3-29-13 SWFloridaGuy: Amazing news today(thanks Yota for the article) !! The Finance Committee VP announced that they will be returning the natural rate of the IQD against the USD which proves that Iraq's rate is artificially low due to war/sanctions and not solely due to excessive printing of the old notes. The IMF is also supporting and instructing them on how to accomplish this. Unless you believe in a straight RD, you've known this to be true from the start and why you made a great financial decision (low risk/high reward) in seizing this opportunity.
After talking to several people, with several different theories, I believe Iraq will take a more general convex function where the growth increases in a way completely disproportional to it's current value. In other words a float is doubtful, only if the suggestion is that they would be exponential/or in that neighborhood realistically, when speaking of incremental appreciations.
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But I don't discount it as a possibility because of what a few keep saying incorrectly about the ERM (which is reallly the ERM ll), and is often used to discount the possibility of a steady increase because the members voluntarily agree to contain their monetary exchange rates within a limited percentage margin. The only problem is this has ZERO to do with Iraq. Not even going to bother explaining why it's irrelevant, here's a pdf explaining stage 3 of this inconsequential (to the CBI) monetary union. http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:C:2009:016:0010:0015:EN:PDF
There's already way too much heat on Iraq concerning their currency and the hype. So although they could make incremental appreciations i.e., 1000 to 1 as the next step, I don't see them going that route and with this announcement from the Finance Committee it's pretty clear to me that a gradual increase will not accomplish their goals. I think a historic RV somewhere at least on par with the USD initially is the true direction their monetary reform project is headed.
Considering what Iraq has been through it's actually a fairly quick recovery and although its taken longer than we initially expected it will be long worth the wait. There is one exception to a historic RV that would eventually accomplish their goal of returning a proper value to the IQD. We know the IQD is only currently pegged to the USD as a defensive measure as Iraq rebuilds. So, they've been using the auctions to supply the market with dollars and help stabilize the IQD against the USD.
In theory this could also be accomplished by setting the daily price of the IQD in direction proportion to the daily USD price of a barrel of oil. Iraq keeps talking about going international. Well, either revalue your currency a minimum of 100,000% over night and sustain that growth long-term (which is the real challenge), or do a hybrid solution that would promote integration into world markets.
But according to the IMF, Finance Committee and CBI they have already accomplished the necessary economic/political growth to restore previous values to the IQD immediately. I still think Iraq applying for membership is one of the best clues we have currently and suggests that a big change is on the horizon for Iraq because WTO member countries MUST have a convertible currency. It is a requirement!!
I know someone will ask, "Well, if that's the case, then what about Panama and Vietnam?" Panama is the ONLY country who has exclusive rights to use the USD as its par-value currency and with their USD economy they offer no foreign exchange risk and no need for exchange controls and specific agreements with the IMF and World Bank that are exclusive to them and not common practice. Anyone, who says that Iraq doesn't need to raise the value of their currency to become an official WTO member (which they are claiming will be accomplished), hasn't done very good research.
It is true that the WTO accession process is long and drawn out but that's in part because Iraq will never accede until after their currency reform project has been initiated. Iraq's economic stagnation will remain until they have an internationally recognized and traded currency that's worth more than the termite nest in my back yard. As a member of the WTO, the IMF has very specific policies, under Article VIII and Article IV reviews, that forbid Multiple Currency Practices and Currency Manipulation.
They are grilling Iraq right now and the IQD is being heavily scrutinized. You can bet that those Senior Iraqi Officials receiving training from them already have a plan (whatever that may be), to be put into action soon. They must have an IQD with an internationally accepted value that will support trade and aren't adopting the USD as their National Currency like Panama.
Three good quote from Ministry of Commerce and International Trade Organization, "Iraq's accession to WTO will allow it to strengthen its economy and restart industrial institutions", "Iraq's accession to the WTO will allow it to strengthen its economy and restart institutions industrial" and "Iraq's accession to the WTO means returning to its real and essential in the global economy and that it must be the fact that Iraq an active and influential in the international economy."
The bottom line is it's in Iraq's best interest to move forward with their economic reform project now, which is exactly what today's article is saying. Prior to the actual event the news won't get much better than that.