demand for the dollar in Iraq and that the Central Bank is trying to work out a new mechanism for its sale of hard cash.
Now THIS sounds like more of a plan to me....a more thoughtful response perhaps than just a simple "we are sorry, here's the USD back"
don't doubt for a minute that this 'new mechanism' is a known variable.
The fact that they are 'trying to work it out' is not of function of seeking the solution but rather seeking the implementation of it... This is not Calvin ball where we make up the rules as we go, the CBI has a 'strategic plan' that they have 'exceeded the advanced stages' in preparation for it! This implies that it is and has been..........known.
Stay with me a bit longer, almost ready to bring it all together....
finally this final news was released yesterday in yet another article and it is speaking strictly to the problem of USD crossing the borders:revealed the deputy
governor of the Central Bank of new measures will reduce the bleeding
phenomenon of the currency in Iraq,
noting that the first of next July will see the elimination of the operations and [this will then be seen] permanently...the growing demand for hard currency [is more] than the local need with [recent increases by a factor of] 3 times [normal and this was] the cause [for our recent policy] but several times in the high exchange rate [of the USD] despite the efforts of the bank to control the phenomenon of bleeding currency by imposing certain controls as a condition to leave the corporate and banking offices as a condition to deal with it, but working on the withdrawal of currency from the market in large quantities at different times led to higher rates without justification
Note the words 'new measures'? If all they intend is to resume the auction of USD into circulation then to what new measures do they refer? They already told us their plans for restricting the USD at the window, we know all about that plan [see the topic: "use of USD in Iraq WILL increasingly... diminish" in the SC's corner for more details] and what's significant about July 1st? Could it be that the introduction of tariff's will help this? That's slated for the same time frame... the article further down had this:
...the bank is taking new measures to reduce the phenomenon
of the intended withdrawal of currency through the conditions to deal with
the bank declined to disclose the details of [this] adding that new measures
will eliminate the phenomenon mentioned once [and for all] during the coming period.
so again it's the "new measures" but Saleh stops himself and states: "I prefer not to comment on the details of that." Again I ask, whats the big mystery Saleh? We know much of the details on your added restrictions for USD so what gives?
I inserted the words [and for all] PLEASE note that this greatly influences the sentence. I submit that the words 'fit' and if so, it explains WHY Saleh 'stopped short' in his explanation. And we must acknowledge that the RV would stop [quickly] and use of USD and thus [quickly] end their problem of the currency crossing borders...
This whole discussion of currencies and such is not my forte'. I would love some feedback on this from ppl with more knowledge. My conclusion is that it is more logical at this critical juncture to PROceed rather than REcede by reversing course and dumping USD back into their economy. EVEN THO thats what they SAID they are about to do...
supporting links for the three (3) articles referenced:
by walkingstick » April 10th, 2012, 1:23 pm • [Post 440]
by walkingstick » April 10th, 2012, 2:16 pm • [Post 461]
by walkingstick » April 10th, 2012, 2:08 pm • [Post 458]
Last edited by Memphis
on April 11th, 2012, 9:21 am, edited 1 time in total.