Tlar & Members Discussion -- Sharing Thoughts - Opinions - Perspectives With Short Update From Randy Koonce At The End Of Part 2
Tlar Preacher. to get to the bottom of OWHN question we need to see the cash sales part of the auctions to determine if they were lower during this period.
I believe what you have shown us is the gross sales which includes remittances. Auctions have two parts, remittances and actual cash sales.
The only number that has ever been important to us in determining how much is going out is USD cash sales as this number represents the amount of cash being purchased by the independent banks to sell to the citizenry on a daily bases.
In other words how much USD is going out daily to dollarize Iraq and the inverse number of how many dinars are coming in. Remittances are a swap of dinars for dollars to pay outside trade and have nothing to do with dollarization or circulating currency. Remittances don't circulate in Iraq.. tlar
DreamWeaver CBI loaning money to banks is perfect way to effectively control in-flow of new dinars (small denoms) into the marketplace and outflow (de-dollarization) of dollars back to CBI.
When framed in that light, it is easy to see how all of the following can be smoothly achieved—not only for monetary reform but also for stimulation of the Iraq economy:
1) CBI would loan banks Iraqi dinar
2) banks would exchange US dollars brought into bank for Iraqi dinars
3) dinars exchanged would be new small denominations and coins
4) bankers could set up new bank accounts for Iraqis exchanging dollars for dinar
5) bankers could activate new bank clients’ Smart cards for receipt of monthly retirement or government salaries
6) new dinars (small denoms) wouldn't flood market with new money--as it's just orderly exchange of money already circulating in marketplace.
7) banks loaning money (dinar) to new bank clients for automobiles and businesses will stimulate the economy rather than, as OWHN pointed out in his excellent posts yesterday: “
drive down the value of the currency” because “... more dollars chasing the same amount of goods” with “ … inflation stimulated (meaning a “cheaper” currency).”
Thus, the positives OWHN pointed out would occur: “… a secondary benefit (and maybe the primary reason for doing this), is it signals the targeted financial stimulus into a given situation and encourages others to follow. The astute investor types will see this support and follow suit.”
8 ) process is smooth, centralized way of helping to rapidly de-dollarize Iraq in compliance with Article VIII, as exchanged dollars will be sent to CBI as repayment for loan
9) process allows banks and CBI to profit through fees
10) these loans could be temporary measure as discussed by OWHN: “… taking our clues from other Central Banks in other countries, those countries support liquidity in their private banks by lending to them on a “temporary” basis."
Of course, these points goe hand-in-hand with RV. I'll definitely be watching articles. Sure is exciting stuff. Blessings ~ DW
DreamWeaver GM, Tlar. Think you meant to say "4.2 million" dinars instead of billions for 1-to-1 rate. If CBI loaning 5 billion dinars, then 5 billion divided by 1166 = 4.288 million.
Don't think your thoughts are hair brained at all. I've been hung up on exactly HOW CBI would accomplish all of what they intend smoothly and efficiently. Loan seems perfect way to me as in two moves: Loan dinars; RV currency CBI could create monetary reform while stimulating economy.
Investors would take it from there. ;) Just have to see how it plays out, but you've filled the gap on this one. IMO pieces fall perfectly into place and seems like something Shabibi would design. Best ~ DW.
Tlar DW, It is exciting. The way you explained it is better than the way I did. It is straight to the though process. You did a great job. This could be the introduction of the smalls to the banks.
I will be disappointed if they commence these loans at 1166 just as I will be disappointed if the pass and "open" the budget at 1166. I personally hope we are on the cusp of an RV and all these numbers will be expressed in the new exchange rate.
I for can not see them passing this opportunity and going through 2015 with business as usual and 1166 as their exchange rate, so I tend to see and read into things as if it is getting ready to happen.
That is why I was fascinated by the banks involvement in supporting the budget and in making these loans for liquidity at this time.
I know there are other possibilities and purposes that are stated and it can be looked at in those lights, but I have to feel that if we are on the right path and that they really are going to RV this year, these could also be looked at as veiled necessary steps to in advance of the program.
