Tlar Commentary & 2008 Strategic Study
Tlar Can someone please post the 2008 strategic study here. This is the plan that Iraq is following IMO. It sets forth the guidelines with which both Shabibi's CBI, Turki's CBI and what I believe Keywords is operating under. A roadmap worth revisiting.
It would be a good review for newer folks as well as a good discussion point to take apart. Also could we post Dr. Bakri and his educating Iraqi's in symposiums and at Universities while he worked for the CBI.
In his training he discusses the before and after exchange rate change that is coming.
These two articles together would help explain the guts of the program as to how it affects the people of Iraq and the dinar providing us with a better nderstanding of what's happening today and where they are going. Well worth revisiting these discussions. Thanks in advance to whoever re-posts these articles. tlar
Tlar Here it is. Read the whole thing. The meat is at the bottom
View Full Version : MOP The Exchange Rate of Foreign Currency in Economic Feasibility Studies 6-8-10
Poster/Username : [Tenmillion] 06-08-2010, 03:53 PM NO DATE copyright 2008
Ministry of P*****ng
The Exchange Rate of Foreign Currency in Economic Feasibility Studies
Below are the central controls related to the exchange rate of the foreign currency to convert the project inputs and outputs from foreign currency to its equivalent in the local currency, and that is by calculating the net discounted present value standard and the internal return on investments in economic analysis that governs investment projects that costs excess one million dinars.
Estimate the shadow price of foreign currency:
1. It is necessary to put central controls to amend the official exchange rate * to reflect the shadow price of the foreign currency, and that is considered one of the necessary requirements to implement the net discounted present value standard and the internal return rate on investment in the economic calculation stated in the instructions, paragraph nine.
The central controls for adjusting market prices distinguished a group of outputs and inputs traded internationally, where the projects production or usage of them is reflected on the abundance of foreign currency in the economy and thus project outputs or inputs used of such are considered purely foreign currency outputs or inputs.
* What is meant by exchange rate: the number of units of foreign currency, expressed in dollar per one dinar.
In particular the following outputs and inputs of foreign currency were distinguished:
· Outputs marketed locally that substitute imports.
· Imported inputs.
· Inputs produced locally that usually go to exports.
· Foreign labor.
According to the pricing rules the value of the output and input (traded) is calculated using export prices (FOB) and import prices (CIF), according to what is listed in the pricing rules.
In other words the pricing rules calculate what the project produces from foreign currency (quantity of exports multiplied by the export price (FOB) in foreign currency or the quantity of substitute imports multiplied by the import price (CIF) in foreign currency, as well as what the project uses from foreign currency and imported inputs multiplied by the import price (CIF) in foreign currency .... etc.).
In a later step, project outputs and inputs must be converted from the foreign currency to its equivalent in local currency (dinars) by using a specific exchange rate for the foreign currency.
2. Justifications for exchange-rate adjustment: there are a number of important and powerful arguments which support the view that the official exchange rate reduces the real value of foreign currency for purposes of calculating the economic national profitability for investment projects and hence for the purposes of investment p*****ng.
It is demonstrated in this context to call for assessing the dinar for less than (3.208) dollar (official exchange rate) when assessing project outputs and inputs of traded goods of exports, substitute imports and imports... etc.
The justifications to call for the use of an exchange rate that is lower than the official exchange rate are:
· The use of an exchange rate that is lower than the official rate is the appropriate action at the investment p*****ng level to translate the country’s economic strategy aiming at stimulating central investments in the sectors that encourage the development of non-oil exports,
as well as sectors that encourage the expansion of domestic production base in order to reduce imports and compensate it with local commodities.
This helps to reduce reliance on foreign exchange earnings from crude oil exports and increases the share of non-oil sectors in the local production.
· The application of the amended exchange rate on project imported inputs will assist in directing investments away from aggregated sectors dependent on imported inputs and the preference of those sectors that rely on locally produced inputs.
· The use of the amended exchange rate helps to correct the balance in favor of the traded goods sectors compared to non-traded goods.
· The real exchange rate has declined rapidly since the early seventies, through rapid rise of the level of prices and local costs which led by the steadiness of the official exchange rate to change in prices
and actual local rate costs that gave an advantage for imported goods at the expense of locally produced goods, meaning that it led to deterioration of the competitiveness of alternative replacement goods and export commodities.
· This action shows that the official exchange rate overestimates the value of the dinar, compared to the foreign currency and from the promoting goods substituting imports and export commodities point of view of.
And in support to this view is the state’s utilization and in a broad approach to the customs and quantitative protection policies especially for consumer goods, as well as export subsidies that exports have through an amended export exchange rate.
3. THIS IS THE PART THAT IS INTERESTING. REMEMBER THIS STUDY WAS DONE IN 2008.
"Estimate the amended exchange rate of the Iraqi dinar to be used in technical and economical feasibility studies and for (1.134) dollar per dinar. This price should be approved for 3 years until re-appreciation by the competent authorities. "
Tlar The above is an RV followed by a controlled float. Since then I believe with the strength of the reserves and fewer dinars circulating, they will just float after they delete the zeros. This is pretty much the plan Shabibi was following and I think Turki has been following since he took over albeit more cautiously.
