Gold and the revaluation of Iraqi dinars

Gold and the revaluation of Iraqi dinars



Thursday, 27 March, 2014



Surprising the economists all over the world, the Central bank of Iraq has purchased 36 tons of gold worth $1.52 billion this month in order to help the Iraqi dinars to get stabilized against the foreign currencies.

The purchase has been recorded as bigger than the purchases that have been taken place in the year of 2013. It helped Iraq to move at the 15th spot.

But anyone following the recent history of Iraq’s dinar is left scratching their head, as this month’s purchase more than doubled Iraq’s gold reserves from 27 tons to 63 tons for an increase of over 133 percent. Despite transacting the 15th largest annual gold purchase in the world, there was absolutely no move in the value of Iraq’s money – holding steady at approximately 1,165 dinars per USD, where it has been for more than two years and three months.

Revaluation of Currency Can Be Anticipated

Since the year of 2010, economists and lawmakers of Iraq are talking over omitting the three zeros from Iraqi currencies. Should it ever happen, the move is expected to be accompanied by a simultaneous revaluation of the dinar by inflating its value overnight, which is seen as necessary in order to properly account for the nation’s vast increase in wealth through oil revenues since the end of the 2003 war?

Thanks to the country’s enormous oil reserves which rank 5th in the world, and its steadily increasing oil production which ranks 7th, progress has been remarkably quick. According to Trading Economics, Iraq’s GDP has grown an average of 6.625 percent per year since 2005, reaching 8.58 percent in 2011 and a stellar 10.2 percent in 2012 – ranking 14th highest in world according to The World Bank. Iraq is in the best shape it has been in years, and is well on its way to mounting one of the greatest economic recoveries since Japan and Germany of post-World War II.

But many believe that all this progress is not being reflected in the value of the dinar, which is being kept pegged to the USD at artificially low levels. As noted in the graph below tracking the value of the dinar (inverse to the graph above), the CBI did inflate the dinar from the end of 2006 to the end of 2008. But it has since then kept the dinar stubbornly suppressed.

Is this why the CBI purchased so much gold this month? Is it preparing to increase the dinar’s value for a second time, as everyone has been expecting? The answer is most likely no.

Increasing a currency’s reserves – through acquiring more U.S. dollars, U.S. treasury bonds, gold, etc. – will strengthen a currency. But if Iraq already has more than 10 years’ worth of economic progress that has yet to be priced into the dinar, then the CBI does not need to buy more gold to increase the value of its money. Ten years of oil wealth would be enough to justify an upward revaluation of the dinar all by itself. If the CBI really wanted to revaluate its currency, it doesn’t need more gold to do it.

Given the CBI’s relentless pressure on the dinar for so many years, it is unlikely to raise the value of its money any time soon. A cheap currency stimulates business activity, creates jobs and lubricates the gears of the economy. It is precisely what western nations have been doing for the past five years since the 2008-09 financial crisis.

Explaining the Need for Extra Gold

While extra gold in its vaults does give the CBI room to increase the value of the dinar, it is likely that the CBI would rather use that extra room to print more money instead. The CBI has been steadily expanding the money supply for years. The extra gold gives it the ability to keep doing so.

In the case of Iraqi money, the CBI would rather have quantity over quality. Using the extra gold to expand the money supply instead of boosting the value of the dinar affords benefits which are much more urgently needed – especially while reconstruction is still ongoing.

The Economic Chain Reaction

The most urgent problem that Iraq faces is a growing population and not enough jobs, as noted by the following graphs.

Iraq’s population has grown by 25 percent since the war ended 10 years ago, while the unemployment rate has been cripplingly high. While fixing this problem is not as easy as I attempt to make it, we could condense the process into one basic objective – create jobs and increase the citizens’ personal wealth.

A series of remedies have been triggered by this though, and they are:

A) Make money cheaper. A cheaper currency is cheaper to borrow, stimulating business expansion and job creation, putting money in people’s pockets which is then spent to further stimulate commerce and growth. But how do we make money cheaper?

B) Increase the money supply. The more money there is circulating through the economy, the cheaper it is to borrow, which empowers businesses, expands commerce, creates jobs, and increases personal wealth. As shown in the graph below, the CBI has been printing money with gusto, steadily increasing the amount of dinars in circulation for years.

But that created a problem. Such a rapid expansion of the money supply caused the currency to fall in value too quickly, eroding purchasing power, making prices more expensive, and creating hyper-inflation – as noted in the graph below where inflation in Iraq reached an incredible 76.55 percent by August of 2006.

