SkiRacer: Lesson 1: Dinar rates and contracts
(This is what I sent to my circle. If it helps you -great, if not, no problem skip it and the others. It is my effort to complete my training for my circle and am sharing it FWIIW here.)
LESSON 1: DINAR RATES AND CONTRACTS
Each country has a currency it uses for its citizens and government to transact business. The USA has the US Dollar (USD). Canada has the Canadian Dollar (CAN). Iraq has the Iraqi Dinar (IQD), Serbia has the Serbian Dinar, Vietnam has the Dong (VND), CHina has the Yuan, Mexico has the Peso, the new EU has the Euro (EUR), Norway has the Kroner.
You will find areas of the globe that use a similar nomenclature for the countries there. For example many South American countries use a peso but each country has its own. North America uses the dollar but Canada and the USA each have their own dollar. Most Middle Eastern countries use the dinar, but each one has its own. So there is an IRaqi dinar, a Kuwaiti dinar, a Serbian dinar, a Jordanian dinar, a Qatar dinar, etc.
Asset backed vs Fiat Currency
The Iraqi dinar is different from other world currencies in that it is required to be asset backed. This is an attempt by the International Monetary Fund (IMF), the Bank of International Settlements (BIS), the UN, the US Treasury and everyone else you can think of (except the Federal Reserve in the USA!) to push world currencies to asset backed instead of merely a printing press (known as FIAT money). The USA used to be gold-backed until Nixon took us off the Gold Standard in 1971 because we did not have sufficient gold to back all the outstanding money. The USA is now a fiat-based system.
Exchange Rates and Spreads:
Each country currency can be traded for a different currency from another country. There are published exchange rates, typically found on Foreign Exchange sites, such as FOREX, Oanda, US Treasury, etc. Banks will have their exchange rates as well. There are differences in the rates for which the FOREX (like you find at an airport) or bank will BUY your currency which are less than the Sell rate. The difference between the BUY rate and the SELL rate is called the SPREAD. This parallels the BUY/SELL philosophy of buying and selling stocks or mutual funds. Of course, in our case with the dinar we want the smallest spread because we are the SELLERS and the bank is the BUYER.
I doubt if the spread among banks will vary much as it is not in their interest to do so at this point.
IF you SELL Canadian dollars today, the Bank of America will BUY them for .8743 US Dollars. Thus you would sell one Canadian dollar and receive back 87 cents in US coins for the transaction. IF you offered to sell US$ because you wanted Canadian you would get $1.08 Canadian dollars back.
Here are the BUY / SELL rates for the Iraqi dinar today on Oanda: http://www.oanda.com/currency/converter/
Selling 1.00000 USD you get 1,160.56 IQD (so your dinars are worth something today even)
Buying 1.00000 USD you pay 1,171.10 IQD (this is what we will be doing but after the RV this rate will CHANGE!.)
For about 3 months the rates have been kept ever so quiet. All I can do is remember the rates from months ago to report here. They are not likely to match the rates when the RV happens!! Those are the numbers you might find on FOREX when the RV occurs, or posted on Oanda, BofA, etc. THis is for examples only.
Iraqi Dinar international rate: $3.71 (this means when you present one dinar they will pay you $3.71 USD for each one)
Vietnamese dong: $2.10 (Again, you will get $2.10 for each dong presented)
History of Dinar:
IN 2003 the world agreed to devalue the Iraqi dinar (which then was at about $3.40 or $3.70 US) to almost zero to prevent Saddam Hussein from squirreling away money that the international community had been giving IRaq. No bank worldwide would take the dinar any longer and still won't. The US and other allied countries accepted the worthless dinar as payment for freeing Iraq and paying for the war, knowing that one day the dinar would be valuable again and their countries would be repaid. The intent was to ReValue the dinar at some point when Iraq reached stability and had emerged from bankruptcy. Well all that has now happened. We just await the RV itself now.
Iraq via this ReValuation (RV) process will have asset-backed currency. Iraq has oil, gold, diamonds aplenty to support a substantial value for the dinar. The world is very interested in its oil reserves.
Dinar Contract Rates:
THus, the US and China have negotiated with Iraq that for each dinar they present back to Iraq during the RV (meant to help Iraq collect all the large notes that are outstanding worldwide that have been needed for the awful rate Iraq has endured for 10 years), that Iraq will provide one oil credit to that country at $32. This means that both the USA and China can obtain a barrel of oil for $32 while it is currently selling on the open market for over $100 a barrel. THis is a pretty good deal!
Enter the Citizens who own dinars. Bush's Ex Order 13303 in 2003 allowed not only the US GOvt to own dinar but the US citizens as well. However, that is not widely known. Only a select few know. Thus, they own dinar and will benefit richly from the playing out of the ReValuing of the dinar.
Dinar Contract Rates will have a high level and low level within each of the US Contract rates and Chinese contract rates because both countries want those oil credits. Remember the FOREX international rate will be about $3.71. Months ago the rates I was hearing were:
CHINA High rate: $36 Low rate: $32
USA High rate: $27 Low rate: $20
WHy are these rates different? China is willing to pay more for those oil credits priced at $32 than the USA because buying a barrel of oil at $32 instead of $100 is a good deal and China needs the oil. So CHina pays us $36 for one dinar, buys a barrel of oil for $32, saving $68 on the market price of $100 for a barrel, then subtracts the $4 they had to pay us extra, netting $64 for China for each barrel of oil. It is not rocket science to imagine that China would be willing to pay more than $36 if it had to because it is still a good deal for China.
In the case of the USA, we have our own oil so we are not as desperate for oil. The USA would pay us $27 for a dinar, making $5 on each one since they turn our oil credit around and sell it to Iraq for $32; thus they buy a barrel of oil at $32 and make/save another $68 if oil remains at $100; so the USA makes $73 ($68 plus the $5 discounted purchase of the dinar) for each dinar the UST can gather to present to Iraq.
The object of the game is the same, each country is merely playing it differently: obtain oil for $32 a barrel from Iraq.
WHY THE TWO CONTRACT RATES? Because the USA is trying to make more money. If you take the higher rate the tax rate will SUPPOSEDLY be the capital gains tax rate, and remember the USA is offering to pay you $27 (or whatever the rate comes out at). IF you take the lower rate, the US Govt has SAID (CAUTION: no law is in place, it is merely words!!) that they will give you a tax break, plus it cost them less to buy the dinar from you and they make money both coming and going, so they can reduce your taxes.
There will be a separate lesson on taxation.
International Rate vs Market Rate vs Contract Rates:
The International rate above is about $3.71. That is a guesstimate. This will be the rate at which Iraq deals with the world, such as in paying for goods, etc. This will be the rate on FOREX and OANDA and the CBI (Iraq Central Bank), etc. Currencies are not normally taxed when converted. If you buy a currency as a stock then it is, but not if you present raw currency for trade. (THERE is some disagreement on this point).
Let us consider for a moment that the rule is currency presented is not taxed. Then you can present your dinar at FOREX and get $3.71 (less FOREX's spread). FOREX will present the dinar to the UST. Then the UST still gets an oil credit but this time having paid only $3.71 for it, saving over $23 apiece on this end ($27-$3.71). THEN the UST buys a barrel of oil for $32 making the oil pretty dang cheap! Remember it sells on the open markets for $100! So the USA makes $68 on that end. In total the USA makes $91 on this deal. So the rumor is there will be no tax if you exchange at the international rate.
The USA Is not stupid. They know they could give a small bonus to entice you to sell your dinar at a cheap rate and not the lowest rate to eliminate FOREX.