My Two Cents from a Perspective of: Opinion vs Published Intention on the IQD Part 2
Opinion: The probable scenario for the upcoming redenomination/revalue will be that the existing high denomination De La Rue IQD banknotes will have their value raised; plus at the same time new IQD currency of smaller denomination notes will be put into circulation and with the same new RV exchange rate that the higher denomination notes are given.
People will continue to trade in their De La Rue high denomination notes for USD cash and eventually, only the 25,000 notes will be pulled from circulation while all the rest of the existing higher denomination De La Rue notes from IQD10000 on down will be left in circulation to co-exist indefinitely with the newer lower denomination notes which will be in denominations all the way down to IQD 1.
Perspective: According to Iraqi mainstream media, when the new currency becomes available, Iraqi citizens will have little choice but to go to their local banks or currency traders to trade in their high denomination De La Rue banknotes for the new CBI-issued lower denomination banknotes.
A financially aware Iraqi citizen (make that most of the population) will undoubtedly ask for USD at their local bank or exchange, since that is all that has been available for trade right up until……yesterday?
That Iraqi citizen will then undoubtedly be told that he would first have to trade his high denomination Bremer era, soon to be extinct, De La Rue notes for the brand new currency at a direct ratio of 1000 old to 1 new. He will be told that those new lower denomination IQD notes can be had either in cash right there on the spot or from an ATM machine via debit/credit card later ~ as they are needed.
If that particular local Iraqi bank has the USD available, that particular Iraqi citizen might get to have the option of trading his newly acquired lower denomination IQD for USD at the newly announced exchange rate.
If that’s how it goes, and the announced rate is say $0.50 or 50 cents on the dollar ~ affecting both IQD currencies simultaneously ~ then all the Iraqi citizens trying to trade in cash banknotes (in a mostly cash society) are going to be told that they must first turn in their IQD10000 notes (supposedly worth US$5,000 to foreign speculators) for a new IQD10 note worth only US$5. Certainly no profit there.
That might tend to make a person mad if he was stuck in Iraq with no other choice; and especially in light of a definite, selective, lack of profit for Iraqis themselves, in a deal that seems to favor only foreign currency speculators holding high denomination De La Rue IQD banknotes outside of Iraq.
Will foreign speculators have to go through the same drill as an Iraqi (trading from old notes, to new notes, to USD) in order to get paid? If so, where is the profit in that?
Opinion: The exchange of the old currency for the new has nothing to do with value.
During an exchange period lasting anywhere from 90 days up to two years where nobody in Iraq loses anything by just exchanging the notes, foreign investors will also be able to exchange old currency for new and then watch the value of the new notes climb against the USD (within the time limit of whatever exchange period actualizes) until such time as they will be able to cash in the new lower denomination notes for USD at no loss.
Perspective: 90 days was the time given for the last Iraqi IQD redenomination exchange period when Bremer and his boys added the zeros to the currency and this transition period was necessarily short because of the war.
According to the published CBI plan for the project, a “peacetime” redenomination scenario will be scheduled with a minimum of 2 years allowed to exchange high denomination notes for the new lower denomination notes
Most foreign investors holding IQD cash paid close to US$1000 per IQD Million (including shipping) at a time when bank prices were near US$855 per IQD Million. There will also be an additional fee to exchange old IQD for new IQD, plus the additional fee to finally exchange new IQD for USD.
Even if those last two exchanges (from old to new and then new to USD) were made for free with absolutely no dealer/bank fees involved, there’s still the $1000 (cost) - $855 (sell) = $145 (loss) per IQD Million to make up for in the cash-in exchange rate (within the exchange period time limit) before most foreign cash speculators can expect to cash out with no net loss.
In order for that to happen the new IQD lower denomination notes would have to rise in value against the USD from the initial outing of (US$0.85 per IQD 1) up to (US$1 per IQD 1) within the 2 years’ time allowed for the exchange.
This at a time when the exchange rate has been steady at 1:1166 for the past 4 years. At a time when oil prices are plunging to 5 year lows, causing the GOI Budget to be too skinny to pay Kuwait the last US$4 Billion Iraq still owes in reparations for the 1990 invasion. Instead, that final payment has been put off until 2016.
Meanwhile, Iraq and Kuwait are strengthening diplomatic ties and not just because they share a shipping port on the north end of the Gulf and a lake of oil under the sand.
This repayment of reparations is still being monitored by the Security Council at the UN.
Opinion: Before issuing the new lower denomination IQD banknotes which will then be exchanged for the existing De La Rue notes now in circulation, the GOI will have to educate its own citizens and the rest of the world about its proposed project plan via mass media; and that education period may cause a short delay between the time the new currency is released (with its increased value against the USD) and the time when foreign speculators might actually cash in the De La Rue notes they are holding for these new IQD notes and then eventually for USD.
Opinion: During this delay the CBI may temporarily halt daily auctions, which could mean no USD will be allowed out of the CBI during that time. It could also mean that during that time no banks outside of Iraq will be buying IQD with USD ~ since they can’t expect to turn any IQD notes purchased into the CBI to exchange for USD.
Opinion: Once the auctions resume, the IQD should be back on the foreign exchange platforms, and foreign speculators (unlike Iraqi citizens) will get to cash out their De La Rue high denomination notes at the same exchange rate (US$0.85 per IQD 1) that will be applied to the new lower denomination notes inside Iraq; but without having to first go through that pesky ole routine of exchanging old IQD notes for the new IQD notes.
Get ready to be rich all you foreign IQD currency speculators!!
Opinion: The CBI will issue new fiat IQD currency with lower denominations on their face to exchange and coexist with the currently circulating high denomination fiat IQD currency and then the CBI will RV all circulating banknotes, both high and low denominations, as a managed float at anywhere from (US$0.10 per IQD 1) to (US$1 to IQD1) and then the demand for oil will drive its value against the USD up from there.
