OOTW's Explanation & Why Unlikely Scenario Part 1 of 2
MY EXPLANATION AS TO WHY I THINK THIS IS UNLIKELY:
"WE'LL SEE A 1 : 1 RATE (IQD TO USD) WITHIN THE NEXT FEW YEARS."
Post From Wealthwatch.world Chat Room & Forum
TODAY A "GURU" IN THE COMMUNITY CAME OUT AND SAID HE FEELS HOPEFUL WE'LL SEE A 1 : 1 RATE (IQD TO USD) WITHIN THE NEXT FEW YEARS.
I'VE PUT TOGETHER A LENGTHY EXPLANATION, WHICH, BY THE WAY, IS STILL INCOMPLETE VS ALL OF THE OFFICIAL DOCUMENTS WE COULD PULL INTO THE DISCUSSION...
OR...YOU HAVE THE "CLIFF NOTE" - CHAT VERSION POSTED DIRECTLY UNDERNEATH THE LEAD POST OF THE THREAD. (also at the end of post)
HAVE A GREAT SUNDAY - WE'RE MOVING ALONG..ISLAMIC BANKING LAWS AND FACTA ARE COMING UP IN THE HOUSE OF REPRESENTATIVES FOR A VOTE.
IMHO, THEY NEED TO GET THESE DONE BEFORE THE PRIVATE SECTOR CAN BE FULLY LAUNCHED. REMEMBER, WE WANT TO SEE IRAQ "LAUNCH" THEIR CURRENCY UNDER AS STABLE CONDITIONS AS WE CAN. THIS IS JUST MY OPINION.
HOPE YOU'RE HAVING A GREAT SUNDAY! OOTW
7-19-2015 HERE IS A QUOTE FROM A "GURU" - I'M GOING TO BREAK THIS DOWN...
"there is a reason the dinar is being held low and pegged right now...Iraq has no market economy and to create one, creates alot of pressure on the financial system...especially one that has the potential as Iraq does...
once the laws are passed and stability sets in, the pressure caused by the influx of investment and investors will be huge...keeping the dinar weak now, gives the CBI lots of room to grow to counter the pressure.”
I COMPLETELY AGREE WITH THIS FIRST STATEMENT
“Well, many experts do think the dinar is undervalued, some say "grossly". But like so many economists have said, the exchange rate is directly related to the productivity of a country...So we have to wait for that productivity and the dinar will rise! Lots of upside."
IT CONTINUES ON... "...they on the right track now. I am hopeful that within a few years we will see a 1 to $1 rate.
OKAY..HOLD ON JUST A MINUTE - I AGREE WITH THE FACT THAT WE NEED TO SEE PRIVATE SECTOR DEVELOPMENT TO SUPPORT THE ECONOMY AND THE DINAR.
NOW ONTO THIS "FEW YEARS" STATEMENT, THAT WOULD BE THE SAME AS ME SAYING SOMETHING LIKE:
"DOWNTOWN, IN OUR MAIN STREET, WE HAVE ONE BAKERY - AND TOO MANY CUSTOMERS FOR THIS BAKERY TO SERVE THEM –
SO, WHEN WE OPEN A FEW MORE BAKERIES, THEN THESE CUSTOMERS WILL GET SERVED, AND THEN, BY PROXY OF MORE PEOPLE BEING SERVED, MORE BAKED GOODS WILL NEED TO BE PREPARED –
BUT....WE KNOW EXACTLY HOW MANY MORE PEOPLE WILL NEED THESE BAKED GOODS, SO WE WILL THEN INCREASE THE NEEDED AMOUNT OF BAKED GOODS, BASED EXACTLY ON HOW MANY MORE PEOPLE NEED THEM.....
AND SOLELY/ONLY BASED ON THAT "PREDICTABLE" AMOUNT OF GROWTH - WE KNOW THIS FOR SURE...UHHHH NAH AH.
IN OTHER WORDS...THIS "GURU" IS SAYING THAT HE KNOWS EXACTLY HOW MUCH THE PRIVATE SECTOR WILL GROW, AND AT WAS RATE/PERCENTAGE
AND THAT THE DINAR CAN ONLY GROW IN PARALLEL/UNISON ONLY WITH THE PERCENTAGE OF THAT GROWTH OF THE PRIVATE SECTOR AND NO OTHER FACTORS ARE INCLUDED IN DETERMINING THE VALUE OF THE DINAR.
“These articles can be exciting when they talk about change...but Iraq does nothing fast. I would guess at least 2-4 years before the CBI would be in compliance for the blessing from the IMF to move to VIII. Keep in mind, Article VIII really means nothing to us and as Dr. Bakri insinuated...currency reform will come before Article VIII.”