It is fun to speculate. Also if anyone could find articles pertaining to the runs on the banks that took place in December 2013 and January 2014 for Mike, I too would appreciate it.
I know how frustrating looking for articles is as I used to spend hours trying to find something that I know I read and many times I would just say screw it and move on. I used to send out the important articles to support my emails when I was putting out emails.
I would think I would have sent out supporting articles on the bank runs. I lost my ability to even look for these when my computer crashed along with my email lists so I can't even check there.
Anyone who can help Mike get some of these articles, please help him. Mike, again I am sorry that I can't get these for you. In the area of research, I feel like a bad student who has been banned from the library because this and dinar daddy are the only sites I am welcome on and unlike Weatherford, who registrars multiple identities on every site because he expects to be banned, I only have the one identity.
Sorry NWA or Parksutton. I am sure you won't take this personally because of course we both know you couldn't possibly be Weatherford. Tlar
Mike Here's what I don't understand. If the CBI gives the private banks dinar for loans and then they loan that same dinar out to businesses, how will they bring in USD?
Say Achmed has a great idea to start a cleaning business. He creates a business plan, submits it to the bank and they give him a loan of 50 million dinars to get it off the ground.
He gets a couple of contracts, starts cleaning and receives payment in dinars. Slowly, over time, he repays the loans, in dinars. Nowhere in this example is there any dollars being pulled off the market, the dinar is used exclusively and won't effect de-dollarization.
In fact, the CBI has just injected 50 million dinars back into the economy, yes it helps with liquidity but in the end, they're still pumping dinar back into the economy, which will cause the dinar to depreciate and possibly effect the inflation.
I agree, DW, definitely exciting times. Today the street rate is 1227, the dinar is already depreciating without the stimulus package even being implemented. lol, no worries, Tlar.
Oldwazhisname DW, great post above. You put some real meat on those bones. Having a number of people looking at this from different perspectives really helps. But as we all know, no one knows if this is really what's coming down at this time, but it's a good exercise to work through such scenarios.
Tlar is right, if this opportunity passes without some kind of break through, we ought to be rethinking how this could come to pass.
Mike, your comment about a depreciating dinar without even implementing (but having announced their intentions), is exactly what you would expect.
People react to announcements knowing what will certainly happen tomorrow (or when its implemented) and start moving in that direction. Inflation (depreciation of the iQD) is to be expected if this is a stimulous package in the traditional sense.
I think several others implied this in their explanations, but if indeed the IQD does start to gain value relative to the USD (USD loses relative value) and the citizens speculate that this trend will continue, then people will jump to hold IQD instead of USD because it relative value is going up and the USD is going down. That might be an obvious statement but I throw it out there for what its worth.
Hi-Five Here is a link that shows the split between cash sales and remittances for December 2013. I would bring it over, but it is a chart and messes up if I try to copy it over here. Go to page 74. The cash sales column is second to last. http://cbi.iq/documents/CBI_FOREIGN_EXCHANGE_AUCTIONS.pdf
Mike Thanks, guys, great thread. Maybe I'm thick headed, but I still don't see how this benefits us, outside of an RV occurring soon after the budget.
OWHN, the spread between the street rate and the official rate has been relatively the same now for over a year, for instance, today the street rate is 1227 and the official rate (plus commissions) is 1179.
For me, that means folks are willing to give more dinar to get at the almighty dollar. The value of the dinar has dropped and remained low now because no one wants it, they'd prefer to do business in the dollar. Now, flood the market with 5 or 6 trillion dinars and what's going to happen?
The spread between the dinar and the dollar will increase because now there's more dinar chasing the same amount of dollar. The same thing will occur with products, there will be more dinar chasing the same amount of products.
Now compound that with Tamimi's statement about capping the auctions of the dollar, and the problem magnifies because now you have more dinar chasing a limited amount of dollars at auction, this would naturally erode the value of the dinar.
With the economy where itr's at today, and the plans of the CBI as far as injecting stimulus money into the economy, I don't see how the dinar will gain value.
Once a domestic economy is created and growing, then I think we'll see a slowly appreciating dinar, but in the meantime, it will probably continue to drop.
