BLC Admins tlm724 and Shredd Chat 02/24/2015
This article is again a composition of experts opinions and it gives us a real sense of the what is going on in the streets and also a lil peek into what the CBI may have in mind for their ongoing currency reform, more of the curtain being lifted Wink
Experts: Central Bank faces the problem of the shortage of foreign currency and claiming to reassure customers
[tlm724] that Iraqi banks began to suffer a shortage of liquidity in foreign currency (dollar)
[tlm724] banks are short on dollars
[tlm724] while the expected rise in the dollar's exchange rate against the devaluation of the dinar as a result of stopping the auction currency
[tlm724] the value of the dinar is going in the wrong direction because the CBI stopped pumping the dollar but thats okay
[tlm724] grumbling banking customers of non-receipt of money deposited by the dollar, stressing that handed over the money Dinars expose them to significant losses
[tlm724] the people depositied dollars and when they make a withdraw they are getting dinars because of the shortage of green backs
[tlm724] "The decision to stop the currency auction can be exploited in a positive way by the Central Bank
[tlm724] ah ha yes it can ! if done correctly and I believe it is
[tlm724] because we must limit the dollar and not to take it out of the market and thus strengthen the Iraqi dinar.
[tlm724] but that is not ^^^ what the CBI is doing to strengthen the dinar, I'll explain in a few moments
[tlm724] "the main objective of this step is to limit the hard currency by the central bank, especially after twice the price of the dinar during the past few days," expected to "decline the central bank for its decision in the case of the Iraqi economy negatively affected due to stop the auction of the currency.
[tlm724] yep this decision has hurt the economy BUT it is necessary for the currency reform to go forward ! It is a temporary situation that will correct itself in very short order.
The people are freaking out because they do not know the full extent of what is going on, all they know is that they want dollars not dinars. They do not see the whole picture as we do Wink
[tlm724] weakens the confidence of individuals in the banking system and generates a panic, and lead to significant financial withdrawals,
[tlm724] that's a run on the banks think about the movie it's a wonderful life and Jimmy Stewart trying to make everyone happy
[Shredd] really spells out what I've been thinking and saying the results of this move would be without any change to the dinar
[Shredd] if the dinar value stays where it is, the problem will only get worse, people wanting the dollar but the banks are saying no because they need to keep reserves too
[tlm724] exactly Shredd the dollar was their safety net and now they don't have that, this action is a beautiful thing for us even though they are upset now they won't be for long
[Shredd] this issue is inflationary and expected
[Shredd] we should see a response from the CBIsoon and I mean very soon
[Shredd] I can't believe the CBI is surprised at all by the effects of their decision, they have a plan
[tlm724] yes agreed Shredd they will have to address the people as I stated they have no clue what is going on
[Shredd] right I knew this would escalate in the matter of days
[tlm724] that "sudden decision carries a lot of risk to the Iraqi citizens and the economy in general
[tlm724] the central bank issued a decision on the pretext of its limited foreign exchange to finance foreign trade.
[Shredd] the IMF wants Iraq to get out of their dual currency situation and this will force a change
[tlm724] yep CBI paying for the imports and trade via the banking system
[tlm724] yes Shredd
[tlm724] "the decision was made to shift from exchange rate policy directed to a free exchange rate policy,
[Shredd] the next part gives us a hint imo
[tlm724] that right there^^^^there is the float
[tlm724] now let me just take a moment to put things in perspective for everyone
[tlm724] lets say Iraq floats the exchange rate, then the value of the currency will depend on the world market demand for the currency
[tlm724] it will be traded in an open money market in which any person/government/entity can buy the currency
[tlm724] If they don't float the dinar then they have to maintain a surplus of cash in order to account for the fluctuation in the currency's value
[tlm724] as Shredd pointed out this goes against the monetary requirements of the IMF
[tlm724] and it also ties up money that could otherwise be productively invested in another part of the economy and it frees up the monetary policy to manage things like inflation and interest rates allowing the CBI to operate like a central bank instead of an ATM machine pumping out dollars
[Shredd] if they float from the current level, and we are seeing the supply of the dollar drying up before our eyes, the iraqis will be forced to use the dinar.
Supply of the large 000 dinar notes will be needed from a transactional and carry purpose. So, the newly updated dinar with stronger security measures will have to be released.
[Shredd] now, if the exchange rate has an initial adjustment in value, it may force the middle denoms to be released/higher volume circulated
[Shredd] the good news is we should see what the cbi's next move is really soon..........they have to
[tlm724] Shredd yes the supply will definately need to be replenished and the float theory here could be a partially managed float, allowing control by the CBI but which ever way they decide it is all good news and they must act NOW in this transistion !
[Shredd] it's so tempting to consider the move to a buck then float from there it still has merit but no proof pure opinion
[tlm724] well that would be the best case scenerio for us Shredd because anymore than that would send us packing
[Shredd] the guru speak of saying "hold on, this ride is about to get crazy" kinda applies now
[Shredd] tlm724 right.........so let's speculate a bit shall we
[tlm724] so letting it float whether managed or free in the beginning does not matter to me, I'll take it anyway I can get it, I'm that way ya know lol
[Shredd] based on supply of dinar notes alone, the value of the dinar today is artificially held down, I think we can all agree on that
[Shredd] secondly, since we see the supply of the dollar is already being restricted, the only option for the Iraqis is the dinar and I think we can all agree on that too
[Shredd] third, the ease of carry for the dinar is stupid, very impractical due to the low value
[tlm724] Shredd and the only way the Iraqi's will use the dinar is to make it attractive and don't give them another option !
[Shredd] and we also know that part of the motivation for this move by the CBI is for the project to REMOVE the large 3 zero notes
[tlm724] you can't bring out a 25 fil coin that is worth say .00000003
[Shredd] that's right timmy
[Shredd] so, if the intent is to remove the big dinar notes and by the way, the current dinar supply has been reduced significantly over the past several years,..... so, if the intent is to remove the large notes, and they have the fils (coins) and small denoms printed
[tlm724] and a third of what is out there is trash and has to be burned
[Shredd] one can safely ascertain that those notes are the dinar supply the CBI intents to circulate, none of that can happen without a stronger rate to the dinar
[Shredd] tlm724 exactly, the CBI is in a corner now, but again, I doubt they are surprised by the effect of their move to stop the auctions and like I said in our last chat,
the remittances program for emerging market countries like Iraq have seen greater success under a flexible exchange rate regime and one of the reasons stated was due to what we are seeing now
[tlm724] Shredd this a very exciting time in our investment ! What we are witnessing is the currency reform before our eyes, all this time we knew very little as to their intentions and now it is evident that indeed a float is intended and I could not be more excited !
There is very little time for the CBI to take corrective action and we will see that announcement anytime now IMO !
[Shredd] so, this is very interesting and we should see some action soon
[tlm724] Shredd amen brother !
[Shredd] agreed and say they do nothing with the dinar.....economic crisis and meltdown. the CBI won't allow that to happen.
[tlm724] they sure won't be bringing back the auction that horse has left the barn ! Out with the old ways so says the CBI, it's a whole new day for Iraq !
[Shredd] "The bank refused to hand over the money in dollars for clients with the bank for the second day in a row on the grounds that the bank no longer receives (the dollar) from the Central Bank of Iraq," noting that "a trader with a bank that has deposited his money dollar would be a great loss teams currency received his money when the Iraqi dinar. "
[Shredd] dollar restriction. option? Dinar
[tlm724] apparently their only option
[Shredd] I would agree
[tlm724] perfect storm if ya ask me, short term hurt for long term gains !