The following dialogue between Enorrste & Tlar is continued from earlier posts - Please refer to these links if you would like to reference them - We may add to the earlier posts but posting here so they will not be missed - Most of Enorrste & Tlar is in the Part 2 - Thanks
Part 1 LINK Part 2 LINK
Enorrste: Tlar, you have given me a lot to chew on. I will try to address your points in order.
If, as you say, the CBI goes to Article VIII, they have the power, as Saleh said, to simply exchange dinars for dollars. It becomes a policy decision. Local Iraqis won’t need an incentive to buy dollars. They will be told to do so.
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The pulling in of the dinars will occur prior to the rise in value of the dinar. That is the whole point.
They sell (or tell) the idea that it is a part of the “process leading to the issuance of the new currency to remove the old currency.” It is not an option.
Only AFTER the old currency is removed and the country is totally dollarized will they then float the existing dinar and allow it to rise. Since no one in country has any, they won’t be upset. They got their money’s worth in dollars already.
Just as we don’t get upset with a rise or fall of the dollar on the open market, neither will the local Iraqis. They probably won’t even know what happens until it is nearly over.
We saw the dollar drop 40% in value over two years and no one ran to the bank to get Euros, right? From within the country it isn’t an issue.
Counterfeiting becomes a moot point if all of the dinars are taken off the street by order of the CBI.
You can now see that the “deletion of the zeros” does not occur at the end of the process, but rather at the beginning with what Saleh is suggesting (changing dinars for dollars).
They state that the small denom notes will be issued on such and such a day (Saleh says 1/1/2015 at the earliest) because that is what will happen when they tell the people to exchange their dollars for the NEW dinars with small denoms, at $1 per dinar.
Although international banks will have a “leg up” on Iraqi banks due to the fact that they’ve been doing this for centuries, still the Iraqi banks have every opportunity to compete.
That is why Shabibi, and now Turki, are insisting that they get their capital accounts higher.
If they don’t, they will be run over by the big boys.
However, I suspect that Chase and others will attempt to make partnerships with the Iraqi banks in order to gain “creds” with the local people. That makes more sense than coming in and bowling over the local bankers.
Shabibi’s quote about exchanging old dinars for new ones has now been superceded by Saleh’s statement that the exchange will be old dinars for dollars, then dollars for new dinars.
Therefore, no Iraqi will come in with a 25000 dinar note that is worth $21 today and get $21,000 for it 18 months from now. Of course if they hide them this may be possible.
For instance, a $1000 note is still legal tender and there are a few people around who have them. They are worth $1000 to a bank, but obviously much more to collectors. Perhaps there will develop a private collector’s market for the large notes left in country after the “call-in”. We don’t know enough to be certain at this point.
However, the few who will do this will be miniscule compared to the millions who would do it if they RV’d at $1. This alone is reason enough to see that a straight out RV to $1 won’t work.
If there are 7 trillion dinars in circulation that would mean $7 trillion out of the CBI, which they do not have.
We don’t have enough information to know the plan to get the local banks capitalized. We do know that Shabibi and Turki have been increasing capital requirements and that many banks are complying.
We just don’t know how far the CBI will go to push them into the real world. Personally, I don’t really care. I hope this helps. Enorrste
Tlar: Ennorste, I am not trying to be argumentative but again I see problems in you analysis of what's to come. The first is in the first sentence you offer in your post.
"If, as you say, the CBI goes to Article VIII, they have the power, as Saleh said, to simply exchange dinars for dollars. It becomes a policy decision. Local Iraqis won’t need an incentive to buy dollars. They will be told to do so."
The IMF has been pushing Iraq to liberalize the exchange of currencies to allow for a normalcy of switching from one currency to another much like it is here in the US, or in most western countries.
This is one of the things apparent in a Article VIII currency. It goes against the grain in my mind to tell an Iraqi that you are now required to switch to another countries currency (dollars) in order to do business with a bank in Iraq.
The act of the CBI telling their population you have no choice seems out of the realm of probability to me. This next idea I am also troubled with:
"Only AFTER the old currency is removed and the country is totally dollarized will they then float the existing dinar and allow it to rise."
If there is no more dinars in Iraq as the bank has collected all of them and replaced them with dollars, what is the advantage of floating the currency verses just declaring a new value and swapping the old currency for a new higher value one.
I think Iraq would be taking an unnecessary risk here, hoping to see the dinar go up instead of just deleting the zeros and defending the rate as was called for in the 2008 study.
If as you say the CBI demands all dinars turned into dollars, at the point that occurs, would be the perfect time to collect all those dollars back in and release the smalls under a new value.
Why start at 1166 when the CBI has already got all dinars especially given the vast resources backing their currency. It makes no sense to me.
"Counterfeiting becomes a moot point if all of the dinars are taken off the street by order of the CBI."
Assuming your overall premise of the mandatory removal of dinar from the streets is correct, then it follows that this assumption is true and it would also follow that smuggling would also be reduced to a minimum.
Look Ennorste. You and I could go back and forth on which articles we follow in support of a position.
The truth is, I see Saleh today as an outsider to this decision throwing in his opinion because he can get the press. You lean on Saleh as the expert assuming they will follow his plan.
I think his plan is a good one but I see it as too little too late. You may see this as a decision in the making. I see this as a decision having been made. You use Saleh as the proof source of your thoughts, I do not. Whether you are right or I am right makes no difference. I absolutely respect your opinion.
I have really enjoyed the back and forth because for me it sometime springs a new thought. You are one smart guy, I just see this differently from you as we approach this juncture.
All we have is our own thoughts because the answer, although maybe written already, has yet to be proven or totally exposed.
Ennorste, since I have been following the dinar, you have been my hero. I don't intend to attempt to discredit your thoughts on this because in doing so, I discredit myself more. Your are the professor. Respectfully, tlar.
Kaperoni Moderator: Tlar, I think the issue is trying to come to common understanding on what will occur. What we know is that the dinar will float, some don't agree including you.
Which is ok, but it's not that simple. Enorrste is trying to explain a position based on why the CBI would float, not what makes sense to us.
I agree with you, going directly to 1 to $1 makes sense to us and I bet everyone would rather have that than a float anyway. But we have been enlightened on many other issues that need resolution as well.
An example is just as you state..why 1166? And simply, because banks are in this to make money. Central banks want to trade the dinar, make commission and profit.
I assume that in itself would have a substantial effect on the global economy. To simply avoid that and jump to a "mid" rate circumvents that opportunity.
As for the rest of the details, many are not important and I am sure many don't care. One thing is for sure, the dinar is way undervalued and needs to engage with the world no matter the platform.
Diane: I appreciate everyone's sharing of well thought-out opinions, research, facts and articles here at DA ~ and I very much appreciate reading script from gentlemen who admire one another and treat each other with respect. Thank you.
WEDREAM: as far as capitalizing the local banks we saw with warka what will/could be done to bring all the banks in line with what is needed.. they simply take them into receivorship till they can accomplish that or they declare them as bankrupt.. & i would argue this could be a major sticking point