C) Increase the interest rate. By increasing interest rates on government bonds, a central bank increases the value of its currency, allowing it to catch-up with runaway prices and brings inflation down. Thus, as noted in the graph below, the CBI increased the interest rate from 7 to 20 percent over 2006 and 2007.

But that created a problem of its own, since rising interest rates make money too expensive to borrow, impeding business expansion, job creation and commerce. To make matters worse, high interest rates make a currency stronger, as noted in the graph below of the dinar’s rapid increase in value from the end of 2006 to the end of 2008 – mostly due to high interest rates that surpassed 14 percent during that entire period.

By 2009, interest rates at 14 percent were way too high to stimulate growth. It ran opposite to what the government wanted to achieve, namely job creation and increased wealth. So the challenge remained: How can you bring interest rates down to make money cheaper, and pump more dinars into the economy to make money more available – without collapsing the dinar and triggering hyperinflation all over again?

Boost in Economy from Gold Purchase

Because keeping interest rates low and pumping more dinars into the economy through daily auctions puts downward pressure on the value of the dinar which leads to inflation, the CBI needs to counter that downward pressure by increasing the nation’s reserves, exerting upward lift to the value of money and helping to keep the dinar steady.

By boosting its gold reserves, the CBI gains some room to play with. It can use that extra room to either increase the value of the dinar, or to print more dinars and release them into the economy without depreciating the dinar and triggering inflation. In the interest of job creation and economic stimulation, it has chosen the later, as most central banks have done worldwide.

So the CBI was speaking truthfully after all. It did buy the gold to help stabilize its currency. But not to make it stronger rather, to prevent the dinar from collapsing and to prevent hyper-inflation as it prints more money to finance its continuing reconstruction.

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[You must be registered and logged in to see this image.]Gold and the Iraqi Dinar Revaluation

Gold and the Iraqi Dinar Revaluation

Iraqi Central Bank Buys 36 Tons of Gold


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By [You must be registered and logged in to see this link.]Joseph Cafariello
Wednesday, March 26th, 2014
In a move that surprised economists the world over, the Central Bank of Iraq purchased 36 tons of gold valued at some $1.52 billion this month “to help stabilize the Iraqi dinar against foreign currencies,” the bank explained.
That represents a larger amount of gold than most nations purchased in all of 2013, moving Iraq into 15th place in annual purchases on just that one purchase alone.
But anyone following the recent history of Iraq’s dinar is left scratching their head, as this month’s purchase more than doubled Iraq’s gold reserves from 27 tons to 63 tons for an increase of over 133 percent. Despite transacting the 15th largest annual gold purchase in the world, there was absolutely no move in the value of Iraq’s money – holding steady at approximately 1,165 dinars per USD, where it has been for more than two years and three months.
[You must be registered and logged in to see this image.]

Source: Xe.com

Just how is this gold purchase supposed to “stabilize” the Iraqi dinar, as the CBI puts it? Everyone knows the central bank uses daily currency auctions to virtually peg the dinar’s value as depicted in the graph above.
The CBI doesn’t need to increase its gold reserves to stabilize the dinar. Iraq’s central bank must be up to something.
Is the Long-Awaited Currency Revaluation Near?
Since early 2010, talk of a redenomination by chopping off the last three zeros on Iraq’s notes has been anticipated by many. Should it ever happen, the move is expected to be accompanied by a simultaneous revaluation of the dinar by inflating its value overnight, which is seen as necessary in order to properly account for the nation’s vast increase in wealth through oil revenues since the end of the 2003 war.
Thanks to the country’s enormous oil reserves which rank 5th in the world, and its steadily increasing oil production which ranks 7th, progress has been remarkably quick. According to Trading Economics, Iraq’s GDP has grown an average of 6.625 percent per year since 2005, reaching 8.58 percent in 2011 and a stellar 10.2 percent in 2012 – ranking 14th highest in world according to The World Bank. Iraq is in the best shape it has been in years, and is well on its way to mounting one of the greatest economic recoveries since Japan and Germany of post-World War II.
But many believe that all this progress is not being reflected in the value of the dinar, which is being kept pegged to the USD at artificially low levels. As noted in the graph below tracking the value of the dinar (inverse to the graph above), the CBI did inflate the dinar from the end of 2006 to the end of 2008. But it has since then kept the dinar stubbornly suppressed.
[You must be registered and logged in to see this image.]

