This post below is an update of an earlier post – much more discussion has been added - To review the earlier post please click on this LINK
Article Being Referenced & Discussed: LINK
Directed to sell the dollar by 1183 in all the private banks
Author Muhannad David
Dr. Nan at June 23, 2013 at 11:12 AM ----- Ok, so is this as good as it appears? The rate is down to 1183 so this means the street rate and the program rate are coming together? Kap? Tlar? Explain please.
Tlar: Dr. Nan, the CBI is doing what they can to bring the rates under control. We have seen this for 8-9 weeks now, maybe longer. The rates are still not together.
It is possible that depending on the criteria that the bank uses, they could claim the rates are together if they acknowledge the banks sales figure as the number, and if they can get every bank on board.
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Tlar Continues: My premise is that this is not the street rate. The street rate is more than 1189-1183. It is the next level that Iraqi's are selling the dollars for.
I too am hopeful that they can get the rates together using this plan but as long as it does not stem the appetite for dollars from Syria and Iran, sooner or later they will see cracks in this plan as some banks will begin to cheat the system because their profits have eroded.
I see this as a temporary feel good plan that may show the rates closer together in the short run, but does not resolve the problem. These are just my thoughts.
It is not meant to show support for or against this plan, but to say there is many pitfalls that I see that can sabotage this and it is not a long term plan. Iraq needs a long term plan with true substance to stabilize these rates. One that addresses the cause, not just the symptoms.
Carrello: Thank you, Tlar. You thoughts are appreciated.
Punisher: Tlar, if what you say is correct and it probably is I don't see a long term plan that will work besides an rv/raise the value.
Paxx: What is Iran buying dollars with? Dinar? It seems like it would have to be Dinar. Iraqi's probably only use Dolars or Dinars right now. If that is the case then isn't that good? As long as they are not counterfeit, it would be soaking up the Dinar money supply?
Tlar: Paxx, there is another article out today that says that the CBI does not interact directly with bank customers but is encouraging the banks to look at their accounts and shut down the accounts created with counterfeit currency that has made its way into the banks.
It also says these banks should confiscate this bogus currency so it does not find it's way back into the market. That tells me some counterfeit currency is making its way into the banking system and is being recirculated back out again as I have long suspected.
When a bank gets both good and bad dinars and that bank is unscrupulous, they sell the good dinar to the CBI to buy USD and they recirculate the bad dinar. In the article I just mentioned, the author states that counterfeit currency is not a problem and it does not effect the exchange rate.
IMO it is a bad problem because Iran continues to buy USD with bogus and good dinars. The premium that Iran pays to buy USD definitely effects the exchange rate.
Iran we know is counterfeiting the 5000, 10,000 and 25,000 notes. We also know the government does nothing to stop them nor does it even acknowledge Iran as a state sponsored counterfeiter.
The shear fact that Iran seems to have an endless supply of dinar in which to buy USD with, implies to me that counterfeiting coming from Iran is a chronic problem and is understated by this author.
Remember 80% of the USD that is being put into the banks to be sold, is ending up being smuggled out of Iraq headed to Iran according to one article.
ZenMav at June 23, 2013 at 10:06 PM Tlar, I suspect that in the absence of policing the smuggling and stopping it entirely that the only thing that will disrupt the demand for dollars is a demand for dinar.
I know that that is the nuclear option you speak of, blowing the box and going to par with the USD, but why wouldn't a float succeed at accomplishing the same thing?
Wouldn't a demand for dinar from say, uh, the rest of the world trump and eventually ruin Iran's ability to get USD? Even if it takes 3, 6, 9 months? A year?
How does Iran beat that scenario? Or, does the CBI have to stop the auctions entirely to win it?
Punisher: I think the auctions have run their course Zen.
Tlar: ZenMav, Normally I would say it would make no difference whether you float a currency or just change the exchange rate all at once. Under normal circumstances the end result sooner or later is the same.
Iran stands to put a nail in the float theory IMO. If the CBI just floats the currency from 1166, nothing would change. The same dinar that is being used in Iraq and is counterfeited by Iran would still be there even if the exchange rate starts to move.
The non counterfeitable smalls could not be introduced until the rate could support such a move. Everyone knows Iran is counterfeiting dinar with which they sell in Iraq for hard currency. What we don't have a handle on is the amount of good dinars they still have.
