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Thursday, November 10, 2016

ENORRSTE UPDATE, 10 NOV

Enorrste:    I think it is time to start getting excited, again.  The first thing that I noticed in this article is the follow quite specific statement:

And he said: "The purpose of deleting three zeros from the Iraqi currency is to support the Iraqi dinar and make it a competitor of foreign currency", returned him as "this strategic project will serve the country's economy if it will be inclusion of the Iraqi dinar in the global basket of currencies in the vital world exchanges."
 
ARTICLE LINK:    Learn the benefits of removing zeros from the Iraqi currency

Enorrste:    There are four things to note here:

(1) the large notes will begin to be deleted "beginning in 2017";

(2) the purpose is to make the dinar stronger (note the word "support" and the phrase "competitor of foreign currency"; and

(3) this will "serve the Iraqi economy"; and

(4) the dinar will take its place in the basket of currencies in the "vital world exchanges."  Let's look at these one at a time.

The large notes will be deleted.  This cannot be a LOP because a LOP would not change the value of the dinar, and the other three points above make it clear that the dinar will rise in value. 
 
Therefore, there is only one way that the large notes can be removed from the market place without destroying the fragile liquidity that exists in Iraq already:  the value must rise enough to make it feasible to remove the large notes. 
 
KAP has rightly stated in another thread that a minimum of $.10 for the value of the dinar would make it possible to begin removing the three zero notes  This means that we must look for a minimum of a 100 times increase in the value of the dinar sometime during the coming year.
 
Second, the purpose is specifically stated to "support" the dinar and to make it a "competitor in world markets."  At this point the dinar is not internationally recognized or tradable.  Both of these factors must be eliminated for point number 2 to come to fruition. 
 
The only way in which they can "support" the dinar (in terms of value) and make it "competitive" in the world markets is to allow it to float and to rise to the point where the "support" and "competitive" value become real factors.  I therefore expect to see the float start shortly after the new year.
 
Third, this move will "serve the Iraqi economy."  Clearly a move to a float and an internationally recogized currency will cause imports prices to fall quickly and allow for imports into Iraq more easily.  This would, then, be consistent with point number 3 that the plan will "serve the Iraqi economy."
 
Finally, the statement is made that the dinar will takes its place in a "basket of currencies" that contribute to the "vital world exchanges."  At present the only currencies that hold this sort of recognition are the dollar, Canadian and Australian dollar, pound, euro, and a few others. 
 
By making this bold statement, therefore, the author is re-iterating what we found from Saleh years ago namely that the dinar is going to become a world reserve currency.
 
The only way in which the dinar can take this position is if it is internationally recognized, if Iraq is a part of Article VIII of the IMF Charter, if the value of the dinar is commensurate with that of the world's reserve currencys (worth about a dollar American, more or less), and is supported by reserves that PROVE that it is a strong currency. 
 
The current reserves of $40 billion are sufficient to make the currency the strongest in the world at $1 per dinar.  Unlike the US, they won't need "the full faith and credit of Iraq" to support their currency. 
 
However, in addition to the highest relative reserves, Iraq also has the second highest known reserves of underground wealth in the world.  Therefore it is well positioned to take its place as a world reserve currency as long as they stick to the plan.
 
So, what are the potential pitfalls?  Tobyboy may be correct on the first one:  Parliament.  I am not convinced, however, that Parliament has to act in this case.  The CBI is not moving to a new currency. 
 
It is merely replacing the larger notes with smaller ones as they become more valuable.  I don't think Parliament will be required or even asked to act on this matter.  If I am correct on this, then, the delay factor that Tobyboy refers to may not be an issue.
 
The second issue is more tricky, however, and that is the issue of security in the country.  I read today an article that stated that the Iraqi army is not prepared for the onslaught that is expected to come at them in Mosul.  This could well drag out indefinitely. 
 
It would not surprise me if the CBI were forced to delay implementation due to the security concern, as it apparently has done in the past. 