Source: Xe.com

Is this why the CBI purchased so much gold this month? Is it preparing to increase the dinar’s value for a second time, as everyone has been expecting? The answer is most likely no.
Increasing a currency’s reserves – through acquiring more U.S. dollars, U.S. treasury bonds, gold, etc. – will strengthen a currency. But if Iraq already has more than 10 years’ worth of economic progress that has yet to be priced into the dinar, then the CBI does not need to buy more gold to increase the value of its money. Ten years of oil wealth would be enough to justify an upward revaluation of the dinar all by itself. If the CBI really wanted to revaluate its currency, it doesn’t need more gold to do it.
Given the CBI’s relentless pressure on the dinar for so many years, it is unlikely to raise the value of its money any time soon. A cheap currency stimulates business activity, creates jobs and lubricates the gears of the economy. It is precisely what western nations have been doing for the past five years since the 2008-09 financial crisis.
So still we need to ask – if the CBI does not want a stronger dinar, why the extra gold? What is the CBI up to?
Why the Extra Gold
While extra gold in its vaults does give the CBI room to increase the value of the dinar, it is likely that the CBI would rather use that extra room to print more money instead. The CBI has been steadily expanding the money supply for years. The extra gold gives it the ability to keep doing so.
Look at it this way… $100 would allow you to buy one dinner at an expensive restaurant, or ten average dinners at McDonald’s. You could thus afford a little of something expensive, or a lot of something cheap. It all depends on what you are looking for – quality or quantity.
In the case of Iraqi money, the CBI would rather have quantity over quality. Using the extra gold to expand the money supply instead of boosting the value of the dinar affords benefits which are much more urgently needed – especially while reconstruction is still ongoing.
The Economic Chain Reaction
The most urgent problem that Iraq faces is a growing population and not enough jobs, as noted by the following graphs.
[You must be registered and logged in to see this image.]

Source: TradingEconomics.com

Iraq’s population has grown by 25 percent since the war ended 10 years ago, while the unemployment rate has been cripplingly high. While fixing this problem is not as easy as I attempt to make it, we could condense the process into one basic objective – create jobs and increase the citizens’ personal wealth.

That triggers a series of remedies:
• A) Make money cheaper. A cheaper currency is cheaper to borrow, stimulating business expansion and job creation, putting money in people’s pockets which is then spent to further stimulate commerce and growth. But how do we make money cheaper?
• B) Increase the money supply. The more money there is circulating through the economy, the cheaper it is to borrow, which empowers businesses, expands commerce, creates jobs, and increases personal wealth. As shown in the graph below, the CBI has been printing money with gusto, steadily increasing the amount of dinars in circulation for years.
[You must be registered and logged in to see this image.]

Source: TradingEconomics.com

But that created a problem. Such a rapid expansion of the money supply caused the currency to fall in value too quickly, eroding purchasing power, making prices more expensive, and creating hyper-inflation - as noted in the graph below where inflation in Iraq reached an incredible 76.55 percent by August of 2006.
[You must be registered and logged in to see this image.]

Source: TradingEconomics.com

While a weak currency is desirable as it stimulates the economy, it mustn’t be so weak that its buying power can’t keep up with rising prices. Money is like blood in your body. You want it thin enough to circulate freely, but not so thin that it loses its oxygen carrying power.
So how do we stop a currency from falling too quickly and reverse hyperinflation?
• C) Increase the interest rate. By increasing interest rates on government bonds, a central bank increases the value of its currency, allowing it to catch-up with runaway prices and bring inflation down. Thus, as noted in the graph below, the CBI increased the interest rate from 7 to 20 percent over 2006 and 2007.
[You must be registered and logged in to see this image.]

Source: TradingEconomics.com

Did it work? Absolutely. As noted in the prior graph, inflation in Iraq fell from 76.55 percent in August of 2006 to zero by the end of 2007. The raising of interest rates is what accomplished it.
But that created a problem of its own, since rising interest rates make money too expensive to borrow, impeding business expansion, job creation and commerce. To make matters worse, high interest rates make a currency stronger, as noted in the graph below of the dinar’s rapid increase in value from the end of 2006 to the end of 2008 – mostly due to high interest rates that surpassed 14 percent during that entire period.
[You must be registered and logged in to see this image.]