LWR here's the link http://www.mop.gov.iq/mop/index.jsp?sid=1&id=308&pid=295&lng=en
Tlar Thank you LWR. I went through heck last night looking through literarily thousands of articles until luckily I googled "2008 cbi currency study". Even there it was 7 -8 pages of stuff until I found it.
PART ONE DOLLARIZATION OF IRAQ AND WHY THIS SUPPORTS RV
Tlar Another thing of interest. In April 2012 the CBI started intently collecting the 3 zero notes, the 5000, the 10000, and the 25000. Its policy back them was to keep every big note that came into the bank and give out an equal number of small notes consisting of the 50, 250, and 1000.
We knew long term this did not really reduce the number of dinars in circulation but instead caused considerable inconvenience for Iraqi's as it became impossible to use the smaller notes to pay for big items.
None of these denominations were even equal to one dollar so a combination of the smaller denominations trying to pay for a $100 dollar item might conceivably take hundreds of these notes.
We thought of this as Iraqi's having to push a wheel barrel around or carry a grocery bag full of cash, just to go to the store. Thus began the dollarization of Iraq whether CBI planned or not.
USD was already circulating as far back as 2003 due to the monies the US had sent to Iraq to juice it's government, but not in the large numbers we see today. In 2006 Shabibi put in a number of measures to get people to turn in their dollars for dinars but the dollar stayed.
As far back as 2006 he was still trying to de-dollarize Iraq. Shabibi even considered making transactions done in the dollar illegal but realized that was a folly.
Both currencies would exist side by side with the dinar being used mainly for small transactions and the dollar, medium to large transactions. Somewhere late 2011 -2012 Shabibi made a strategic decision to dollarize Iraq.
This was a complete reversal of direction. We know the CBI had been changing large dinars in and sending out an equal number of smaller note, but this was not reducing the numbers of dinar at all.
About this time the UN installed heavy sanctions on Syria and Iran, all but collapsing their currencies.
At the same time Shabibi stated the bank would no longer accept Syria's or Iran's currencies. A concerted effort began to repatriate the dinars in Iran and Syria.
This set the stage for the dollarizing of Iraq completely. By the end of 2012 the auctions were almost exclusively buying dinars with USD, retiring those dinars.
In other words dollarizing Iraq started in earnest at that time. Both Syrian and Iran were dumping the trillions of dinars they were in possession of due to favored trade agreements signed with Maliki at the beginning of 2010.
Both the governments of Iran and Syria early on had accepted the dinar in balance of trade, and the business between citizens of both countries along their adjoining borders was being done in both countries’ currencies.
Because sanctions imposed on Iran and Syria collapsed their currencies causing both countries economic disasters, they were both desperate to get hard currency to stay afloat.
Their own currencies were basically worthless so they turned to their stock piles of dinars as a way to get hard currency.
The only place they could dump their dinars for hard currency was Iraq because it too is not tradable. So this began not only the dollarization of Iraq but the cleaning up the markets of the middle east.
I have often said this was a UN inspired plan to get the dinars out of the hands of rouge states like Iran and Syria and may have well been the real reason Shabibi did not change the monetary policy.
They had to first clean up the mistake made by Maliki when he signed those favored trade agreements allowing Syria and Iran to stockpile trillions of dinar in the first place.
Phillyman This is all nice Tlar but what are your sources telling you? JUST KIDDING. Thanks for the great insight you have brought here. I think I am actually beginning to understand some of this stuff.
HandOverFist Thanks so much, Tlar, for all this background information. It's very helpful in understanding the "how and why" of all of this.
Tlar PART TWO - DOLLARIZATION OF IRAQ
We have watched as the auctions selling dollars for dinars have gone from 360 million USD equivalent in the beginning through today when they have been 20 to as high as 153 million per day.
This has been going on for over a year and a half but the intent is clear. Iraq is dollarizing and dollarizing fast. 350 billion USD buys at todays exchange rate buys 408.1 billion dinars.
At one time 350 million USD sales for dinar was happening every day which means in the beginning of the project to repatriate dinars the CBI was buying almost a trillion dinars every week.
We know from an article Saleh had told us in early 2012 that there was only 4 trillion dinar circulating in Iraq which says to me that most of what the CBI was buying was coming out of Syria and Iran.
Their stock piles were being reduced rapidly clearing the way for a possible RV to take place with out the fear of enriching these rouge states. Think of it this way.
No one would want to see a state that sponsors terrorism to receive trillions and trillions of dollars with which to finance terror. Simply put, this problem had to be dealt with first.
The CBI's policy for at least the last year and a half has been to buy and retire dinars.
The consequences of this we see every day in articles of lack of liquidity and the citizen complaints of the poor condition of the existing dinars still circulating in Iraq.
