Tuesday, December 1, 2015


The CBI plan is two-fold:
first to reduce the paper count from 4 billion notes to 1 billion notes
and second to reduce the total money supply from 40 trillion dinars to 40 billion dinars.
The introduction of the larger 50k and 100k notes in itself only deals with the first objective, reducing the paper count.
However, this alone would not reduce the paper from 4 billion pieces to 1 billion.
At most it might reduce them from 4 billion to 2 billion, and probably not even that much since there are also the 1000, 5,000, and 10000 dinar notes in circulation.
Therefore, in addition to the even exchange (two 25k notes for one 50k note, for instance), the CBI will also be reducing the circulation even farther by removing 25k notes directly from the market.
This will reduce the total value of the money supply from 40 trillion dinars to 40 billion dinars over time.  In the process of reducing the value of the money supply the value of an individual dinar rises.
It is this rise that will increase demand for dinars as opposed to dollars. The savy Iraqi will see that, over time, he gets “more bang for his dinar” than he does for his buck.
It is through this second method that the CBI will raise the value of the dinar. The introduction of the 50k note in and of itself has no affect on the value of the dinar.
It is only the second action, a further reduction in paper and value of the total money supply, that will raise the value of the dinar and through that process reduce the demand for dollars.
As the demand for dollars is reduced the reserves of Iraq are made more secure, which will also help support the rising value of the dinar.

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