Perspective: The very public statements to the press about the future of the IQD by Iraqi Finance Ministers, CBI Directors and Iraqi Finance Committee spokesmen as well as the published statements from the same sources have all been put out there with the same coordinated message; which is, that the CBI wants to reduce the size of the Iraqi total money supply, eliminate the zeros on the face of its currency, raise the value of the IQD against the USD, reduce Iraqi inflation and de-dollarize Iraq.
The last prediction issued by the CBI Board of Directors spokesman in the fall of 2014 was that the project to eliminate the zeros could not begin until at least 2016 due to the tightened GOI budget and the continued lack of stability in the country. When the stability of the country allows it, the project to eliminate the zeros on the nominal face of Iraqi currency will proceed.
The project will proceed with the continued education of the Iraqi public by mass media and local bankers and currency exchanges to prepare for the issuance of new currency that has been upgraded with 3 languages on the notes, with three zeros less than the currently circulating Bremer era De La Rue notes and with improved security features to prevent counterfeiting. This new currency will also have proportionally more value against the USD than the existing currency.
These new lower denomination notes will be traded directly for the currently issued notes at a ratio of 1:1000; and at no cost to either party involved in the exchange.
Each note in the 1:1000 exchange will be of equal value as expressed in USD.
For example: The currently circulating IQD10000 note, at the current exchange rate of is 1 USD to 1166 IQD is worth $8.58.
A newly issued IQD10 note will be able to trade for either a circulating IQD10000 note or for US$8.58, because it will have had its value against the USD proportionally raised so that it too is worth US$8.58.
That would mean that the new currency will have an exchange rate against the USD of US$1.00 per IQD 1.166 while the existing currency would continue at the current rate of 1:1166.
This coexistence of the currencies is projected to last for a 2 year period or until the CBI is sufficiently satisfied that the Iraqi Total Money Supply, through the systematic removal and destruction of the large denomination banknotes, has been reduced enough for the CBI to feel confident enough to continue to raise the value of the IQD up towards 1:1 and thereby have a chance at the de-dollarization of Iraq.
Opinion: By the time any on par (1USD:1IQD) exchange rate happens, the Bremer era, De La Rue IQD banknotes will be out of circulation and will no longer be honored or redeemed.
Opinion: The CBI will most likely not delete the zeros from their currently circulating high denomination banknotes and any publications about that scenario coming out of Iraq should just be ignored ~ they are meant to fool you into selling your dinar too soon.
Instead, the CBI will most likely raise the value on all notes including the simultaneously introduced new lower denominations notes.
Opinion: There are USD millionaires who have purchased US$ Millions worth of IQD and are now holding IQD Billions and they should know what they are doing, since they are already USD millionaires.
If millionaires who can afford to speculate with US$ Millions think that there is a chance to make a profit speculating on the IQD, then it should be all right for the less well-heeled speculator, shouldn’t it? After all, these millionaires didn’t make their millions by being stupid about money, did they?
Opinion: Even if there is a huge rush to cash in and trade IQD’s for USD’s by both Iraqis and (millionaire) foreign currency speculators at the very first re-valued exchange rate published, the IQD will still continue to rise in value against the USD; even at the same time the CBI is depleting its USD Cash Reserves to pay out for the in-coming De La Rue notes.
Only people in the know, such as millionaire currency speculators, understand why this is possible in Iraq, but nowhere else in the world.
Opinion: People in the know such as Accredited Investors and Professional Financial Advisors understand about protecting their assets; so it pays to be prepared for an overnight windfall of wealth by following their example or the example of millionaires when preparing for a sudden windfall of wealth.
Perspective: Even prudent (non-millionaire) people have been known to run out of funds diligently earmarked for the maintenance of offshore corporations, bank accounts, trusts, etc. which were set up, kept open and prepared to receive and deal with a sudden windfall of wealth; and that happened while they are waiting on that very same windfall of wealth.
All qualified and certified financial advisors and professional investors are not necessarily sufficiently schooled in the international rules governing currencies; despite having passed extensive testing to be qualified and licensed equity traders.
Both the IQD and the USD are fiat currencies backed by absolutely nothing more than their own Central Bank’s declaration of worth; neither one is backed by oil, or gold, or silver.
In fact the accepted value of the USD and therefore the IQD (which is pegged to the USD) is only ‘reflected’ in the spot prices of either silver or gold.
Those spot prices are kind of benchmarks to help estimate the purchasing power of the USD (and the IQD) at any given time.
The Fed declares what its notes (promises to pay) are worth and the CBI gets to decide what its own notes (promises to pay) are worth relative to the petro-dollar, aka the USD.
Iraq is still the nominal head of the 22 member Arab League of Nations and so anything financial coming out of Baghdad ~ good and bad ~ will be affecting the entire region.
Besides Iraq, these countries all call their own fiat currencies, the Dinar: Kuwait, Bahrain, Jordan, Libya, Tunisia, Algeria and Serbia.
Besides the Iraqi IQD, both the Bahrain Dinar and the Jordan Dinar are pegged to the USD and Iraq is increasing its diplomatic relationships with Kuwait, again.
With these relationships already established and on-going it appears that any major RV of the IQD against the USD might also immediately and directly affect the Kuwaiti Dinar, the Jordanian Dinar and the Bahraini Dinar all of whose central banks are CBI’s immediate neighbors in the region.
To be neighborly, the CBI might feel the need to inform those other central banks (and trading partners) that their own currencies were about to be affected by the CBI’s plan to redenominate/revalue the IQD against the USD.
Opinion: It’s probably not possible to keep such an IQD RD/RV event a secret given all the trading partners having to be in on the action.