But just recently the CBI has added new rules and ways to get even more dinars out of circulation.
The CBI announced they will be selling gold coins for dinars only. That implies to me they want to bring in the last of what they can before whatever they intend to do with the monetary policy.
A mop up project. If the true intent of this project was just to make the CBI money, then why not accept any currency with value.
So what does all this mean as to how this will come down. The CBI has shown itself to be intent on retiring dinar, not releasing it.
This would favor an RV as itf we assumed that they were completely dollarized, they could pull the switch and trade 1 .16 new dinars for each dollar in Iraq.
As each trade was made the incoming dollar would be held a reserve and each incoming dollar would cover the out going dinar completely.
This covers the requirements for reserves which has to cover circulating currency only.
Currency held by you and me and in central banks around the world are not considered circulating, but rather this currency is at rest.
It does not have to be covered by the CBI's reserves according to the rules governing currency reserves. So from strictly a monetary stance, an RV fits with this scenario very well.
The problem with the float theory is obvious right from the start. Assumptions are being made by those who promote this theory that the dinar, once an IMF article currency, will just skyrocket.
If the dinar is introduced at 1166 and it is a tradable currency, this could create major problems for its rapid increase. Remember Iraq is running a budget deficit.
If the currency was international surely they would begin to use it to pay their balance of payments with re-flooding the markets with dinar. As trillions of new dinar hit the markets both at home and around the world it would work against any rapid rise in the currency. ‘
The CBI would also have to re-release some of the dinar it had been collecting and retiring, or they would have to print additional new notes of the old currency at even larger denominations than the 25,000 in order to satisfy market demands.
We know that the only new notes they have printed since 2003 is the three language smalls sitting at the CBI. So there exists a real risk, just one of many, for the CBI if they were to free float the currency from 1166.
Also dollarization would still exist because what Iraqi is going to go to the bank and swap his money for tattered dinars. This is the reason he traded to the dollar in the first place because his own countries currency has no value and it is in tatters, making it almost impossible to spend.
This can only be an RV. The benefits of an RV far outweigh the float theory.
There are many more articles that support deleting the zeros both before and after far outweighing the articles during the 3 month period at the end of 2012, where articles talked about a Float.
PS I would like to apologize for any mis-spelled words or grammatical errors. I don't like to read my own stuff. Its too long. lol
KJWayne That makes so much sence that it is scary to me. Thanks again Tlar! At this point in this investment, I don't care about the rate just the date. I need to cash in some and wait some more. Waiting has become easy! A rate above $2.00 and I'll be in Austin eating BBQ! :D
Jtdinar Good stuff and pretty much blows Kraperonis float from the current rate out of the water. Until "reappreciation" stands out as well and the reassessment would have taken place in 2011. Makes me wonder what the feasibility rate is set at now??
Tlar jtdinar, the program is the same. Only the minute difference is that the adjust for the conditions today. Deleting the zeros is .86. So the adjustment has been made from 1.13 to 1.16.
Also because of the CBI's deliberate move to dollarize, the CBI IMO would be stupid to hold the rate for three years as recommended in the study.
My best guess is they will start the float at the staged rate of .86 or 1.16 same thing. I think it will come out as a float at the same time and it will "gradually" as they would have "liberalized their exchange regime" will cause the rise, as the dinar excitement draws dinarians to be very hyped.
We will be singing their gospels creating an even bigger market. Iraq's desire is to return the currency to its glory days. Having this size RV will open the eyes of investors worldwide.
Everyone will want to have dinar as part of their portfolio even stating at .86 because it was $3.24 and would look to investors as they still is plenty of room for profit..
This WILL drive demand for the dinar through the roof. There is not enough dinars out there and we all know what a limited supply does to prices to satify demand.
Jtdinar Awesome, thank you Tlar. Makes sense. How does this tie in with the release of the LD's and the current currency existing side by side for 2 years as stated in a recent article by either MOF or CBI, not sure which it was....realizing of course that many will exchange right away and run for the hills. Just curious how M0, M1, M2 supply will be affected with the value/float..February 13, 2014 at 11:38 A
Ted Thanks Tlar, I agree with your synopsis & appreciate all the time & effort you have put into this & welcome you to CC. Has anyone heard from Randy lately, I'm curios to know if he thinks we're in another window now or if he still thinks it'll be after the elections?
Tlar All the CBI is saying is that both the existing large notes and the new smalls will be legal tender in Iraq for up to three years. Like you, I do not think it will take that long but who knows.
Shabibi was the one who originally proposed that they let both currencies circulate together when he planned to delete the zeros, and Turki has also now repeated the same thing indicating he is following Shabibi's plan. Shabibi was following the strategic plan of 2008 to delete the zeros.
KJWayne Any body got any info on this Feb.16th date for the CBI to sell government bonds of this year? I can't find any article.
hi-five Tlar, should we just continue the great thread from last year? A lot of good stuff was posted. Here is the link to the plan taken from page 1 of this thread.
Comments may be made at the end of Part 2 Thank You