Source: Xe.com

By 2009, interest rates at 14 percent were way too high to stimulate growth. It ran opposite to what the government wanted to achieve, namely job creation and increased wealth.
So the challenge remained: How can you bring interest rates down to make money cheaper, and pump more dinars into the economy to make money more available - without collapsing the dinar and triggering hyperinflation all over again?
That’s where gold comes in.
A Little Boost from Gold
Because keeping interest rates low and pumping more dinars into the economy through daily auctions puts downward pressure on the value of the dinar which leads to inflation, the CBI needs to counter that downward pressure by increasing the nation’s reserves, exerting upward lift to the value of money and helping to keep the dinar steady.
By boosting its gold reserves, the CBI gains some room to play with. It can use that extra room to either increase the value of the dinar, or to print more dinars and release them into the economy without depreciating the dinar and triggering inflation. In the interest of job creation and economic stimulation, it has chosen the later, as most central banks have done worldwide.
So the CBI was speaking truthfully after all. It did buy the gold to help stabilize its currency. But not to make it stronger. Rather, to prevent the dinar from collapsing and to prevent hyper-inflation as it prints more money to finance its continuing reconstruction.
Joseph Cafariello

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Just show me the $$$$$$$$$$$$$$

Don't like this at all.....

sounds like we have a long time to wait yet.....

If they ever do it.  Maybe they just want to print more money and keep the dinar cheap.   the only ones making money on this are the dealers.

If their currency DOESNT need to RISE in value...then why have they spent so much time and money deliberating and fussing over it...not to mention all the issues as well...and why the isssue constantly about the price of the dinar against the dollar needing to be STRONGER?....If they know how to raise the value of the dinar...as they did the first few years after it came out...then why spend probably more dealing with all these issues over it.....than it probably costs to intially print and distribute it... instead of actually doing it...

IS IRAQ EVEN IN CONTROL OF ALL OF THIS AND IS THERE IS A "GRANDER SCHEME" WAITING TO BE HATCHED!...AND WHY EVEN FOOL WITH GOLD IF YOU KNOW YOUR CURRENCY IS GOING NOWHERE?...OR WHY WORRY OVER WHAT THE VALUE OF THE DOLLAR IS AGAINST THE DINAR.....IF THERE'S NO FUTURE ANYWAY?....AND WHY IS THE DOLLAR EVEN IN THERE COMPETING AGAINST THE DINAR...AND THE U.S. STILL PUMPING BILLIONS INTO IRAQ...IF THERE IS NO PLAN?...GO FIGURE......

IMO...THE GUY WHO WROTE THIS IS LEAVING TOO MANY FACTS HIDDEN ABOUT WHAT THE ULTIMATE PLAN IS/WAS FOR IRAQ...IF HE EVER DOES A TRUE INVESTIGATION AND FINDS OUT.....HE MAY FIND OUT WHAT THE DINAR'S POSITION IN ALL OF THIS IS?..IRAQ IS DEFINITELY NOT THE SAME ANIMAL THAT HE IS COMPARING HIS RESEARCH TO......LOL....

Investigation looming with the Central Bank concerning the vast difference in the exchange rate of the currency

Thursday, 27 March, 2014

{Baghdad: Euphrates News} A member of the parliamentary Finance Committee Hassan al-Bayati, said that the continuation of the vast difference in the currency exchange rate between the central bank and private banks or banking companies for more than a year is considered corrupt and makes bank officials under penalty of law, pointing out that there might be an investigation into In the future, with the central bank regarding this matter.
al-Bayati told the News {Euphrates} on Thursday that “the central bank is responsible for the stability of the Iraqi dinar, which from its responsibilities to maintain the value of the national currency against foreign currencies and inflation in the country, these duties and responsibilities of the central bank must therefore be on the central bank to take measures to maintain the value of the Iraqi dinar. ”
He added that “there is a vast difference between the exchange rate of the currency, the central bank and private banks or shops and banking companies, as the exchange rate difference of up to seven or six thousand dinars and this is a big difference too did not exist previously.”
al-Bayati said “mistaken policy of the Central Bank that led to it, it should not be there is such a broad difference, banks and banking companies earn a lot of money and imaginary processes of buying and selling,” he said, adding that “there may be an investigation of the central bank in the future regarding this matter. ”
He explained that “It is possible that this great difference between the exchange rate for months or for years, but continue to nearly two years indicates that the intent in this case exists,” noting that “the continuation of the central bank this deal will make it the responsibility of the governor and others under penalty of law as This deal is corrupt. ”
al-Bayati said that “the House of Representatives responsible for the accounting officers of the Central Bank, the Office of Financial Supervision and integrity, so For Audit Court not to remain indifferent to this dangerous phenomenon.”
Iraq has offices and banking companies widespread, is dominated by uncertainty, as some of these companies have turned to money laundering because of the lack of legal control of them, according to economists.
The traders buy and sell the dollar criticized the way in which the Iraqi Central Bank to sell the dollar and according to the opinion of some specialists in economic affairs, the CBI did not follow the monetary policy and legal , financial and economic foundations right in the process of selling the dollar.

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