Blue, I'm assuming your response is also predicated on the dinar RV'ing as well. Right now the citizens are paid in dinars on their smart cards, not dollars.
So, they take those dinars on their cards and buy dollars with them, which further contributes to the decline of the dinar because of the reasons listed above.
When the citizens get the jobs that the stimulus provides they will be paid in dinars, not dollars, because that's the currency the CBI will use to fund their businesses.
There's no dollars being provided by the CBI to these businesses, they're going to use the dinar because it's their countries currency, and all the CBI has to do is print more money, which is exactly what the Fed did with all of the QE we've been through.
If an Iraqi starts to do well, meaning full time employement and a steady salary, what's he going to do with his new found wealth? Heck, he's going to head out and buy himself a new pickup, and that's going to take dollars because he can't buy anything with the dinar in Article XIV.
Maybe he could pay in dinars to the dealership, but the dealership is still going to have to go through the process of the auctions to get that truck in dollars. So, the cycle continues, more dinars are needed to purchase that truck because there's more of it in their economy.
The only way I can see this work is if they RV the currency before the CBI puts out this stimulus package. Otherwise, the dinar will continue decline. If they don't, then Skylimit is right, we're all screwed.
Thanks for bringing that link over, hi-five, it clearly shows that the auction amounts remained relatively the same over the last couple months of 2013 and early months of 2014.
The CBI was trucking right along selling dollars, the problem with cash flow was because Maliki wouldn't send the Kurd's their money from the sale of oil.
I should say, this is all just my opinion. :) Without an RV, how will this stimulus package and the capping of the auctions help the dinar appreciate?
" We are all born ignorant, but one must work hard to remain stupid " Benjamin Franklin
Tlar I believe you are correct Mike and like Skylimit has said as well we are all screwed if they do this at the current rate of 1166. So let's hope they actually do have plans to drop the artificial rate to something of substance before doing this so called stimulus package! Also the article could just be all bs to begin with who knows...lol
Tlar By the way, I did mean to say 4.2 billion dinars. My math was figured on the CBI loaning 5 trillion to the banks. If you divide 5 trillion by the currenct exchange rate you get 4.2 billion. tlar
Mike Thanks, Blue. My hopes are that they RV (obviously :) ) I don't want this stimulus package unless they do. As far as the budget containing the rate or the rate following immediately after, I won't argue that point. A week or so will tell us if this budget was the same as all the others, or if the rate is in it.
JDinar yes great thread, Perhaps this passing of the budget ( hopefully) completed today, creates a new window ( days? weeks? ) before allowing it to be fully implemented ( or opened ) and shown in the official gazette.
Passed budget > RV > stimulus > official implementation and entered in the gazette. Nothing is perfect with Iraq but would be nice.
Tlar Mike you are a sharp guy. I agree with you. None of what they are doing will enhance the value of the dinar or lend itself to de-dollarization unless their intentions are to change the playing field itself and the rules.
In fact as you pointed out these moves could be construed to be counter productive to their stated goals.
Then not only does the liquidity issue have purpose but so does a cap on the auctions.
Things like Iraqi's using the banks again, capitalizing those independent banks through deposits, de-dollarization of Iraq, etc. etc. will not be affected unless they also change the exchange rate and make that rate attractive enough as an incentive for Iraqi's to sell their dollars for dinars.
These are just some off the stated goals Shabibi had in mind when he designed this poroject in 2006. Tlar
Mally Who knows. Theres still a big deficit to over come in this budget. Id like to hear more about a move to strengthen the private sector and liberate the economy. One thing we know now is the budget wasnt waiting for the rate.
Oldwazhisname I tried to post a separate discussion and it wouldn't post, but this will work in here just as well. -- World Bank donates to Iraq for 6-trillion budget
BAGHDAD / ... revealed an economic expert peace Sumaisem, Wednesday, for the World Bank donated $ 6 trillion dinars to Iraq in order to reduce the projected deficit in the federal budget for 2015.
