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Saturday, June 17, 2017

Enorrste: "Here is my take on this important development" 6/17/17

The Central Bank Prepares Banks And Transfer 25 Million Per Month
Meets the central bank is currently traveling shares of foreign currency by banks and financial transfer of 25 million dollars a month, but this process is still surrounded by a lot of impurities, it may be the most important do some more than the quota received ($ 3,000) at a time when others get can not it never even though bringing them all the documents required to complete the process of buying the currency.
 
Enorrste:  Here is my take on this important development.

It occured to me that what we are seeing here is a plan to use some of the reserves to reduce the money supply in Iraq. The article makes clear that there is not a corruption problem.  However, they are still putting some limits on the exchange (dinars for foreign currency). 
 
Furthermore, as Punisher pointed out just above in the second paragraph quote, the CBI is making it clear up front that the banks will not be allowed to take advantage of the public who wish to purchase foreign currency.  This means that they will be forced to give the foreign currency at the official rate rather than the market rate. 
 ... 


Enorrste:   As word of this gets out there will be more and more people who will want to surrender their dinars at that rate, thus saving many dinars by getting the foreign currency below the market rate.
 
This will have two effects:  first, it will put pressure on the market rate to come in line with the official rate.  Why would I buy something with 1300 dinar if I could get it for 1160 dinar by simply converting to dollars first (or Euros, etc.). 
 
This will stabilize the market rate immediately and begin to bring it in line with the official rate.  Second, the exchange of foreign currency for dinars will allow the CBI to destroy the dinars turned in (admittedly for a similar draw down on their reserves, however).
 
 The result will put similar pressure on the market rate to begin to bring it in line with the official rate.  Of course the exhange will be monitored and limited so that reserves don't dissappear.
 
The CBI has ample reserves in comparison to the current money supply of dinars.  They could afford to give up even 1/3 of their reserves and still have over 100% coverage of their money supply.  Therefore, this is a prudent and simple way to draw down the money supply without affecting day to day commerce
 
 Why?:  because they will be exchanging with "travelers," people who are doing so not for daily commerce but to go to a foreign country and spend the foreign currency.  This will therefore have no affect on liquidity within the country.
 
Next, even though they will be giving up reserves, they will also be reducing the money supply of dinars.  Thus, ideally, they should still retain the strongest currency in the world in terms of reserves compared to money supply.
 
 So, for example, if the current money supply is 40 billion dinars and the reserves is $60 billion, then if they reduce the money supply to 30 billion dinars the reserves could fall to $45 billion and they would still have 150% coverage of their money supply.
 
Finally, by putting it out front that the banks will be fined if they break the rules, the CBI is essentially forcing them to become "world bankers" who follow the big boy rules.  This will set them up for the move to a floating dinar.
 
Mike:    No feather ruffling, but Iraq's current M0 money supply is in excess of 60 trillion dinars, roughly $50 billion dollars. If Iraq loses 1/3 of the remaining reserves, roughly $40 billion, that will leave them with $28 billion dollars in reserves, to cover $50 billion dollars in M0 money supply. All this just to stabilize the market rate to 1205-$1, which is still shy of the official 1188-$1.
 
In order for the banks to pull in dinar, they need the participation of the citizens, which isn't happening. We've all read where 70% or more of the currency is "chunky" and outside the control and manipulation of the CBI.
 
The above article doesn't take into consideration the laws of supply and demand. The citizen is still restricted by the $3000 per day maximum purchase of dollars. That rule has been in effect for over a year and it hasn't put a dent in the market rate of the dinar. Just yesterday there was an article that put the street rate at 1251-$1.
 
This article is focused on foreign travel and the purchase of the dollar to facilitate it, it doesn't address the overarching problem of corruption within the auction process, there's too many fake/false invoices that are being generated while purchasing imports. Iraq needs to free the movement of capital, that means no restrictions on the purchase of any kind of foreign currency as well as being able to transfer it without delay.
 
Until Iraq can stop the corruption, I don't see anything changing. The rules and legislation are in place but what's missing is the charging, prosecution and imprisoning of those who are gaming the system, namely, the 1% at the top of the power pyramid that makes up the Iraqi government.
 
This is just an opinion, but we need more than a stricter controls on international travel, we need: that the overall banking system application soon." These are shortcuts designed to placate the masses with no real effect on the dinar.
 
Here's a link that takes data from the CBI with regards to M0 money supply.
 
https://tradingeconomics.com/iraq/money-supply-m0
 
Enorrste:  Mike, you missed a key point and made a significant error.  If the money supply is 60 trillion dinars and they reduce it by 1/3 then the money supply would fall to 40 trillion dinars.  You used 2/3 drop instead of 1/3. 
 
However, what you missed from my discussion is that the 20 trillion dinar drop would be paid for out of reserves, say $18 billion worth, leaving $38 billion in reserves to cover the remaining 40 trillion dinars in money supply, or nearly 100% coverage.
 
The banks only need the cooperation of foreign travelers, not the entire citizenry, for this to happen.  The dinars disappear and the dollars go away as well, to the foreign country with the traveler.  There is no interior affect except that the money supply drops, thus putting upward pressure on the value of the dinar value.
 
With respect to your comments on corruption the article makes it clear that "overarching corruption" is not an issue, at least with this part of their plan.
 