**WASN'T IT JUST A FEW MONTHS AGO THAT THIS GURU WAS INSISTING THEY HAVE TO BE IN THE 2% COMPLIANCE FOR AN (AT THAT TIME) UNDETERMINED AMOUNT OF TIME, BEFORE THEY, BEING IRAQ...COULD BE "GRANTED" THE ABILITY TO MOVE TO ARTICLE 8,
AND DIDN'T HE ADHERE TO THAT INSISTENCE, UNTIL HE WAS IN COMMUNICATION WITH DR. BAKRI (IRAQI ECONOMIST)?
AND AFTER THAT, THEN THE NEED FOR ARTICLE 8 BECAME "UNNECESSARY"? –
YET, AGAIN, KEYWORDS AND SALEH ARE STATING THEIR INTENTION TO ADHERE TO REQUIREMENTS TO MOVE TO ARTICLE 8.
I AGREE WITH THE NEED FOR THE CBI TO BE IN COMPLIANCE, THE PRIMARY REASON GIVEN FOR THEIR DOWNGRADE (IF ONE CAN CALL IT THAT) FROM ARTICLE 8 TO ARTICLE 14 (RETURNED TO CURRENCY PRACTICES SANCTIONS, IF YOU WILLL), IN 2005, WAS BECAUSE IRAQ WAS PRACTICING INVISIBLE BANKING TRANSACTIONS, WHICH ALLOWED THEM TO PRACTICE MONEY LAUNDERING, IE UNDERHANDED BANKING TRANSACTIONS -
REMEMBER, THIS MONTH, JULY 1, KEYWORDS AND SALEH WERE QUOTED THAT THEY INTEND TO ADHERE TO THE MONETARY PRACTICES REQUIRED TO MOVE INTO ARTICLE 8 –
PART OF THIS "COMPLIANCE" (AGAIN) IS THEM GETTING THEIR XBRL "EXTENSIBLE BUSINESS REPORTING LANGUAGE" SYSTEM UP AND RUNNING SO THEY CAN SHOW "VISIBLE" BANKING TO THE IMF - AGAIN - ONE ASPECT OF PROVING THEIR WORTHINESS TO MOVE INTO ART 8.
CONTINUING ON....REMEMBER IRAQ SELECTS THEIR INTENTION TO MOVE TO ARTICLE 8, INFORMS THE IMF AND THEN THE IMF REVIEWS THEIR CURRENCY PRACTICES AND MAKES A DECISION –
I AGREE THAT ARTICLE 8 MAY MEAN NOTHING TO US, IN REFERENCE TO THE FACT THAT IRAQ COULD MOVE TO ARTICLE 8 AND CHOOSE TO ENTER THE MARKET AT THEIR CURRENT EXCHANGE RATE
(UNDER ARTICLE 8 - HAVING PRESENTED THEIR CHOSEN EXCHANGE REGIME TO THE IMF)...DO I THINK THIS LIKELY????....NO NO NO...I'M JUST SAYING THEY COULD CHOOSE THIS -
I WANT TO REMIND YOU OF THIS SECTION FROM THE 2014 PDF FROM THE IMF - BEFORE YOU READ THIS, REMEMBER THAT IRAQ IS ON A DEFACTO REGIME - AND UNDER THE DEFACTO CLASSIFICATION, IRAQ IS CURRENTLY ON A CRAWLING PEG "
HERE ARE THE DEFINITIONS:
"A de facto currency is a unit of money that is not legal tender in a country but is treated as such by most of the populace." THIS DEFINITION WOULD APPLY TO IRAQ'S USE OF THE DOLLAR IN THEIR MARKETS - THE DOLLAR IS THEIR DEFACTO CURRENCY.
IRAQ IS UNDER A
Fixed (USD) http://www.centralbanknews.info/p/currency-regimes.html
A "Conventional Peg and Stabilized Regimes"
Group A Exchange Rate Anchor Group B Monetary Targeting Group C Other 2/ Group D Inflation Targeting Conventional Peg and Stabilized Regimes Aruba, Bahamas, Belize, Bhutan, Cabo Verde, Curaçao, Eritrea, Fiji, Guyana, Iraq, Jordan, Kazakhstan, Lebanon Lesotho, Libya, FYR Macedonia, Maldives, Morocco, Namibia, Nepal, South Sudan, Samoa, São Tomé & Príncipe, Swaziland, Suriname, Turkmenistan, Venezuela, Vietnam
HERE'S ANOTHER CONFIRMATION:
US dollar as exchange rate anchor
[*][Image: 23px-Flag_of_Iraq.svg.png] Iraq
FROM THE IMF SITE: Conventional fixed peg arrangements
4. The country pegs its currency within margins of ±1 percent or less vis-à-vis another currency; a cooperative arrangement, such as the ERM II; or a basket of currencies, where the basket is formed from the currencies of major trading or financial partners and weights reflect the geographical distribution of trade, services, or capital flows.
