Tuesday, January 2, 2018

To Float or Not - "Controlled" - Tues. AM KTFA Thoughts, News w/ Frank26, 2 JAN


WMK » January 2nd, 2018

Ok, IMO this is talking about not doing a free float but a managed float instead or also known as dirty float. (see article below)

It's based on supply and demand in the markets but is kept in check by the CBI. I think it's supposed to deter the 'hold it til it goes higher' (aka us) crowd and encourage quick exchanges so as not to run up the value too high. 

Fenway » January 2nd, 2018

I agree WMK, though I believe what we've been told about the managed float vs. a free float is to prevent Kuwait's experience of a runaway rate after their revaluation.

Frank26 » January 2nd, 2018

DANG !!! ............ YOU GUYS ARE GOOD ................ 

Don961 » January 2nd, 2018

What is the floating of the national currency and what is its economic impact on the life of the citizen?


There are two types of float.

First, your float and the second float the vector. 

The first is to leave the national currency exchange rate determined by the market. Increased demand for the dollar in the domestic market leads to a rise in the dollar exchange rate compared to the local currency, while the decline in demand for the dollar means a decline in the dollar exchange rate in the domestic market.

The situation is very similar to the days of the global economic boycott against Iraq after the occupation of Iraq by the State of Kuwait, where the exchange rate of the US dollar compared to the Iraqi dinar was preceded by only the German mark during the Second World War. 

The exchange rate of the Iraqi dinar relative to the US dollar has decreased from 2.8 dollars per Iraqi dinar to 5,000 Iraqi dinars per US dollar.

Determining the currency exchange rate just like setting the price of the tomato in Alwa Green, in Baghdad. The increased supply of these leads to a decline in the market price, while the low supply in the market leads to a rise in prices.

The second type is the same as the first type, except for the intervention of the central bank when the value of the local currency exchange is lower than the planned rate or the local currency exchange rate rises above its level. Any local currency exchange rate against the dollar, for example, must be at a minimum and above the national currency.

The oil state can not float its currency towards the world currencies. For a simple reason, it is the oil-exporting governments that monopolize foreign currencies because they are the largest exporters of commodities in the country and thus they own the hard currency, so it is in their interest to protect their local currency from collapse. If importers are not provided with goods and services from difficult currencies. 

Oil countries receive oil revenues in foreign currency. By providing this currency to local importers, these countries can finance their imports of goods and services. Iraq, for example, is increasing its balance of dollars through its oil exports to the world markets, and then put the collected currency in the local commercial banks to pay the bill of imports of goods and services.

To clarify the idea more, let's assume that the Iraqi government decided to monopolize all that it receives from the oil revenues, which represent 95% of Iraq's total exports. This government decision means depriving the national economy of 95% of the country's foreign exchange earnings. Hard currency, representing private sector exports in the country. 

Of course, the availability of 5% of the hard currency will not be enough to pay the cost of imports of goods and services needed by Iraq in one year. What will happen to the Iraqi national economy? In this case, traders and those in need of hard currency (patients who want treatment outside the country) will have to buy hard currency from the market (cashiers), leaving the Iraqi citizen to buy what he needs from foreign currency as determined by the market of prices called (dinar float). 

In this case, the size of the hard currency will be very small compared to what the country needs, and importers will run to buy the quantities they need at very high prices. The rise in foreign exchange rates against the local currency means higher prices for imported goods and services. ​

​As long as Iraq imports at least 75% of its needs of goods and services, a wave of price increases will sweep the country (inflation) to the extent that the prices of most goods and services will be outside the citizen's ability to pay, and will exacerbate public anger and become the government the target of demonstrations and protests . 

And this is why the oil countries choose to put a large part of the hard currency they receive from the value of oil sold to importers and those who need foreign currency. The availability of hard currency in the country means the stability of prices in the markets of goods and services, the stability of the value of the local currency in relation to world currency prices, and the security stability of the country. 

Non-oil countries and countries that can not export natural resources and manufactured goods often have to borrow to buy the goods and services they need. These are countries that Donald Trump likes, as he imagines, can bribe them to pass Foreign policy. 

Classical economic theory did not address what would be suffered by countries that lacked natural resources or countries that did not have an export production base, but assumed that increasing the trade deficit of a given country meant increasing the country's demand for foreign exchange and depreciation of its local currency. 

This decline in turn will give the country an opportunity to enhance the competitiveness of its products in the global market, increase its exports, increase demand for workers, reduce its imports, and finally disappear the trade deficit. This theory was in place until the world recession of the 1930s, which proved that the economy can not be reached without a state intervention.

The repetition of economic cycles made it difficult to accept classical economic theory even by the most powerful politicians and economists. Imagine what would happen to the global economy if the US Reserve Bank, European central banks and Western governments did not intervene to save the global economy from the Great Depression that hit the global economy in 2007 and 2008? The US government has supported the national economy by $ 1 trillion and has been forced to legislate new laws to monitor the movement of the local economy, as well as having to accept the closure of giant companies. 

