Stryker Blog 4.11.2014
Where Does the Iraqi Dinar Electronic Currency Come From?
I wanted to take the time to address an issue that has come up concerning the larger banknotes that the CBI has said they would print.
Some are saying that the larger banknotes are to back all the Iraqi electronic money and something I made reference to on Wednesday’s Roundtable Discussions Webcast this week.
First I wanted to point out what electronic money is and where it comes from so everyone is on the same page:
Electronic money as defined by Wikipedia.com
Electronic money is a new expression the meaning of which is not stable. It can refer to different realities depending on the context (legal or not, historical or actual, monetary theory...).
However, the underlying principle of electronic money involves the use of computer networks, the Internet and digital stored value systems. Examples of electronic money are bank deposits, electronic funds transfer (EFT), direct deposit, payment processors, and digital currencies such as Bitcoin.
Hard vs. soft electronic currencies as defined by Wikipedia.com
A hard electronic currency is one that does not have services to dispute or reverse charges. In other words, it only supports non-reversible transactions.
Reversing transactions, even in case of a legitimate error, unauthorized use, or failure of a vendor to supply goods is difficult, i f not impossible. The advantage of this arrangement is that the operating costs of the electronic currency system are greatly reduced by not having to resolve payment disputes.
Additionally, it allows the electronic currency transactions to clear instantly, making the funds available immediately to the recipient. This means that using hard electronic currency i s more akin (of similar character) to a cash transaction. Examples are Western Union, KlickEx and Bitcoin.
A soft electronic currency is one that allows for reversal of payments, for example in case of fraud or disputes. Reversible payment methods generally have a "clearing time" of 72 hours or more. Examples are PayPal and credit card.
A hard currency can be softened by using a trusted third party or an escrow service.
See electronic money is just an extension of hard currency, electronic funds come from the mere existence of hard currency and such is backed by each dinar/dollar amount that already exist.
There is really no differentiating between the two, you either have hard currency that can be electronically transfer to someone or some entity or you don’t.
Even though you may never see the hard currency because your employer direct deposited it straight into your bank account you can bet it was in their account before it made its way to yours and why you can go into your bank access the cash anytime you want too.
There must be hard currency at the beginning of all electronic transactions, either in the bank that covers your deposit that will cover your wire transfers, PayPal transaction or you can use cash (hard currency) to transfer by the way of Western Union or other source of transfer systems.
This doesn’t mean that all banks must have on hand at all times enough to cover every dollar deposited in their bank, which goes into another subject altogether called fiat currency.
All electronic funds are cleared within 72 hours and backed by hard currency. Nowhere in my research does it state that any government, Central Bank or financial institution in the world must print large banknotes to cover their electronic funds....
If a country transfers money to anyone it has been backed by the existence of whatever deposits they have in their accounts, just like me and you do.
The point is all electronic funds are backed by every banknote that has been printed and electronic currency is a derivative from hard currency, so why would large banknotes need to be printed just to back what's already out there?
The answer is it doesn't, you either have a dollar, a dinar to back that dollar or dinar electronically transferred or you don't. Now when it comes to Credit Cards the lender has the funds that will back that electronic transfer in your behalf but it must be cleared within 72 hours, that’s why you can’t float checks like you use too!!
The facts are that the larger banknotes will either be used IF needed for the general population to use or for commercial transactions depending on what timetable the CBI has in mind for currency reform and when.
I personally like the fact that the 250, 500 and 1,000 notes are the only ones that seem to be going into circulation according to many - many articles that have come out.
I hope this helps, Stryker