Here is a much more in-depth understanding of currency reform:
Alright, my Blog yesterday uncovered even more solid proof that Iraq has a real chance of doing it right, unlike other countries that have tried it and only gained ease of currency transactions Iraq wants more, much more.
First, we must understand what currency redenomination really is by definition. Redenomination: is a process that a country can take to recalibrate their currency due to significant inflation and currency devaluation. This is where they arrived at the term “dropping of zeros” from a countries currency. This procedure also involves moving the decimal points to the left of their currency under a straight redenomination.
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If inflation is the reason for redenomination, this ratio is much larger than 1, usually a positive integral power of 10 like 100, 1000 or 1 million, and the procedure can be referred to as "cutting zeroes” or “dropping of zeros” as I have used here.
Folks, remember Iraq has no inflationary issue and this is not the reason for them wanting to redenominate so they do not have to follow this rule.
I know, it’s never been done in history, they all have just dropped their zeros but these people would be wrong, many countries have redenominated and equally revaluated at the same time.
The deference is none of the countries have done it the way we believe Iraq can because the revaluation part of these other countries were nominal but as you will see it can be done and if the circumstances are just right there could be history in the horizon for Iraq.
Well it has been over 10 years now since Iraq had any significant inflationary problems so it is safe to say that this not the reason for this action and by the way Iraq redenomination of its currency due to inflation has never ever been mentioned in any article or announcement from either the GOI or the CBI.
So one cannot compare Iraq with other countries for this reason, it must be for another reason then and they have told us/them through articles.
So one can only come to a logical conclusion that it is the devaluation of Iraq’s dinar over 23 years ago is the reasoning behind them (GOI &CBI) wanting to do a redenomination.
Articles both from the CBI, GOI, Iraq’s Finance Committee Members and Iraq’s Finance Minister have always said that they want to redenominate Iraq’s currency to make it easier for transactions and that is all.
But folks it cost a lot of money to redenominate any countries currency, estimated cost that was announced by the CBI to do this project $175 million dollars. This number is to cover printing of currency, shipping, advertising, man power involved, destroying the old currency and all other associated cost.
So it must be done right, more importantly at the right time and for the right reasons. Iraq is a unique country in this regard; they real don’t need to do this, they have no inflation issues, they have enough reserves to almost cover a complete year of their GDP, so there must be a reason other than ease of transactions at this high cost. This is also why it has taken years of studies and planning to pull it off correctly.
There has been over 60 occasions since 1960 where countries have dropped off zeros from their national currencies. The redenomination’s ranged from dropping 1 zero to dropping 6 zeros and in almost all cases it was to reduce inflation or significant inflation.
It is important to note that Iraq has no inflationary issues and the last report Iraq is stable with an inflation rate of about 5%. So once again it is only to make it easier on currency transaction or is it?
To understand where Iraq is and what these articles are saying we must now look at the definitions of several other terms used in monetary reform, currency reform or both:
Redenomination is much deferent then both terms: currency revaluation and currency appreciation. Redenomination in no way increases the “value” or makes a currency have more purchasing power or strengthens that currency in relations with other currencies.
In this excursive I will assume that Iraq is only planning to redenominate their dinar or dropping off 3 zeros. This in no way means that they are planning this or I believe that they are going to do this because I don’t and they don’t either as many articles show; they want to increase the dinar’s value.
Example only: IF Iraq redenominates only by dropping off (3) zeros from their currency then the same (3) zeros are dropped off their exchange rate conversion data as well, (using the CBI rate of 1166 in this example) e.g. one US dollar will = 1.16 new Dinar (ND) = 1166 “old dinar”, it then takes 1.16 dinars to buy (1) US dollar and this would becoming a neutral move, no increase in purchasing power.
The exchange rate goes from .00086 to .86 or it only takes .86 cents US to buy (1) dinar. Once again there is no increase in the purchasing power of the dinar.
Good thing the Iraq’s want more then these other countries did and that is proven in almost every article that has been coming out since Iraq was removed from Chapter VII. It is time to take a hard look at the terms revaluation, devaluation, appreciation and depreciation of currencies.