There is one hope for the floating of the oil countries' currencies, when the oil sector becomes small and ineffectual, a very unlikely prospect given the current economic and political conditions in the oil-exporting countries. 

As long as there is no hope that the oil sector in the oil-exporting countries is not a leader in national development, these countries will continue to rely on the sale of oil, and will remain other economic sectors neglected, and will remain the oil sector is the leader in the national economy, and will remain the national currency away from market fluctuations . link

Stand4Christ » January 2nd, 2018

I have some IMO thoughts I would like to share concerning what the CBI is trying to project ......

The deal is, even if they planned to float, they are not going to tell the public about it, because if they RI at a fixed rate, and tell the public that they will float, will that not encourage several things to happen?? For instance ........

-- IQD investors like us might hold too long before selling our IQD, hoping for higher rates; when a massive selloff of IQD happens soon after they float, it will spell troubles to CBI

-- If international spectators and big whales know they are going to float, and they presume Iraq will have a bright future, will not that encourage them to hoard IQD ASAP (even after its initial RI) ??? And they too will likely suddenly do a massive IQD selloff as IQD price rises further during the float period.

From the perspective of CBI, I believe they would rather IQD investors like us to sell most of our IQD during their fixed rate (what's the point of holding IQD longer if the rate will be the same, right??), and CBI would rather no one will hoard IQD (either before or right after RI), so that after when they begin to float, nobody will drain their reserve ...... when float, if suddenly there are more people who will sell IQD than those who buy, CBI will have to step in with their reserve, and will have to buy back IQD in order to sustain its market price.

Therefore, I believe they have a plan to float soon after the RI, but they simply flat out lie about "not going to float".

These are my IMO thoughts

Frank26 » January 2nd, 2018



WE REFLECT EACH OTHER ................

Apmcrx » January 2nd, 2018

Iraq reveals its reserves of hard currency and excludes floating the dinar

Iraq's central bank governor Ali al-Alaq said on Tuesday that the bank's reserves of foreign currency amounted to 48 billion dollars, pointing out that Iraq will not resort to floating the currency.

Alaq said in a press statement today that "the reserve of the Central Bank of foreign currency is currently 48 billion dollars." He added that "Iraq, which is one of the oil states depends on a fixed exchange rate, or fixed with flexibility, and does not resort to the method of floating, unless their reserves are controlled to a level without enough, which did not happen either in Iraq or other oil countries."

"The flotation is difficult to apply in Iraq, considering that the government, de facto, monopoly the offer of the dollar and foreign currencies." 

The floating currency is to make the exchange rate of this currency fully liberalized, so that the government or central bank does not interfere in determining it directly, but is automatically discharged in the currency market through the mechanism of supply and demand, which allows to determine the exchange rate of the national currency against foreign currencies. 

Floating exchange rates fluctuate constantly with every change in supply and demand for foreign currencies, so they can change several times per day. Link

Frank26 » January 2nd, 2018




BECAUSE AN RI INTO AN RV .............CONTROLLED ...........REQUIRES IT...........IMO........(smile)

ChrisC » January 2nd, 2018

I am not sure why everyone is running this old article this morning, but I believe one of the requirements of Article 8 is that the currency is NOT restricted and therefore open to movement created by the market. 

The only point that Iraq will be able to control is opening HIGH in the first place and then if the market takes it up from there (like Kuwait) then they will just have to deal with it. 

There was an article that I read many years ago proposing that the only way to eliminate the abuse of the George Soros types was to open as high as possible and not give them any room to whipsaw them....hence the efforts of TAG. 

Their assets have been assessed and the IMF knows what they are worth and what they can handle. Iraq is a consuming society from the world and a regional producer, therefore they benefit by having a currency that is high. If they were a country that makes tennis shoes and clothing then they would benefit by having a lower value currency. 

Remember what Walkingstick told Frank...all this foot dragging was them arguing for a higher open.

Frank26 » January 2nd, 2018

B ... I ... N ... G ... O ..................... AND BINGO WAS HIS NAME...............

Will » January 2nd, 2018

If they open high there will be a massive selloff which could plummet the value.

ChrisC » January 2nd, 2018

Same thing that happened to Kuwait or virtually any other stock. I traded stocks for a living for a while and I can tell you most likely when they debut their currency there will be a run up. It is human nature to want something new. 

There will be people with varying experience that will sell all along the curve on the way up. 

It also depends on whether the "trade dinar for oil" story is true. If there really has been a prearranged deal between various governments and Iraq, then the shock to Iraq has already been accounted for and therefore will not be a shock. 

Remember, we are selling to the UST if I have my story straight. Like Frank says, this is all IMO.

Frank26 » January 2nd, 2018

F ... R ... A ... N ... K ................... BUT BINGO WAS STILL HIS NAME ................lol

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