Sumaisem said, in a statement to "Ein Iraq News", "The final report of the budget must be under certain controls, which reduce the deficit first, and reduce overhead by and increase overall revenues by the last second," indicating that "the World Bank donated 6 trillion in order to reduce the deficit in the Iraqi budget. "
She Sumaisem that "if implemented new standards for the unification of the salary scale on the one hand and the reduction of social benefits expenses, which amounted to 200% then it is possible that these measures indicate a sign of optimism for the Iraqi people,"
she asked, "Do you reduce the minimum functional degrees granted three presidencies?, And classification of peace Do you include a new salary scale for each unified state employees?, how much will the salaries of special grades? "./ ended 13 http://aynaliraqnews.com/index.php?aa=news&id22=30380
This is an interesting article because it appears to be matching funds for what the CBI committed to. It certainly signals that the financial world is starting to get on board with Iraq.
There are several points to this. This should signal that the security situation in Iraq has reached a stage where money people are willing to put up some serious capital.
It also might be a signal that the political situation in Iraq has reached a tipping point in our favor that Iraq will stand on its own two feet and not be a puppet of regional players. I find this very encouraging when paired with what the CBI has annnounced it intends to do.
Mike Good stuff, thanks posters. Blue, I don't believe in Kap's theory of a float from 1166, I think the dinar will go through a "correction" of sorts and then float like most currencies do today. Here's hoping they do this deal soon, I'm ready for a vacation.
Tlar Mally, it is my persal belief that we are watching it happen today with this budget being passed. Tlar
Mally Well its the start of their weekend and they have a budget done. Now would be a logical time to hear from the cbi if they plan to do anything this year. Fingers crossed.
FlyBoy I agree, Tlar and Mally... It is a long weekend..I do not think this budget was passed in a vacuum...plans are and were in place for the next step...just sayin
Tlar Agreed mally. What a great disappointment if they don't. IMO they will have let one of the greatest opportunities go by. Both us and their citizens would have to question their motives.
Anyone knowledgeable about economic investments knows that half of the success of a given investment is timing. I would be surprised if they ignore the timing altogether and go back to business as usual.
Just as the Abadi government’s credibility was at stake in getting this budget passed, I believe the CBI's credibility is now at stake on their program to delete the zeros. Do it or shut up about the deletion of the zero program.
Their citizens have to be more tired than we are hearing, hearing and then hearing again about a future better life and bringing purchasing power to their currency.
Somewhere this has got to come to fruition and the timing says that's now. Timing is everything. To drag this out another year would kill the momentum they have achieved IMO. tlar
Hi-five Here is a short take from the New Central Banks Policy Instruments from the link I posted earlier.
New Central Bank policy instruments Summary
At its August 26 meeting, the Board of the Central Bank of Iraq (CBI) adopted a new Reserve Requirement regulation and a new Banking Facilities regulation. These regulations are attached.
This Communiqué sets out the broad features of the new regulations and explains the reasons for adopting them in the context of strengthening the CBI’s conduct of monetary policy and supporting the Ministry of Finance’s (MOF’s) new government securities issue program. The CBI will soon issue draft instructions for implementing the new regulations.
. . . . . . . . . . . . . . . .
The CBI will open a standing deposit facility, which will accept overnight deposits from banks with excess reserves. Funds will not be placed in the facility unless explicitly ordered by a bank.
The interest rate on these deposits will be set below the CBI Policy Rate. Initially the rate will be set at 2 percentage points below the Policy Rate.
The facility will provide a floor to very short-term interest rates, which will help bring some stability to bank expectations about interest rates. Moreover, until a t-bill market develops in which the CBI can conduct its open market operations, the deposit facility can“automatically” drain excess liquidity from the banking sector.
The Policy Rate
The monetary policy of the CBI expresses itself, in part, in the short-term money market interest rates that it brings about. That market is now very undeveloped and thus cannot yet be relied on to reflect the central bank’s policy stance.
Until that market, or the secondary market in very short-term MOF securities is adequately developed, the CBI will signal its target for over night, interbank interest rates by setting a bench mark reference rate. It calls this interest rate its Policy Rate.
Banks are free to set their own interest rates and to deal with each other and others in the market at any mutually agreed interest rate.