Revaluation: is an increase in value of a currency "face to face" with other currencies under a fixed exchange rate system, i.e. increase in the value or strength of the dinar because you now need fewer dinar to buy a dollar.
Altering the face value of a currency without changing its foreign exchange rate is a redenomination, not a revaluation. Altering the face value of a currency and changing its foreign exchange rate at the same time is called either redenominating a currency with an equal revaluation or a revaluation followed by a redenomination depending on what the plan of that said country has in mind.
In general terms, revaluation of a currency is a calculated adjustment to a country's official exchange rate relative to a chosen baseline. The baseline can be anything from wage rates to the price of gold to a foreign currency.
In a fixed exchange rate regime, only a decision by a country's government (i.e. central bank) can alter the official value of the currency. Contrast to "devaluation".
Source of Research: http://en.wikipedia.org/wiki/Revaluation
This is what is being said through these articles, they have the means, the reason to do it and they want to reset their currency, example:
Quote: "the high volume of reserves of Iraq from foreign currency to $76 billion in addition to the 30 tons of gold bullion, and out of Iraq from Chapter VII, make it necessary to set a date to reset the Iraqi currency."
What it will do for Iraq and its citizens, example:
Quote: "The investment of this reserve big help to raise the value of the Iraqi currency compared to foreign currencies, and thus will contribute to reduce the prices of goods and commodities, would be reflected on improving the living standards for the Iraqi people and thus contribute to the insurance community and reduce crime and the fight against terrorism."
Shammari calls to set a date to reset the Iraqi currency or Shammari: the government invest surplus cash reserves in accordance with a well thought out economic policy
Note: Iraq is a fixed rate system now to the US dollar at 1166 dinars to each dollar. The Iraqi dinar is controlled by what is called a Float of Orbit via the daily auctions. This is where the CBI sells the US dollar to banks so to pay for all Iraq’s imports and cycles back in the dinar that then go back out into the local market via salaries and so on.
Devaluation: is the opposite of a revaluation, i.e. a decrease in the value of a currency "face to face" with other currencies under a fixed exchange rate system; meaning a decrease or fall in the strength or value of the dinar because you will need more dinars to buy a dollar.
Nothing that we need to worry about, Iraq’s currency is already undervalued and it is statements like this that prove this:
Quote: To increase the Central Bank's cash reserves of more than 80 billion dollars, meaning that each Iraqi dinar is inside Iraq or abroad is covered by two and a half dollar
Research article: Economy: Central Bank reserve increase to more than 80 billion dollars will boost the stability of the Iraqi dinar
Currency Appreciation and Depreciation: are used to describe a decrease and increase, respectively, in the value or strength of a currency "face to face" with other currencies under a floating exchange rate system, i.e. when market forces generate changes in the value of the currency.
Supply and Demand, if Iraq ‘s intention is to come out at a float then it will be considered as currency appreciation or depreciation depending which way the supply and demand takes it, up or down in the market of international trade.
Currency Redenomination to occur "with an equal step” Revaluation or Appreciation is also possible, for instance, if on the day that Iraq redenomination, the new exchange rate is fixed 1US$=a new dinar1.16 when the exchange rate just before the redenomination was 1US$=D1166 (with new dinar ND1.16 = old dinar1000).
Then this is an increase in value, not by much but it is a redenomination with a revaluation or appreciation, once again depending on what they have in mind.
Devaluation or Depreciation: we do not need to concern ourselves with the devaluation or depreciation aspect because there has never been any indication of them wanting to do this but it would work just the opposite of a revaluation or an appreciation of currency.
Currency Revaluation or Appreciation followed at the same time by a Redenomination:
Iraq wants to do both, we still do not know if it will be Fixed or a Float and we really don’t care, we just care that they do it. They want to revalue their currency and redenominate it, we know this, and once again these articles prove this.
How do we make money if this event has never happened before? Sure in 1961 Germany revalued their currency by 5% and once again in in 1969 by another 10% but we are looking for much more.
Some people are saying that it can’t happen because it has never happened, Germany tried these to combat inflation, Iraq doesn’t have inflation they are doing it for ease of currency transaction and now we find out by more factual evidence that they are way undervalued.
