Post From Currency Chatter 12-5-15
Aaanth: This is from CC member gsjr (gene) i'm just posting it for him. Tlar contacted him. Encouraging read!
GSJR: I heard from Tlar earlier and I am forwarding it with his permission.
Tlar: Gsjr, you can share this with the CC group if you like. There is a lot of discussion in dinar world about the 2%. Some gurus claim Iraq must maintain 2% spread for 90 days.
None of this applies in this case because Iraq having a program rate (made up rate), and being an article fourteen currency is not under the same rules as an article VIII currency.
They must demonstrate to the IMF that they can control the currency as Old said but they are not required while under fourteen to do this long term. By changing the rate they are now qualified to go to article eight as the rules do not require them to get there and hold for a quarter but rather be there to qualify.
Article fourteen does not require them to be at 2% at all as demonstrated over the last two years. Iraq is now prepared to monetarily make a change at least in the short term. Old is correct. The money vendors will make adjustments quickly and the street rate will follow the CBI rate if they let this drift.
Whether or not they pull the trigger quickly or are just putting their toe in the water to test depends on many things and their thoughts on timing. Millionday said it best recently when she showed the article from the CBI describing the when part of the equation.
Sometime in 2016 not specifying early or late 2016. The IMF indicated that early in 2016 Iraq would open their economy. I think the two, monetary reform and open economy will happen within days of each other.
They are intertwined like taxes and tariffs and monetary change. "You can't have one without the other", as demonstrated by the protests the last time they tried to implement them and their subsequent cancellation and postponement of them.
Iraq for some reason now wants to attend the next OPEC meeting to discuss applying quotas for all members including Iraq, dropping OPEC production 1.5 million bpd.
Very interesting coming from a cash starved country fighting a major war against terrorism with millions of refugees and a major liquidity problem. The forex's are suddenly bouncing around after years of stagnation.
Something is happening like it has never done before. The Yuan is now part of the basket of global currencies. ISIS is being decimated in Iraq and Mosel is in the process of being reclaimed.
Our government is just now getting serious about cleansing Iraq of ISIS and is finally getting ready to back the Peshmerga with heavy arms and munitions along with committing US troops openly and in the public eye, even though they will sell it as soft sell to us citizens - only advisors and such.
The parliament is dead set on getting the budget done this year and will forsake working on any new laws to finish it. 2016 is certainly starting to look like a strong bet. I believe earlier rather than late.
It's still Iraq and it's as fluid as its ever been so anything can change with the next unforeseen situation, but it's getting exciting again. We are seeing so much happening all at once. Albadi said awhile back that he will see this through even if it costs him his life. Very scary thought if that were to happen.
He is the only chance of pulling this off and at least short term stability and we know that great men are made in great moments. He is doing it. He is slowly pulling this country back from the mire he inherited from Malibaba and his thieves.
Keywords is finally showing he is on the team because without his consent, the IMF would be on the outside, not inside guiding the CBI. The 50,000 was a bomb. Iraqi's said no, he listened. Hang in everyone.
This investment sure looks like it might finally be ready to come to fruition very soon. IMO the positives way out weigh the little bad press over the last few months. A time to get excited. Hope everyone is doing well. Tlar
High-five: Thanks Tlar! I agree with your position on the 2% spread rule. As you said, the venders -- who are accustomed to earning a nice spread, will also adjust their rates, and in short order, the market and program rate spread will grow again. And, if Iraq doesn't plan to RV soon, they will have to adjust the program rate again to be in compliance - - and the cycle would continue.
It seems promising that they changed the rate and are now qualified to move to Art. 8. I'm thinking they would not have done this if they wern't planning to reprice the dinar soon and move away from the dollar and auctions.
Oh - and just to clarify your reference to the 50,000. Are you saying you do not think they will release the 50,000 dinar note? I would love to know your thoughts on that.
Mike: Thanks, aaanth and Gene for bringing this over, can you help me with something? Can you forward the two items below and see if Tlar, Millionday or Pose can address these statements from the IMF with something supporting their position, preferably with links from the IMF, MoP or MoF.
"Iraq continues to avail itself of the transitional arrangements under Article XIV. Eight exchange restrictions (plus one exchange maintained for national or international security) and one multiple currency practice (MCP) are subject to IMF jurisdiction and approval. The MCP arises from the absence of a mechanism to ensure that the official exchange rate and the market exchange rate do not deviate by more than 2 percent."
"The exchange rate may fluctuate within narrow margins of less than +/- 1 percent around a central rate, or the maximum and minimum values of the exchange rate may remain within a narrow margin of 2 percent for at least three months."
Mike: I'm no guru, economist, or master of monetary policy, I'm just a huckleberry who reads relevant articles and tries to put the pieces together. I've been in this deal long enough to know that you can't rely on the opinion, intel or speculation of others to get a grasp on what's going on with the dinar.
Part of this same IMF consultation addressed the MENA/FATF and AML/CFT frameworks regarding the Anti-Money Laundering law, and Iraq's taken care of that. Additionally, Iraq has removed all but one of the mentioned currency exchange restrictions.