The Policy Rate is the bench mark rate from which the Primary Credit, Secondary Credit, Lender of Last Resort credit, and Overnight Deposit rates are set.
It is the rate the CBI thinks is appropriate to maintain price stability and that its monetary policy will attempt to achieve (by keeping bank liquidity at levels consistent with the Policy Rate).
Open Market Operations
The CBI can influence bank liquidity (excess reserves) and thus short term interest rates by buying and selling government securities.
Selling such securities to the market from the CBI’s own holding would drain liquidity from the banking system (by reducing bank’s balances in their reserve accounts with the CBI). Buying them from the public would increase banks’ liquidity (i.e., their reserve account balances).
Such open market operations (OMO) would provide an important second instrument (along with the foreign exchange auctions) of active liquidity management.
Various strategies for the use of OMO are possible. The CBI might, for example, choose to provide for desired long-term monetary growth through the accumulation of foreign exchange reserves.
The monetary effect of higher or lower rates of foreign exchange reserve growth resulting from interventions to stabilize the exchange rate could be sterilized with OMO.
Otherwise OMO would be limited to stabilizing bank liquidity and keeping short-term money market interest rates within the tunnel of the CBI’ Credit and Deposit facility rates.
OMO will generally by undertaken on an auction bases with banks. Such auctions will look very much like the foreign exchange auctions now being conducted.
Oldwazhisname Hi-Five, Thanks for this. I don't know if the commentary is yours or some part of the press release that went along with the article but it is a perfect synopsis of what those mechanisms are and what they intend to accomplish.
Its exactly like our Fed works so we see the CBI in an aggressive way bringing their monetary policy up to world standards and making attempts to get it to function like they want it to. I especially like the commentary of where they are and what they are/will do. Really good post.
Rockstar From Recaps regarding the budget from Trillion to Billion!!! Just food for thought.
If the budget is 424 Billion Dinar and we used the original amount of $125 Billion USD, we have a rate of 3.40 dinar to $1 USD.....probably higher than that of they lowered the original budget from $125 billion USD.
And another calculation:
Original budget was 125T at a rate of 1166 = 107B USD
The budget now of 484B / 107B = 4.52 USD rate
The article talking about billions was talking about that line item or section in the budget. I believe it was the parliaments overhead or something, it wasnt the entire budget.
hi-five OWHN - Yes - the policies are in lock step with the Fed. Check out the complete policy - - here is the link again:
I didn't comment, I only highlighted. I wanted to highlight the whole document, though!!
Mike The budget today was for 119 trillion dinar, roughly 120 billion dollars.
--" We are all born ignorant, but one must work hard to remain stupid " Benjamin Franklin
G-Lin I POSTED THE ENTIRE ART. ON THE OTHER THREAD SAYING BUDGET WILL BE IN GAZETTE 1/31/2015. THAT IS WHAT ART. 59 IS ABOUT. THAT IS MUCH FASTER THAN I EXPECTED. :) HERE IS THE LINK: http://wwww.alforatnews.com/modules/news/article.php?storyid=75624
RDiddy Thank you for bringing the most exciting news of the day, G-Lin! Or maybe it's the icing on the cake ;) -mrs d
Preacher Mally, JMO, but I think in reverse, the rate was waiting on the budget, and I think I love Mountain Goat.
Rockstar Yes G-Lin that is more HUGE news seriously if they get it done that fast, let's hope so for their people!
Phillyman From Randy Koonce: How you Makin it Phillyman?
Randy is out of town and asked that his information be passed on in order to keep his phone and e-mail from exploding.
The Iraq budget was passed today but, that does not mean that they will RV their currency tomorrow or the next day. It is another pressure point being put on those causing the delay of the RV.
It was a necessary step before completing the RV but, Iraq has had budgets passed in later years and still did not revalue their currency. Things are still looking good , just remember to ……….. BREATHE......
Check www.cbi.iq every day to see if it has changed… do not take a guru or a post about in country RV or any thing else do not be fooled just check the CBI
Do not let your emotions get to you BREATHE....... BREATHE...............
Randy Koonce http://www.currencychatter.com/