Thursday, January 19, 2012

RV 101

Dinarians use the word "revalue" (or RV) frequently but I'm not so sure that most really understand the concept.  From Investopedia:

Revaluation: A calculated adjustment to a country's official exchange rate relative to a chosen baseline. The baseline can be anything from wage rates to the price of gold to a foreign currency. In a fixed exchange rate regime, only a decision by a country's government (i.e. central bank) can alter the official value of the currency.

A revaluation is a calculated adjustment.  Typically those adjustments aren't more than a few percentage points.  In rare cases they are 20% or more.  Gurus and pumpers make reference to an RV of anything from a dime to $5 or more.  Let's break that down to percentages.  An RV to a dime would represent an increase of over 11,500%.  (Remember, "per cent" means "per hundred", so you just add two zeros.  1000% means ten times, 10,000% means 100 times ... etc.)  A dollar would be more than 115,000%.  Two dollars 230,000%.  Three dollars 345,000% .... etc.  When China RV'd in 2005 it was a 2% increase.  The more you understand about revaluation the less likely the gurus' 100,000+% increase seems.
To me, this is a fairly simple investment once you understand a few basic things.  First, a nation's economy is defined primarily by money supply and GDP.  Iraq's money supply is currently around 25 trillion dinar or a little over $20 billion USD and their GDP is around $113 billion a year ($81 billion nominal GDP).  Given these factors Iraq could probably support a substantial revaluation, but when I hear people talking about an RV of $3 or more I know that they're either lying or uninformed.  With 25 trillion dinar in circulation Iraq's money supply would jump overnight from $20 billion to $75 trillion or more.  Not gonna happen.  I don't need any high up sources or "intel" to know that.  Just common sense.  They would need to bring their money supply down to a trillion dinar just to think about an RV at $1, and they're nowhere close to that right now.

For four months now I have been calling the pumpers/gurus on their bogus intel and flawed analysis.  During that time countless claims of an impending RV have gone unfulfilled, despite the "highest level" of the sources and the reputations that have been staked on the reliability of the intel.  Every week I select one or more of these people for a Douchebag award, knowing that what they're sharing is BS.  People are starting to take notice and ask me how I know that they're wrong, and how I can be so sure of what I'm saying?  Well, let me give you a little background.

I bought dinar like most of you, thinking that the RV was going to happen very soon and I didn't want to be left out.  Being rushed to purchase I didn't really have the time to do adequate research.  Since the RV didn't happen when I was told that it would, I started doing my due diligence to find out what was really happening with this investment.  I was assured by people who bought dinar that it wasn't a scam, but the more I dug into it the more it started to resemble a scam.  True, you can always get most of your money back, so in that respect it's not really a scam.  But the so-called gurus are not giving people the whole picture, and in most cases they're misrepresenting the parts of the picture that they do offer.

For example, gurus like to tell people about the numerous times that Shabibi has talked about increasing the value of the dinar, but they don't explain to people that a redenomination does exactly that.  It increases the value as it decreases the supply, which Shabibi has also said that they will do.  There is no net gain, but in the IQD's case the value would jump from $.00086 to $.86 as the money supply decreases from 25 trillion to roughly 25 billion, in effect removing three zeros from their currency.  That's clearly what Shabibi is referring to, but how many gurus tell you that?  Is that what Iraq is going to do?  Who knows?  But that's definitely what they're describing.  They even made reference to similar redenominations (lops) in Turkey, Brazil, and Romania that they were studying to decide how to proceed. 

Another example would be the references to revaluing the currency to combat inflation.  Gurus love to say that inflation is our friend, but what they don't tell you is that there have already been adjustments to the IQD to combat inflation, and nobody became a millionaire off of those "RV"s.  But for some reason we're led to believe that the next adjustment will make us all rich.  Rubbish!  If inflation gets too high in Iraq I would expect them to tweak the rate to no more than $.0011 which would be an increase of about 30%.  You'd have to already be a millionaire to buy enough dinar to make a million off of that RV.

As you can see from these charts, the dinar's value stabilized as inflation was brought under control in 2006.  The adjustments to the exchange rate from 2006-2009 were small percentages designed to help manage the inflation rate.  Nothing in these charts suggests that anybody is going to get rich from any future inflation-induced rate changes.