There is one glimmer of hope:  if Trump becomes president we should see a change in strategy toward ISIS in short order, putting them more on the defensive rather than on offense as is now the case.  Time, and the election, will tell.
 
The bottom line for me is that this article, even if it is repeating a plan elaboarated over a year ago, is more specific and continues the timeline from that earlier article.  2017 would appear to be the year when this will all truly begin to move forward.  Keep your fingers crossed!  Enorrste
 
Mike:   Bottom line, Iraq needs Article VIII compliance before the value will rise, the market spread is proving there's no demand for the dinar right now, in it's current state. 
 
I tend to agree with justwaiting, we've seen these types of articles in the past and Budgies brings up the next important point, it's going to take a while before you can begin to delete the zero's to begin with. So, if they start in 2017, when will the dinar be worth a dime? 
 
As far as the Dinar being held as a reserve currency, I don't think I'll see that in my lifetime, that's wishful thinking on the authors part.  The first thing that sticks out is there's over 50 trillion dinars in circulation with only $40 billion dollars to cover it.
 
Even at today's value they barely cover what's already out there in print. They'll have to drastically reduce money suppy before they can cover the dinar at 1-$1. 
 
Reserve currency is commonly used in international transactions and often considered a hard currency or safe-haven currency and it's going to be years before the iQD is held to with the same regard as the dollar, euro, yen and pound. Heck, the KWD is better positioned as a reserve currency, why would the world pick Iraq's dinar? 
 
Secure the borders, pass the banking legislation, create an open market economy, remove exchange restrictions and reduce the MCP, then we'll see an increase in the dinar. If anything, the past has proven to us over and over there are no short cuts, the IMF isn't going to give a pass to the sixth most corrupt nation on the planet.
 
Enorrste:   Mike, I tend to agree with you that entry into Article VIII is a necessary prerequisite.  I doubt any serious investors in dinars would play in the dinar market without some form of level playing field that is offered through Article VIII.
 
The market spread situation can be corrected by floating the currency.  An announcement that the currency would be allowed to float would automatically make the official rate and the street rate identical.  Furthermore, the plan is clearly stated to reduce the money supply from 50 trillion dinars to 40 billion dinars.  They just haven't started the process yet.
 
 It is my take that the article in this thread is saying that this process will begin in early 2017.  The CBI will begin destroying the large notes, thus reducing the money supply, and this will put upward pressure on the value of the currency, irrespective of Article VIII. 
 
If they also accept the Article VIII conditions, which I believe is the stated goal of the IMF, then the process could move along much faster.
 
 Trade would improve in Iraq, thus allowing more money to come into the country, relieving the liquidity crisis somewhat, and this would allow the CBI to begin reducing the money supply.  They are clearly on record that they want the money supply to be brought down to 40 billion dinars. 
 
They just have to have a mechanism to make this happen without too much of a jolt internally.  And, of course, they have to START.  I believe the article is saying that they have made a determination that the start will happen in early 2017.  Enorrste 

Enorrste:    The following quote adds some fuel to our story:
 
"this period will enable the central bank to withdraw the old currency in accordance with the dynamics and mechanics in order to preserve liquidity in the market."
 
ARTICLE LINK     http://warkaanews.net/?p=9350    Central Bank: the deletion of zeros in early 2017
 
Enorrste:   We see from this, as has been noted earlier, that this precludes any LOP discussion.  But more importantly there are the words "dynamics and mechanics" which clearly make this an ongoing process rather than an event.  The key is the last phrase referencing maintaining the liquidity in the market. 
 
What makes this a particularly challenging process is that they are going to be reducing the money supply, which would normally reduce liquidity, but will be doing so only as the VALUE of the dinar rises, which will offset the reduction in liquidity.  I can understand why they have been hesitant to begin the process. 
 
It hasn't ever been done before, that I am aware of.  Usually a currency loses value due to inflation.  In this case, however, the expectation is that it will gain in value.  What they cannot afford is to have 50 trillion dinars out there if the value skyrockets upward.  So I understand there caution.  Enorrste

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