TLAR: As the CBI exerts is authority it must be driving Maliki nuts. The CBI seems to be claiming its independence from the bank with each new article. Maliki fired his shot at the bank with fresh accusations of stealing by Turki only to have it thrown back in his face with the bank proving that it is just an internal accounting error.
Like I said before, this was his best attempt to retake the bank and it failed. That makes it that much harder to immediately come back and accuse him of something else. Parliament would realize along with everyone else that it is a politically motivated attack like he did to Shabibi, with little to no substance to it.
IMHO that means Maliki will be left floundering around the issue of the currency as he watches the bank make declarations like the one above and continues to close in on their goal. If the bank is serious about removing the zeros, there exists a period of time that they would be well advised to make this move.
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That period in my mind in within the next 6 months because they would be better to do it while Maliki is still regrouping from this loss. Being mindful that they will probably do this at the beginning of an accounting period means July 1st or October 1st.
My money now is on July because Maliki will have less time to make another run at the bank. I stand by all my earlier posts. I think the driving force here is the international community and I think they have made the decision to go without the approval of the government.
I look for more attempts to stop the bank from changing the currency by Maliki, but as long as the IMF/WB/Treasury Dept and CBI hold hands, these attempts will be thwarted just as the last one was.
The CBI is closing ranks and less and less information about what the bank is doing will come out until its done. Saleh said this same thing yesterday when he made reference to the fact that no one knows what's going on in the bank.
The only things the bank will be releasing is regulations that they determine is good for Iraq and the currency. There will be no more consults with the government because they just want to keep delaying the inevitable. They will just continue to release things they alone have determined right for monetary policy in Iraq.
As far as float vs removing the zeros goes, it all comes down to how you read these articles. They continue to say remove the zeros. In another post of mine I attempted to explore what they mean by remove the zeros. We know it is not lop.
Kap has pretty well beat that horse to death explaining accurately IMHO, that that definition does not exist. Next there are some that believe the term remove the zeros, means removing the physical three zero notes from circulation.
I question this definition because that is what the CBI has been doing since April 2011, and by now most of the 3 zero notes have been removed from circulation in Iraq. In addition many of the articles have continued to say that they were delaying the removal of the zeros until 2014.
My question is how do you delay something you are doing everyday and have been doing daily since April 2011? I don't think removing the zeros has anything at all with the physical currency (3 zero notes) itself. That only leaves one other definition to this phrase in my mind.
Removing the zeros means what Shabibi has told us since day one. Removing 3 zeros from the nominal rate, also called the exchange rate. In my mind this is what I believe all the articles in the last few months have talking about
There is inherent dangers to let the currency just float instead of benchmarking the new rate at least a dollar to start. The first is obvious to me. This would provide no incentive for Iraqi's to start turning in their US currency and start using their worn out, torn and tattered no value currency (the dinar).
They are pretty much dollarized so much so, that most transactions are done in US currency, not dinar. The only incentive to draw the Iraqi's back to the dinar is by adding true value to the dinar somewhere around a dollar. This is the only thing that makes sense to me.
But an even bigger danger looms for the dinar if they go international with their currency at 1166. Iraq has spent 2 years and billions of US dollars repatriating the dinar back to the CBI. A house cleaning if you will with its major goal to reduce the amount of dinar in circulation..
Remember a dinar is an IOU and therefore represents a debt to the country. If the dinar comes out at 1166, it can be used internationally for payments.
By using their currency to pay balance of trade at 1166, they would flood the dinar back into the market faster than it took them to draw it back in, defeating and muting everything they have been trying to do..
Iraq today imports almost 100% of the goods they use. If they were buying these goods with dinar, that would mean for every $1 million in goods imported, be it consumer, military, food or new equipment to start Iraq businesses with, they would have to send out $1.16 billion dinar.
Iraq imports billions of dollars every year and as their economy is suspected to grow 9% this year they will be spending even more billions importing goods. They will end up flooding international markets with dinar long before the currency goes up in value. This goes back to supply and demand.
Flooding the market with a currency works directly against the potential of the currency to increase. Also central banks around the world are already holding some dinar.
A market has to exist for the currency in order to see value increase. If they open the currency at 1166 the market will not be a home grown market ,meaning I don't think there is any incentive for Iraqi's to start buying the currency.
The Central Banks around the world have no incentive to purchase more at this level ,as they already are holding dinar and have already speculated in the currency. Maybe they would be willing to invest more but where is their incentive? They will take a wait and see attitude IMHO.
There will be those that think Forex is the market.
I would love to debate them on the grounds that it is a select bunch of people who speculate in currencies and unless Iraq puts more currency on the street, where will the billions of dinar come from that is anticipated to trade by these guys who think Forex is the way it will increase. IMHO everybody holding dinar will mostly still hold..
Most speculaters will only pay a small premium to buy the dinar and as they do this might work against the dinar. Also small guys like you and I already own 1.5 - 2 trillion dinars and again some might buy a few more, but most will hold until what we own has value if ever.
Iraq only has one chance at this to get it write. My personal opinion is that to remove the zeros off the nominal rate making the dinar .86 to 1.00 is their first best shot. It will stimulate the markets.
You will sell your dinar or at least some. Iraqi's will dump their dollars for dinar if for no other reason than pride. Speculators on Forex will get excited on the news and not wanting to miss the next jump will start to buy.
Governments will actually be able to trade or sell their dinar holdings because at $1.00, there will be markets for the dinar. AT 1.00 Iraq will have many many fresh investors that will want to jump in, just as us, old, tired, sick of Iraq, investors jump ship.
They will have effectively created the market that can drive the currency to $3.00 and beyond. Shabibi was ready to remove the zeros early last year.
If the bank thought they could support the move back then, think of how much more ready to support the currency today they are with all the dinar they have bought back. I don't think they will go backwards and I believe thats exactly what a float at 1166 would do. All IMHO..
Sorry in advance for any grammatical or spelling errors in the above, but it took too long to write to make my argument for the RV. By the time I finished I did not want to proof read TLAR