I have suspected that they blend both the good and bad dinars and dump these in Iraq. If the dinar were to become international at or close to 1166, Iran could then use the good dinar they do have internationally to pay trade, with but they would still be counterfeiting the bad and dumping in Iraq and elsewhere.
As the value went up, as long as it was too low to introduce the smalls, Iran could still take advantage of these new levels bringing even more money to it.
Counterfeiting could also stand to stall increases in the dinar float as Iran just flood Iraq's market even more willing to pay whatever the price to continue to get USD..
The only solution I see is the smalls being introduced. This will stop Iran dead in its tracks. They theoretically Iran will not be able to counterfeit these.
The only way the CBI can introduce the smalls is to raise the exchange rate high enough to warrant their release. Because of this unique situation caused by Iran, I think this will be the only way to stop all this.
The US had to change our currency a number of times to finally produce a series of bills that Iran could not counterfeit to get them off our backs. I'm afraid the CBI is in the same situation.
They will have to have new bills that are not counterfeitable by Iran. So they IMO are faced with a redesign and reprinting of the current denominations or releasing the smalls.
I don't believe they will want to reprint the 1000, 5000, 10,000 and 25,000 notes. So until they introduce the smalls, Iran will remain a nasty parasite to Iraq. All of this is just my opinion.
Punisher: Well explained and easy to understand Tlar, thanks.
Timsters: tlar do they have a full proof way of detecting the real from the counterfit.? i mean is there any chance of them just saying heres the new currency and due to the counterfiting we wont except any of the old dinar. --tim
Tlar: Timsters, the CBI only purchased 10 de la Rue machines that we have seen in the last couple of years. With as many banks and branches in Iraq as there are, very few will have a machine to detect counterfeits. Mostly this is does by hand and eye.
This is what I referenced in my first post on this thread. It has to be a daunting task given the amount of bills they take in everyday and the number of transactions the independent banks do.
There has to be both counting errors and counterfeit currency that is slipping into the private banks.
This is a problem the CBI is trying to address by asking the banks to close accounts and identify and confiscate counterfeit currency.
It is easy for the CBI to make a decree like this but based on the shear volume alone, Independent banks are not equipped to handle the influx of this many dinars everyday because people make mistakes.
This does not mention the unscrupulous banks who knowingly take in bad dinar, that are playing the system for huge profits by accepting the bogus dinars.
They are setting up accounts and re-releasing the bad dinars to circulate on the street while selling the good dinars back to the CBI to buy more USD.
Kaperoni: Every bank has Delarue portable authenticators/counters. If you ever watch these videos you will see the devices in front of the tellers.
These are more than capable of detecting the fakes. Counterfeit is confiscated, not returned to the streets. Anyone who has one, loses the bill and loses the account credit for the bill.
That is how banking works. The devices that the CBI purchased last year are for industrial usage (validation, sorting, shredding) used in high volume.
More than likely used on a daily basis not one time for a currency change. Iraq is primitive in many ways, but be assured, banks have validation equipment. This is getting off topic.
Punisher: Thanks Kap.
Tlar: Thanks Kap, I would hope you are correct that every bank has counterfeit detectors but that really makes me wonder why the CBI has asked the banks to close accounts that were opened with counterfeit currency.
A machine that counts money has to have the money pre-sorted into stacks according to denomination. A counter physically only counts the number of pieces of paper going through on a pass. When an Iraqi shows up with multiple denominations to buy his share of $5000 USD, he might show up with 50, 250, 500, 1000, 5,000 10,000 notes or any combination of these notes.
$5000 US is roughly the equivalent of 5,830,000 dinars at 1166 per dollar.
Here's a possible sample combination of bills to equal $5000 USD that uses no 25,000 notes. 500 (250 dinar notes) and 500 (500 dinar notes) and 500 (1000 dinar notes) and 500 (5000 dinar notes) and 250 (10,000 dinar notes).
Total notes in this example is 2250 notes to equal $5000 US, potentially one sale to one Iraqi of the many that day. If these notes may or may not be presorted by the buyer.
If not presorted, the bank has to sort them before they can run them through a counter.
There have been many articles recently that have talked of torn and shredded bills. What dinars are still out there are in very poor condition.
Anything that looks new should immediately be called attention to. The older torn bills probably would not run through the counter at all or most likely would jam the machine. This looks to me like a monumental task and it leaves tons of room for human error.