Zzzzzzzzz: Currency Crisis in Iraq - Something has to change soon!!!
Any currency crisis usually comes with dire consequences for a country, and the threat of one in Iraq shows how the impact can go beyond the economy and markets.
A foreign-exchange crunch because of a drop in oil prices could force a devaluation of the dinar and risk making the fight against Islamic State militants even tougher. The nation, currently OPEC’s biggest producer after Saudi Arabia, is dependent on oil revenue to fund its operations on the battlefield and quell growing unrest over the economy.
Iraq's Looming Dollar Shortage
Dollar reserves tumbled about 20 percent to $59 billion as of July 23 since the fighting escalated a year before, and the losses are accelerating. In the first 25 days of August, the central bank sold $4.6 billion of currency to keep the dinar at a pegged rate, a daily outflow of about $184 million, data compiled by Bloomberg show.
Picture –iraqs looming dollar shortage
“Iraq’s perfect storm means the country will continue to lose reserves until the government of Iraq decides to devalue the dinar,” said Frank Gunter , author of “The Political Economy of Iraq.” The currency could weaken as much as 20 percent over the next year, he said.
It raises the prospect of Iraq joining other developing nations in a new wave of devaluations as emerging markets take a hammering this month, led by China. The Iraqi dinar is one of those most at risk in the Middle East from that happening, though the current exchange-rate regime is likely to remain, according to research published on Tuesday by Emirates NBD, the biggest bank in Dubai.
Saudi Arabia’s central bank this week said it’s committed to the riyal’s dollar peg, the Saudi-owned Al Arabiya television reported, amid speculation the country would devalue its currency after the plunge in oil prices.
In Iraq, market forces are complicating Prime Minister Haidar al-Abadi’s efforts to win back territory from Islamic State. Military success has been piecemeal as the government has struggled to enlist support from mainly Sunni communities in parts of the country ravaged by attacks.
The U.S. and its allies have sent arms to the Kurds in northern Iraq and President Barack Obama’s administration plans to spend another $700 million in 2016 on support for the military. The government in Baghdad, though, pays for the bulk of the operations from its budget since the Americans pulled out their troops in 2011.
A collapse in the value of the dinar would raise the cost of living for Iraqis already protesting against government corruption, power cuts and water shortages.
“The policy now is to meet the demand for dollars,” Waleed Eedi, a director general at the Central Bank of Iraq, said by telephone on Monday. The reserves won’t be depleted because of oil sales and the dinar won’t devalue, he said.
The Iraqi central bank’s fixes the dinar’s exchange rate at 1,166 per dollar and there’s pressure on the peg. As a result, Iraq’s foreign-currency reserves may drop to about $45 billion by the end of 2016, according to Exotix Partners LLP, a London-based investment firm specializing in frontier markets.
“The authorities will try to hold on to the peg as long as possible, but may be forced to devalue if pressures continue,” said Jakob Christensen, a director at Exotix.
The central bank has so far resisted government pressure to print money to meet an estimated $30 billion budget deficit. It announced plans for a $6 billion bond program last week, which follows about $1.2 billion from the International Monetary Fund, though neither is big enough to plug the shortfall.
Iraq's Oil Economy
That leaves the Finance Ministry with few easy choices. The government is seeking to cut spending and tackle corruption. Other options include borrowing domestically from public banks or even forcing the central bank to buy dollar-denominated bonds from the Finance Ministry, said Gunter.
“Iraq will be able to finance its 2015 deficit, but if the battle against Islamic State and low oil prices continues, Iraq will then hit a wall,” he said.
MacJedi: RV delays have placed this financial situation in distress. One of two choices now. Rv very soon and reset some global values or watch as this becomes a significant problem not just for Iraq but globally.
DCBill: An so we have thought for nearly two years, but no change. Would appear that someone does not want Iraq & their currency to be strong. Sad for us and sadder yet for them.
I've ceased hoping for the rv 'any day now' or 'this week', whatever the reliable information and however complicated the process. What keeps me hanging on now to the last shred of hope is not the weekly calls, but the research I did early on about the program rate, the U. S. gov't plans, and the quarterly reports to Congress by the Special Inspector General to Iraq.
Perhaps before too many months the Iraqis will realize their goals and we will celebrate with them. By that time, I don't expect any program rates- too many hands in the pot before us (as Tony says, "That's just the way it is!"). The beaming optimism with which I entered four years ago has dwindled to this small hope. At least a small flickering hope remains. Hope yours does too.
SassyD: Sadly, I feel the same as you. What I really do not understand is, if the GCR was really going to happen, why did it not happen before countries were going bankrupt and the markets going into economic collapse and everything else that is happening. It makes me wonder, what is really going on. They say, The Event, is supposed to happen soon, so let's see, if they are correct.