This is a simple money supply reduction plan, in my view.  It only takes the participation of foreign travelers and could have a significant affect overall.  With the specific restrictions noted in the article I don't see corruption as a problem. 
 
Furthermore, the number of foreign travelers can't be huge in relationship to the entire population, but it could be large in terms of the wealth of people in Iraq.  In essence it is an appeal to the top, say, 20% of the people.
 
I can't see how this won't have a positive affect on the dinar value and begin to draw the market rate in line with the official rate.


if the market rate is actually 1205 to 1, that is only 1.4% above the official rate.  On the other hand, if it is 1245 to 1, then the difference is 4.8%.  I am not clear on which is correct or whether either is correct. 
 
In any case, reducing the money supply has to have a positive affect on the dinar value, reducing the market rate.  As I noted, if I can go to the bank and get a dollar for 1188 dinars, why would I go to a local shylock and pay 1245 dinars for the same dollar?
 
Mike:   The vast majority of dollar purchases are through the purchase of imports, not foreign travel. If Iraq spends 1/3 of their reserves, or roughly $12 billion, that will leave them with roughly $28 billion in reserves.

Conversely, Iraq's money supply, in dollars, is $50 billion, reducing it by 1/3 would leave Iraq with a M0 money supply in dollars of roughly $35 billion dollars worth of dinar.
 
That would result in Iraq being upside down on coverage, they'd have $35 billion out and only $28 billion to cover it, they  wouldn't have 100% coverage of their M0 money supply.
 
Here's the deal though, this isn't a new plan. They've been allowing foreign travelers to buy $3000 for over a year and it's done very little to lower money supply.
 
There was an article out last week that spoke to Iraq's use of quantitave easing and that's directly effecting money supply, when they stop pumping cash into the system the M0 money supply should decrease.
 
Get the banks straight, pass the economic legislation and move to an open market economy, allowing business travelers access to $3,000 dollars won't move the needle.
 
IMO
 
http://dinaralert.webs.com/apps/forums/topics/show/13437359-political-stick-and-cash-wheel ;

 
Article In Full Being Discussed:

The Central Bank Prepares Banks And Transfer 25 Million Per Month
 
06/15/2017 (00:01 pm   Range / Zahraa Al-Jassem
 
Meets the central bank is currently traveling shares of foreign currency by banks and financial transfer of 25 million dollars a month, but this process is still surrounded by a lot of impurities, it may be the most important do some more than the quota received ($ 3,000) at a time when others get can not it never even though bringing them all the documents required to complete the process of buying the currency.
 
According to specialists in economic affairs, all controls and instructions of the Central Bank and continuous control to adjust and facilitate this process, you will not be able to control the manipulation of winning in this process, because the traveler documents up to the central bank justified than the bank can not take any action on them. These specialists confirm that the disposal of the manipulation of the process will only be through the banking system overall application.
 
The central bank has launched in 2012 , foreign currency selling process for travelers out of the country by 5000 dinars for tourism and 10 thousand for treatment and then returned last year, and reduced the amount to $ 3,000, due to the financial crisis experienced by the country.
 
Repeatedly it stressed the bank on the need to be the sales process after the completion of the required archives of all, and pointed to the possibility of traveler submit an application to the bank in the event of his need for a greater amount, also warned banks and financial transfer from the manipulation of quotas, but all that did not help, what is still many people find it difficult to obtain quotas for them.
 
Says economist Majid picture in an interview (range), said According to the new Central Bank instructions, the citizen owner of the ticket and passport must be the carrier of these archives to get the amounts of the dollar in order to travel,
 
and no one may come thirty and forty passport to receive the currency, and specify that the passport holder is buying only the allotted from the currency amount, but despite all these controls and control irregularities are still too many, because control a difficult process, when comes the documents are justified and are present here , the central bank can not take any hold them,
 
but he also said: LGP Its control of this now has become a moral, at a time when it should be essential , especially since there are beneficiaries of the corruption process that takes place in the traveler 's share of currency manipulation being through relationships with some banks and staff in order to carry out this process, but even that there are some companies involved in the matter, which requires the central bank 's comprehensive banking application system,
 
because without such a system would not have sufficient capacity to monitor all sell the currency on passenger operations, expected at the end of his speech, that the overall banking system application soon.


For his part , says Director of the Department of Accounting at the Central Bank of Ihsan Shomran Yasiri, in an interview (range), the central currently grants funds for banks to meet passenger quotas of currency, up to $ 25 million to be distributed to banks and companies,

which amount depends on the quota given size the traveler which is the rate of $ 3,000 for every citizen willing to travel, that does not repeat the process during one month , more than once,

​stressing: that the number of beneficiaries from the sale of the currency may reach hundreds or sometimes thousands, and all banks take these quotas, whether civil or government, but the most given quota eligibility for banks.
 
Yaser, acknowledges that the beneficiaries of this system may face some problems with the banks, but the process of corruption the broad scope excluded, continuing to say: As far as it comes to the central bank , there is no process of corruption in this matter, it has put controls and instructions and standards works accordingly.
 
Yes , there may be a failure because of misconduct by companies or collusion with the citizens , an issue that exists and continuing in all economies, can not be controlled, but according to the controls also the citizen who submitted a complaint to the Central Bank not to sell the dollar by the banking company or bank, here it must be fined the company and the money back of them and be compensated for the citizen any difference in the price.
 
 LINK

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