The currency composites can also be standardized, as in the case of the SDR. There is no commitment to keep the parity irrevocably. The exchange rate may fluctuate within narrow margins of less than ±1 percent around a central rate—or the maximum and minimum value of the exchange rate may remain within a narrow margin of 2 percent—for at least three months.
The monetary authority maintains the fixed parity through direct intervention (i.e., via sale/purchase of foreign exchange in the market) or indirect intervention (e.g., via the use of interest rate policy, imposition of foreign exchange regulations, exercise of moral suasion that constrains foreign exchange activity, or through intervention by other public institutions).
Flexibility of monetary policy, though limited, is greater than in the case of exchange arrangements with no separate legal tender and currency boards because traditional central banking functions are still possible, and the monetary authority can adjust the level of the exchange rate, although relatively infrequently.
The IMF staff classifies the de facto exchange rate arrangements according to the categories below. The name and the definition of the categories describing the de facto exchange rate arrangements have been modified in accordance with the revised classification methodology, as of February1, 2009.
Wherever the description of the de jure arrangement can be empirically confirmed by the staff over at least the previous six months, the exchange rate arrangement is classified in the same way on a de facto basis.
Because the de facto methodology for classification of exchange rate regimes is based on a backward-looking approach that relies on past exchange rate movement and historical data,
(WHICH WE KNOW HAS BEEN ALL OVER THE PLACE - BUT WAS IN THE 2% COMPLIANCE FOR A FEW MONTHS PRIOR TO MID FEBRUARY 2015)
some countries have been reclassified retroactively to the date the behavior of the exchange rate changed and matched the criteria for reclassification to the appropriate category.
For these countries, if the retroactive date of reclassification precedes the period covered in this report, the effective date of change to be entered in the country chapter and the changes section is deemed to be the first day of the year in which the decision of reclassification took place.
SO THE WAY THIS READS TO ME, IS THAT ONCE A COUNTRY INFORMS THE IMF THEY WANT TO MOVE INTO ARTICLE 8, THE IMF CAN REVIEW A COUNTRY'S EXCHANGE RATE HISTORY WITHIN THE PREVIOUS SIX MONTH PERIOD –
AND WILL THEN MAKE A DETERMINATION IF AND HOW IRAQ'S CENTRAL BANK (I SAY THIS BECAUSE THE CBI IS CONTROLLING THIS, OBVIOUSLY) HAS MANAGED THEIR CURRENCY PRACTICES,
AND IF THEY MAINTAINED COMPLIANCE WITHIN THAT "RETROACTIVE" SIX MONTH PERIOD - DOWN TO THE POINT IN TIME THE IMF SELECTS TO "CAPTURE" FOR THEIR DATA HISTORY ANALYSIS..
AND, IF THE IMF DETERMINES THE CBI HAS (ACCORDING TO THIS SECTION) ADHERED TO THE IMF CURRENCY PRACTICES REQUIRED,
THEN THE IMF WILL TAKE THAT POINT IN TIME, AND GO BACK, ON THE CALENDAR, TO THE BEGINNING OF THAT SAME YEAR, PRIOR TO THIS DATE, THE IMF SELECTED TO "FREEZE"
AND "CAPTURE" IN TIME AS THEIR VALIDATION THAT IRAQ HAS ADHERED TO REQUIRED MONETARY PRACTICES IN ORDER TO MOVE INTO ART 8...
SO...LET'S SAY FOR NOW THAT THEY LOOK BACK SIX MONTHS FROM NOW THEY WOULD BE LOOKING AT JANUARY 19, 2015 –
AND THEY COULD SEE THAT THE CBI MAINTAINED THE MARKET SPREAD WITHIN THE 2% BETWEEN THE CBI SELL RATE VS THE STREET/MARKET SELL RATE –
AND FOUND THEY WERE IN COMPLIANCE ON THAT JANUARY DATE, AND THEY AGREED THAT THE CBI COULD MAINTAIN THIS AND THIS PROVED TO SUPPORT THE IMF'S DECISION TO ACTIVATE IRAQ'S REQUEST TO MOVE INTO ARTICLE 8 –
BECAUSE THEY WOULD NEED TO GO TO THE BEGINNING OF THE YEAR OF THE SAME POINT IN TIME THEY SELECTED AS MEETING THE "CRITERIA" FOR IRAQ TO GO TO ARTICLE 8,
THEY'D BE GOING BACK TO JANUARY 1, 2015 - THE BEGINNING OF THE SAME YEAR FOR THE POINT IN TIME THE IMF CHOSE.
Comments may be made at the end of Part 2 Thank You