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Sunday, April 3, 2016

DINAR IRAQ & DONG VIETNAM UPDATE, 3 APRIL

Article quotes: "The Ministry of Finance that the deletion of zeros from the local currency will liberate the Iraqi economy from the constraints and enhance the value of Iraqi dinar in the International Monetary Fund."
"The International Monetary Fund expressed support for the Iraqi economy in the event of his a number of economic measures, including the privatization of banks and lifting the three zeroes from the currency and honoring debts."
I BROUGHT THIS ARTICLE FROM 2012, IT'S VERY CLEAR NOW THAT IN ORDER FOR IRAQ TO GET THE LOAN THEY HAVE TO IMPLEMENT WHAT THE IMF TOLD THEM TO DO, ALSO ONE OF THE REFORM IS THE CURRENCY.
THE IMF SAID THAT THEY WILL GIVE IRAQ $15 B OVER THREE YEARS. THE FIRST $5B WILL BE BY JUNE, IN ORDER FOR IRAQ TO GET THE MONEY THEY HAVE TO ACT VERY FAST.
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Until they open the banking system, and move to Article VIII, they have to have auctions to provide a convertible currency (dollar) to pay for imports (food, appliances, vehicles, etc).
The solution is to work to get the banking system done, laws passed and have a monetary policy in compliance with the IMF so they can transition to Article VIII and hope the dinar is then accepted/convertible worldwide (freedom of movement of capital).
Float can happen anytime. That is up to the CBI and one of the tools of their monetary policy.
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Foreign exchange rates are one of the most important measures of a country’s relative level of economic health. It plays a key role in a country’s level of trade and also provides a window to its economic stability.
Various factors determine variations and fluctuations of a country’s foreign exchange rate.
Inflation
As a general rule, a country with a lower inflation rate will experience an appreciation in the value of its currency as its purchasing power increases relative to other currencies.
Interest Rates
Foreign exchange rates, interest rates and inflation are all highly correlated. By determining the interest rates, central banks exert influence over both inflation and exchange rates, and changing interest rates impact inflation and currency values. Higher interest rates offer lenders a higher return relative to other countries, thus attracting more foreign capital causing the exchange rate to rise.
Balance of Payments
A country’s current account reflects the balance of trade between the country and its trading partners, reflecting all payments between countries for goods, services, interest and dividends. A deficit in the current account shows a country is spending more on foreign trade than it is earning, and that it is potentially borrowing capital from foreign sources to make up the deficit. A country that struggles to attract enough capital inflows to finance a current account deficit will see a depreciation in its currency.
Government Debt
Governments will typically engage in large-scale deficit financing to pay for public sector projects and governmental funding. while such activity stimulates the domestic economy, nations with large public deficits and debts are less attractive to foreign investors. A large public debt encourages inflation and if markets fear that a government may default on its debts, investors will sell their bonds, both of which will cause a fall in value of the exchange rate.
Terms of Trade
Terms of trade is a ratio comparing export prices to import prices, and is related to current accounts and the balance of payments. If the price of a country’s exports rises by a greater rate than that of its imports, its terms of trade have favourably improved. This results in rising revenues from exports, which provides increased demand for the country’s currency and subsequently an increase in the currency’s value.
Political Stability & Economic Performance
Foreign investors, unsurprisingly, seek out stable countries with strong economic performance and political stability in which to invest their capital. A country with such positive attributes will draw investment funds away from other countries perceived to have more political and economic risk. Increase in foreign capital, in turn, leads to an appreciation in the value of its domestic currency. Political turmoil, on the other hand, can cause a loss of confidence in a currency and a movement of capital to the currencies of more stable countries.

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