I have been asked to post by many for quite a while. I have refrained from doing so because the news has been conflicting. Everything I say in this writing, please take as an opinion piece only.
This is a fluid situation and it can and has changed direction on a dime many times based on what recently happened on the ground. So I advise you to understand that what I believe is going on, may or may not be actually as I see it.
First, I believe the CBI when they state shortly they will introduce the 50 and 100 thousand notes. I think this is a necessary temporary fix to a problem that showed up earlier.
The temporary problem was and is, LIQUIDITY. Recently as we all know the Parliament put a restriction of 75 million per day on the CBI as to the most USD they can sell per day. Iraq already was experiencing a minor liquidity problem prior to this restriction but the restriction severely aggravated the problem.
Remember that Iraq has been dollarizing since 2011. This has reduced the amount of dinars significantly in circulation and increased the usage in day to day transactions of USD.
Then in Jan 2014 the CBI instituted a program to pull the remining dinar that was in the independent banks. They did this by making it a requirement to turn over all their dinars to the CBI of those banks wishing to sell USD to the market.
The CBI then set up electronic accounts for those banks by which they could pull USD from, to sell to the street. Also at or toward the end of 2013 they reprinted the dinar; they did this to protect the remaining dinar in circulation, especially the 250, 500 and 1000.
These notes are high security risks if they were to delete the zeros because Iran most likely would immediately start counterfeiting and distributing thesev notes if the value were to rise quickly.
Since their introduction, there has been a replacement process going on to replace every note through the banks that is still circulating in Iraq.
When they printed these new notes, the decision in 2013 was to only print 5 trillion dinars and in the article they used to announce it they mentioned the goal of replacing 2.7 billion in circulating currency.
That printing told volumes as to how much dinars were left still circulating in Iraq
So they printed about 2 trillion dinars more than they needed at the time they printed these secure notes, which would make sense because they would not run out, and in order to account for potential economic growth during this period while waiting to delete the zeros.
So the stage was set for deleting the zeros as far as protecting the money supply against state sponsored counterfeiters (Iran)..
Liquidity is best resolved on by the loosening currency to the streets. The best way to do this is to get cash to the banks and have them start making loans to businesses and individuals as we all know.
The other way to resolve the liquidity problem is to continue the auctions selling USD at a level that would meet the needs of the public as they come into the banks.
But to continue doing so would reduce the reserves as they are drained off to supply both the currency needs sold at auction and meeting balance of payments. All balance of payments (remittances) have to be done in USD because the dinar is not yet a tradable currency..
This was exactly what we saw starting to happen at the CBI. As the CBI's income through oil sales had dropped significantly while the need for USD to meet the balance of payments and the auction requirements remained constant, the foriegn currency reserves started to dwindle.
That is the reason that Parliament instituted the 75 million cap. It was to stop that drain.
The CBI who is responsible for monetary policy and circulating currency which is a function of liquidity, decided they had to temporarily introduce a new note with value in the hopes that it would at least alter the needs of the market and reduce the amount of USD being sold at auction.
In other words the purpose of these notes is to hopefully temporarily satisfy the overage above 75 million needed each day in the market so they could adhere to the cap.
Parliament then loosened the cap until the CBI could get these notes out. The other reason they want to introduce these notes is to get the Iraqi's used to using the dinar again.
Today Iraqi's are conditioned to use USD in day to day transaction especially because there is so little dinar left circulating in Iraq.
These high value notes will be sold at auction and will undoubtedly be part or all of the 5 trillion in loans that the CBI is scheduled to loan the banks.
This will be the way these high value notes are introduced to the market. Their intention is not to replace USD nor is it their intention to trade for other three zero notes.
The intention is to quickly raise liquidity only. These notes will not slow the delete the zero programs down as they themselves have told us. They are the precursor to the delete the zero program.
More opinions later later if anyone wants it. opinion only, tlar