The second thing that people need to understand is how currencies are valued.  There are many factors involved, such as:
  1. Money supply - Hyperinflation brought on by two decades of war and sanctions caused Iraq's money supply to skyrocket from less than 30 billion to upwards of 30 trillion dinar.  With that much in circulation there's no way that Iraq can have a valuable currency without a redenomination or lop. 
  2. Stability - Iraq's government is a fledgling democracy, and has to deal with tribal conflicts, corruption, and a general lack of comprehension of how democracies function.  Such a government doesn't inspire a lot of confidence in it's ability to survive, let alone thrive.
  3. GDP - Iraq's GDP is ranked 62nd in the world, behind such economic powerhouses as Angola, Bangladesh, Slovakia, and Nigeria.  Yes, it's improving, but they have a long way to go before they're ranked among the highest in the world.
  4. Diversity of the economy - Over two-thirds of Iraq's GDP comes from oil.  For their currency to grow in value they need to develop other products and services so that their economy won't be dependent on one product.  The price of oil fluctuates wildly at times, so a diverse economy would help them to weather those periods of volatility.  It would also help them to reduce unemployment.
  5. Infrastructure - Iraq has the second largest oil reserves in the world, but their infrastructure is currently insufficient to produce more than three million barrels of oil a day.  It will take them years of progress to reach their reported goal of 10 million barrels a day.  They also have a long way to go in developing their roads, communications, and banking system to the point of their more advanced neighbors.
  6. Security - Iraq still has a big problem in this area, and businesses are nervous about investing in a country where their employees and facilities might be the target of terrorists or insurgents. 
  7. Peace - Iraq is currently no longer at war, but it faces threats from Iran and civil war constantly.
  8. Inflation - Iraq has made a great deal of progress in this area, but there's still reason for concern as Shabibi has stated on numerous occasions.
  9. Debt - This is one of the strongest factors in Iraq's favor.  Very little debt. 
  10. Natural resources - By far the biggest thing in Iraq's favor.  They have an abundance of natural resources that inspires hope in their future. 
As Iraq makes progress in these areas their currency should increase in value, but to expect them to RV now to anywhere near their pre-Sadam value is pure fantasy.  They have a lot of work to do first.

This is why I can state so confidently that the gurus are wrong every week.  I understand the basics.  There's no real mystery here.  No secret plan.  No New World Order conspiracy to uncover.  No cryptic messages to decode.  Just get the basics down and you'll know right away how to separate the gold nuggets from the cow turds.

I've recently listened to several conference calls presenting the latest intel from various gurus who are always wrong.  The consensus among these types has been that the RV was going to happen by the end of the year or right after the first of 2012.  Well of course we're into the third week of January and still no RV.  Let me make a prediction right now.  I will stake my reputation on the fact that the value of the IQD will remain relatively unchanged as of April 1, 2012.  It might go up a few % but nothing more.  Like I said, 30% at the most.  When all of these gurus are wrong I invite you to come back and review what I've presented in this blog.  They depend on intel.  I go by the history of currency revaluations and redenominations.  They go by contacts.  I go by common sense.  They follow conspiracy theories.  I follow basic economics.  I'm not bragging here.  I'm just making an observation.  People who go by guru intel are always disappointed.  People who understand the basics will recognize just how unlikely the overnight millionaire scenario is and they will exercise patience and a cautious outlook as this speculative investment comes to its ultimate conclusion.


  1. Well done Sam. Succinct, and yet thorough and 100% accurate. Unfortunately, no matter how many times we explain it, the thousands of "GoRV'ers" on the various websites will continue to bash us as having no idea what we're talking about. Meanwhile, the criminal pumpers, dealers and site owners will likely continue to rake in big profits at the expense of the naive and ill-informed, many of whom are convinced that God is in control of the RV and will make them overnight millionaires. Sad that it's been allowed to happen, and long past time that the offenders be taken to task. Keep up the great work. Perhaps a few will benefit.

  2. Like you, Sam, many of us have had an even, pragmatic view of the Dinar. Seems most investors rather have "affirmation than information"...pity....

    Thanks for the balance provided here......

  3. Re-denomination will not happen. Though the similarities are often mentioned, that is for a reason. And you have fallen for it hook, line and sinker. Your missing parts of the real plan, which accounts for the close to 10 trillion outside of Iraq. When you know that, RV is a real possible solution and will happen. I agree the rate is .86.

  4. Thanks Legolas. You're welcome, D.C. RB-AP the statement issued by the CBI says that they will redenominate, so your argument is with them, not me. Even with 10 trillion outside of Iraq, that would leave over 16 trillion inside the country according to the latest CBI figures. At $.86 that would take their money supply from a little over $20 billion to about $14 trillion, so unless they have some ingenious way to make about 15 trillion of their money supply vanish I'd say that's not bloody likely. I'd love to be proven wrong, of course.

  5. Of course, since it has always been against Iraqi law to take dinar out of Iraq without a permit, it's entirely possible that they could 'shrink" the money supply by not allowing anyone INTO Iraq with dinar during the period when you can exchange the new for the old.

    Jus' sayin....


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