GodBlessTony: Please consider not allowing an "Opinion Piece" such as this get you down.
First of all consider the Source (not shown here) Well, Know the source. Bloomberg News is "The Bankers/PTB" incarnate and just some opinion piece really from someone who does not see the big picture over there...the history behind the War, paying for the war as Countries who are invaded always do.....(Germany still is U.S. puppet after all these years)...
The bankers had a plan from the beginning, with dividing up the oil and other resources...it doesn't fulfill their mission as a major Mid East base of operations and sharing in all Iraq'sresources with investments to have a Country with a low third world currency, massive unrest and chaos within the Country and population.
And an International currency is necessary. And remember Iraqi Dinar was plus three dollars when oil was this low years ago.
Abadi is clearly been working hard on reform...which is re valuation, not devaluation IMO.
As D.C. as taught us, watch what they do, not what they say. Remember some months back when the Swiss Central Bank came out loud and clear, (paraphrasing)...."Our peg of the Swiss Frank to the Euro is solid and essential to our long term currency plans"....and three days later they un pegged from the Euro. A major move.
Don't let others opinions allow you to question what you know to be True. Not just in Dinar Land, but in everything in this life.
Martha: 8/27 my take on the next few days till Hurricane Dinar hits
Well, when I woke up this morning I was happy to see that ALL the markets are making a miraculous recovery after the last 7 days.
Now you are going to say is what was accomplished by this bold move by China?
Well of course, we Dinarians knew it had to be done to jump start the GCR a term that supposedly is a fabrication!
Two things were accomplished by doing this.
China, which wants to be a major player as a reserve currency and part of the SDR needed to wake up ALL currencies and create the start of a re-alignment so that the smaller emerging countries can be on an equal playing field against the USD which will still remain the lead currency and the standard for other currencies.
China's central bank has been asked in the past to do these corrections and decided the timing was now. The Yuan, by doing this thus depegged itself from the USD and is now a "free agent" of sorts.
It is also understood that it may be a floating currency and not a fixed rate like the dollar has been. In the international markets there is always fluctuation in currency value but in country the currencies are usual 1:1.
Now yesterday the China central bank did something for it"s banks, they released billions of dollars for inter-bank usage in small loans @ 3.8% to be used for 6 days. These are similar to our "bridge" loans. They create a money flow when there is a cash flow until the regular flow can continue and pay off the bridge loan.
The time period is very short which makes me think something else is about to happen ?
RV, debt forgiveness??????
The next thing that China did was to create a wake -up call to all the markets that you cannot keep stealing and hedging your bets and creating derivatives up the butt.
There were people caught short and big businesses were hurt and there were some arrests for insider trading. Right now this is the start of perhaps another set of corrections down the road.
Will it be as bad as 2001-2008? I'm not sure but I can say that I doubt the Fed will raise interest rates-to do so would be the need to fabricate more fiat money which is a NO-NO.
The name of the new game is asset backed currency and it is time that every currency be re-aligned to that philosophy.
Now today, we have an interesting timeline. If you go back to my previous posts there are certain things for today and tomorrow 8/27 and 8/28.
ISX is screaming to get on board now. The bonds need to get out international as well as in country and you need reality rates for both.
Will they show on the screens 2 morrow is yet to be seen but it seems Iraq is moving at warp speed.
We know their banks are ready, they are collecting taxes and tarriffs and as of 8/22 I can assume that the people were paid in country-Tony has been giving rates that lead me to believe they have.
The part of the money reform that is needed is to go international and I believe this is what is NOW needed.
8/28 which has 4/eights in it is the pay day for the government, the UN operational sheet is due for 9/1 and I believe you will hear the announcements we are waiting for regarding the CBI/GOI and perhaps the announcement they have completed everything including seating of the government, all the laws signed sealed and delivered and implemented and hopefully we will see the new rates on the CBI site.
I hope so. On 8/29 is the full moon and the completion of a lunar cycle which started on 7/29 with the blue moon also someone told me that Iraq likes to put out new money on the 29th of the month? I'm not sure about that one but it sounded good to me.
Now your question is will we have to wait till next week?
I hope not BUT if Iraq pulls this final rabbit out of the hole than I would say that come 9/1 the whole world will know by the markets and forex changes.
I am hoping that we are in and done by the time it goes truly public, but we can only wait and see if Iraq can do it.
They have promised their people completion in August and there are 31 days so we wait and watch what they can accomplish.
Now you will ask me who is pushing the button
I believe it was given back to the UN/IMF and the Chinese, who have brought us, and the world into a new world of peace and harmony and equality that, hopefully