_11/27/2011 Enorrste's Reasons For No LOP Or RD
During the Conference call last night, I asked a question that no one has really had a good answer to. Here is that question..
Economically, why would Iraq spend all that money or their reserves to RV there currency, when they could RD there currency and get a free ride to the top and pay nothing but printing new currency? What is the advantage, or disadvantages of both?
One person said there would be no advantage to an RV, and a RD would serve them better when you put it that way.
Then I asked Enorrste, he was nice enough to send me an email today with his opinion..here it is.
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As I stated last night an RV will not lower the reserves of the country of Iraq, just as the daily RV of the dollar on the open market has no affect on our reserves here. So your question is misstated, as if an RV would destroy reserves while a RD would not.
This is just not the case. When we cash in our dinars will go to the UST and ADD to the reserves the US has. They will not go back to Iraq initially, and when they finally do they will go there to purchase oil (per contract made over 2 years ago with Iraq).
Second, an RD does not give Iraq a "free ride to the top". In fact, an RD gives Iraq no ride at all. They are left in exactly the same position that they are in now with an essentially worthless currency relative to their own underlying wealth.
More to the point, an RD won't have the positive affect on imports that an RV will have. With an RV imports become dirt cheap, which means that investment will flow into Iraq like crazy. This is the real "free ride to the top." But it won't happen with an RD. Look at countries that have done an RD. Did anything dramatic change for those countries? No, it didn't. Only an RV will give lasting change to Iraq.
There are no disadvantages to Iraq in raising the value of their currency. The advantages are enormous. The people will see their standard of living improve month to month as they are able to import more and more goods cheaply.
The government will have ample funds to handle infrastructure projects. Other countries will jump on the bandwagon to get into Iraq to build hotels, amusement parks, archaeological sites like Babylon, agricultural projects, and, of course drilling oil.
All of this will be a huge boon to the Iraqi economy and to the people of Iraq, who well see unemployment drop precipitously. With an RD none of these advantages will occur. Instead of paying 25000 dinars for a diner, the local will pay 25 dinars for his diner with an RD (lopping the zeros). That's it.
With an RV the local Iraqi will pay 7 dinars for his diner (worth $25) and will have 24,993 dinars still in the BANK, worth $75,000.
Finally, the GDP of Iraq will skyrocket, and the beneficiaries will be Iraqis, whose money have gained in value allowing them to invest in their own country. Just as every person in Saudi Arabia is wealthy, the same thing will happen in Iraq.
Education will be free; no one will be hungry; everyone will have a home and a car and two TVs. The government will probably end up sending $5000 per year to each and every person out of oil profits (as in Yemen, Qatar, and the UAE).
Airports will be built, shopping malls erected. Electricity will be everywhere, along with clean and ample water. Iraq will become self-sufficient in terms of agriculture (this is a stated goal of theirs).
All of this is possible with a RAISE in the VALUE of the IQD. With a lop (RD) none of this would happen.
Feel free to post this for me. I have a lot of work to do today.