MoodyBlu: So according to all this info, or opinion, we will be lucky to see the iqd reach *one cent* U.S. per dinar or 10,000 U.S. per 1,000,000 dinar. Did I sorta understand that right?
SWFloridaGuy: Sorry for the confusion. Part of my post got cut off. Not saying that at all. Let me clarify:
I believe the IQD will eventually end up around 1 to 1 or slightly more than equal the USD (as referenced by the CBI, IMF and SIGR report on numerous occasions).
The IQD is a crawling peg. The currency is adjusted periodically in small amounts at a fixed rate or in response to changes in selective quantitative indicators The ERM (Exchange Rate Mechanism) which maintains that fluctuations have to be contained within a margin of 2.25% on either side of the bilateral rates has zero effect on our investment.
The CBI is expected to determine the IQD rate in a rule-based manner, adjusting at a predetermined rate or as a function of (actual or expected) inflation differentials.
The IQD is currently pegged to the USD as a defensive measure while Iraq rebuilds. The auctions supply the market with dollars and stabilize the IQD rate against the USD. The rate of crawl can be set to adjust for measured inflation or other indicators, or set at a preannounced fixed rate and/or below the projected inflation differentials.
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SWFloridaGuy Continues:However, what applies to us (as IQD investors) is that the rate is generally adjustable (through discrete revaluations) in case of fundamental disequilibria. As CBI reserves grow, so does their credibility. Reserves are not required to fully cover all domestic liabilities though, which leaves them some room for discretionary monetary policy.
Syria is the only country with an arrangement of pegged exchange rates within horizontal bands. Under this arrangement, the value of the currency is maintained within certain margins of fluctuation of at least ±1% around a fixed central rate or the margin between the maximum and minimum value of the exchange rate exceeding 2% of the fixed central rate.
There is a limited degree of monetary policy discretion, depending on the band width. The interest in this regime is not high in the world and only 2 other countries follow the same arrangement.
In crawling peg regimes (Iraq's case), the currency is adjusted periodically in small amounts at a fixed rate or in response to changes in selective quantitative indicators. Along with 5 other countries in the world, Iraq, Iran and Uzbekistan are the three OIC countries using crawling peg regimes. Iraq and Uzbekistan adjust the exchange rates against the USD while Iran adjusts against a composite of foreign currency basket.
In my opinion eventually when we having a power-sharing GOI, the CBI will make their move and peg directly to the relevant commodity (which is oil) or do a hybrid solution. However, when it comes to the IQD, I've learned the hard way not to say anything with an in-exorable certainty.
It may be a long shot but it is possible that the CBI's numbers are fabricated and that there are really "2 sets of books," which would suggest a deliberate move where the CBI works in tandem with the IMF and World Bank to conceal the true numbers from speculators and protect their plan.
I would imagine that if Iraq is truly preparing to pull off a historic revaluation, furtiveness would be by far the most crucial element due to the potential for abuse and corruption.
The fact that we are talking about these numbers in chat rooms does lead me to believe that if (and that's a HUGE "if") a historic large currency appreciation is indeed on the way for the IQD, "Fixing the books" would be a smart move.
Europe, whose false public finance data helped usher in the latest round of global financial turmoil, the Enron scandal and China's recent "alleged" massaging of their growth numbers comes to mind. There is no independent replication of GDP numbers so we will never be sure.
I am not saying for sure that this is what the CBI is doing, I would have no earthly way of knowing that and have no evidence that this is the case. If Iraq continues to increase oil production and their GDP (which has been affirmed by the IMF), the IQD can increase the IQD in value giving them additional purchasing power in the international market.
Now, progress is finally being made, and the country's massive reserves could bring untold wealth. But before that happens, Baghdad needs to improve security and get corruption under control.
I have been extremely encouraged by Iraq's progress toward Chapter VII removal. Although this does not directly signify a RV per say, when we see general progress that we can collectively process it's always a good sign that things are moving in the right direction. Iraq is showing a lot of progress lately that will eventually mark their reemergence to the international stage.