Countries that wants too and others that have:
Quote: Indonesia to cut 3 zeroes from currency: Under the scheme, three zeroes would be removed from bank notes, turning the 100,000 rupiah note into a 100 rupiah note, 20,000 rupiah note into a 20 rupiah note, and so on.
A proposed timeline would have Indonesians using the simplified currency in 2019. The exchange rate would also be revalued, as of now one US dollar fetches 9,630 rupiah. Following the redenomination, that new rate will be 9.63 rupiah.
Quotes: In 2006 Zimbabwe redenominated its currency by transforming 1,000 Zimbabwean dollars to one unit of a revalued Zimbabwean dollar. In the same year, Azerbaijan redenominated its currency by transforming 5,000 units of manat into one unit of the new manat and Romania redenominated its currency by transforming 10,000 units of the leu into one unit of the new leu. All Redenomination’s with Revaluations so don’t let people tell you it can’t be done.
OK, back to Iraq and what they want to do:
It appears that the GOI, all Political Blocs, Members of the Finance Committee, the CBI and all involved aims for both revaluation and redenomination or appreciation (depending on how they intend to go about it).
They have this option of revaluation (proven value thru the IMF) followed by the redenomination keeping the value on the dinar that is in circulation now by using a par data of 1 to 1 or whatever means they want.
Has it been done like this, not a real high revaluation/redenomination but as I showed, it does take place but I haven’t given up. I am going through even more documents but this has been a much longer Blog then I intended it to be so I will stop my research of this part for now.
This paper by the time you finish reading it alone represents 8 hours of research with more to come, because as we get closer most people would stop and just wait.
I, on the other head am getting more excited but to keep me grounded I have chosen to double up on my research to make sure this is all feasible and folks it is becoming more feasible with every document and study I come across.
Other areas that make Iraq unique compared to these other countries that have just redenominated or “dropped of Zeros”:
1) Controlled inflation of around 5% so the 10, 100, 1000 ratios that countries having inflationary problems have do not apply here.
2) Iraq has large cash reserves: $76 to $80 billion depending on articles, with much higher ratios to GDP than any other country that has redenominated and again all were moves to control inflation. Not for ease of transactions.
3) Proven Oil Reserves: None of these other countries have the resources that Iraq has, 5th largest oil reserves at 150 billion barrels per Maliki in Russia last week but folks, and there are studies that have it as high as 500 billion barrels.
Quote: Iraq has proven oil reserves of 118 billion barrels and this could be increased by up to 235 billion barrels
Article: MARCH 7, 2013 http://iraqieconomists.net/en/2013/03/07/views-on-the-prospects-of-iraqs-oil-and-gas-resources-by-munir-chalabi/
Quote: Adel Mahdi - said a spokesman for the Iraqi Oil Ministry, Assem Jihad, that the oil reserves of Iraq of about 500 billion barrels, pointing at a workshop to exchange experiences press organized by the Italian news agency (Aji) in Baghdad and was attended by media people, Iraqi that the updated data for the first time in decades on the reserves of Iraq's oil wealth from the hard, showed that the size of 143 billion barrels», pointing out that «these data can be increased as it accounted for 64 oil fields only.
Quote: The country’s resource base is considered the second largest in the world, second to Saudi Arabia.
Document: IRAQ’S OIL SECTOR: PAST, PRESENT AND FUTURE
4) Iraq is the 11th in the world of natural gas reserves and that is much higher as well. Assets that can be used to back their strength of their currency if needed. Studies have this at number one because only 80% of Iraq has been surveyed by geologist.
5) Paris Club Debt Swaps: Iraq has arranged to reduce its debt through several methods with the help of the Paris Club, through them countries have used investment swaps, development swaps and yes currency swaps. The total debt was around $38 billion and it was all forgiven by these measures and reduced to $7.9 billion which is on a 27 year payout.
These other countries that have performed redenominations never had debt of over $120 billion and have managed to reduce it to less than $20 billion
I will stop here but I want to bring back this statement in conclusion:
revaluation of a currency is a calculated adjustment to a country's official exchange rate relative to a chosen baseline. The baseline can be anything from wage rates to the price of gold to a foreign currency.
Sorry for the long Blog but I believe this one will set even the educated ones straight this time. Thanks for your time and I hope this was helpful. STRYKER