So, if those were an important part of the consultations while Iraq is under Article XIV, why are we discounting the MCP requirements? I'm not trying to pick a fight, I'm just hoping someone can come up with an answer to the MCP with a link or source stating that the International Monetary Funds requirements aren't really a requirement, something other than an opinion. Thanks in advance! :)
LWR I know nothing MIKE but IMO the above IMF qualifiers are for a central rate, which IMO would be a rate that was reflective of true value and not 'imposed'. So the question is, has the rate the CBI been using in this rebuilding project truly imposed or reflective of the value the currency.
If it is imposed, then the 2% 90 day rule may not have any relevance. Like I said I don't know anything about economice , just observing.
I also believe that the 'RV' we are looking at is a separate event from the deletion of the zeros project which encompasses 3 different parts
1. removal of 000 notes from marketplace,
2. removal of zeros from all Budget, loan and contractual agreements, and
3. removing the imposed 3 zeros from the exchange rate.
The IMF qualifiers you noted above, may have to do with a rate over and above the rate after the deletion of the zeros project has been implemented. Like I said this is IMO and I don't really know squat. But for that matter, I m not sure any of us do! LOL
Mike: Thanks, LWR, I would agree that none of us really know exactly what's going on. That's why I'm trying to find some sort of reference point that can explain away what the IMF has written.
For the record, I hope I'm wrong and Iraq can change the rate without having to satisfy the IMF's Article IV consultation requirements, but until then, all I can go on are the facts and statements from those who are monitoring Iraq's situation. There are some really smart people out there, hopefully one of them can chime in with links that says it's not relevant to Iraq.
Skylimit: mike, as you know the rules under MCP are designed to prevent unfair currency advantages and are subject to IMF approval. Obviously a 2% spread on a currency pegged at one tenth of a cent makes no difference in terms of a currency advantage or the IMF would put it's foot down.
The IMF does have descretion if a process is underway to correct the situation. You are picking specific sentences within a broader mandate and assuming there is no leeway.
A prosecuter of law has the descretion to take into account extenuating circumstances before deciding whether to move forward or not. Why has no US banker been prosecuted for the 2008 subprime debacle? Because of politics and possible systemic risk to the weakened banking system.
You are too analytical and not giving the IMF enough latitude in this situation. This is the kind of nonsense Kap needs to fill his regular discussions, it is a complete non-event.
Read the IMF's entire mandate of regulation, there is no mal-intent in this instance. I'm not going to take the time to go back through what I've read and post it here, I'll leave that to a good researcher like you.
Mike: Good stuff skylimit, you're right, I'm pretty linear when it comes to this and most stuff. Here's a good link from the IMF that goes over all the articles regarding a countries participation:
If you have a link or reference that states the IMF has "discretion" regarding the process, please post it. If you click on the link above it will demonstrate a couple of things. Iraq is in Article XIV right now, this is an excerpt from their current status with the IMF:
Section 3. Action of the Fund relating to restrictions
The Fund shall make annual reports on the restrictions in force under Section 2 of this Article. Any member retaining any restrictions inconsistent with Article VIII, Sections 2, 3, or 4 shall consult the Fund annually as to their further retention.
The Fund may, if it deems such action necessary in exceptional circumstances, make representations to any member that conditions are favorable for the withdrawal of any particular restriction, or for the general abandonment of restrictions, inconsistent with the provisions of any other articles of this Agreement.
The member shall be given a suitable time to reply to such representations. If the Fund finds that the member persists in maintaining restrictions which are inconsistent with the purposes of the Fund, the member shall be subject to Article XXVI, Section 2(a).
So, what is Article XXVI? Here's an excerpt:
Section 2. Compulsory withdrawal
(a) If a member fails to fulfill any of its obligations under this Agreement, the Fund may declare the member ineligible to use the general resources of the Fund. Nothing in this Section shall be deemed to limit the provisions of Article V, Section 5 or Article VI, Section 1
Mike: So, the IMF has told them, repeatedly, to correct the MCP and get within the 2% band that is stated on all of their Article IV consultations.
If Iraq doesn't then they'll be out of the IMF, which I don't see happening. Leniency is already happening with Iraq, they've let them go for years now without penalty while they get their house in order.
If you have a link that says the 2% band doesn't count or that the IMF has discretion regarding it, please share it. The link above lists all the articles relating to the IMF and I couldn't find anything that said it wasn't mandatory. The IMF told them they needed the AML, Iraq did it. The IMF told them to remove exchange restrictions, they did it. I think it's going to be the same with the 2%.
Aloha Alex: Mike, IMO, if the IMF prints what you are asking - discretion & leniency regarding policy - in essence, it would become a new policy...isn't going to happen.
Rockstar: Hopefully G-Lin got you all fixed up with exactly what this means Mike. All I can tell you is that you are interpreting it wrong this does not mean the difference between the market rate and street rate! It's talking about MCP so after you read what G-Lin gets over to you please feel free to come back and elaborate your understanding at that point. Kaps understanding of what this means is 100% wrong sorry.