Wednesday, May 30, 2012

The Artificial Program Rate

Have you ever heard the term "artificial" in reference to the current value of the Iraqi dinar?  One well-known pumper whose name starts with a P and ends with X and sounds like a city in Arizona refers to the current ratio of 1166 IQD to 1 USD (or $.000857) as the artificial program rate.  Others have stated that the current rate is a placeholder until the real value of the dinar is represented via a revaluation.  Well I'm of the opinion that the current rate is quite real and fully representative of the value of the dinar. 

Was the current value of $.000857 just plucked out of thin air?  Why not go with $.001 or $.0009?  One of my readers named DaveD pointed this out recently. 

Iraq has $60 Billion in FX reserves. Their M2 is 70 Trillion dinar.
They have stated they want to maintain 100% backing.
Well guess what. 60 billion (dollars) divided by 70 Trillion (dinar) comes out to .000857 or 1166.


Coincidence?  Hardly.  A "dirty float"?  I don't think so, Tim.  The current value is determined by long accepted principles of economics and currency valuation.  (Actually I ran the latest figures on the money supply and reserves and came up with about 1146:1 which would yield a valuation of $.000872, so there's your RV right there.  Party hearty everybody!)

The idea that the value of the Iraqi dinar crashed when the US invaded in 2003 is nonsense.  It was already in a hyperinflated state long before 2003 as per the CBI website.  When Coalition forces removed Saddam they replaced the Saddam dinars with the IQD shortly thereafter to indicate an end to the Saddam era and to demonetize the currency held by terrorists.  Since conditions were still less than ideal with the insurgency going on, the currency was still depreciating in value so the existing valuation wasn't changed when they redenominated in 2004.  Things began to improve in Iraq after the surge in 2007.  That, along with a series of exchange rate adjustments (RVs) from 2006-2009 increased the value of the IQD as they brought inflation under control. 

As those adjustments were made IQD speculation took off as investors saw the dinar steadily increasing in value.  Dinar dealers and forums starting sprouting up everywhere and a huge revenue stream was created for Iraq.  Once inflation was reined in however the rate froze.  For three years it held steady at 1170:1 until the current rate was set at 1166:1 back in January. 

Usually countries redenominate after a period of hyperinflation comes to an end.  Turkey, Romania, Brazil ... etc. all went with a new currency with a more respectable sounding rate that made cash transactions much easier, but not so with Iraq.  Why?  I am of the opinion that the only thing preventing Iraq from redenominating over the past three years is the gravy train provided by dinar speculators.  I would estimate that well over $1 billion USD has found its way into the coffers of the CBI due to speculation in their currency.  Sweet, huh?  Who would want to put an end to that?  Those other nations didn't have that luxury. 

My guess is that Iraq will drag this out until dinar sales have abated to the point where it makes more sense for them to redenominate than to keep their currency in its present hyperinflated state. In the meantime I look for them to continue to bump the value up from time to time.  Last Thursday an article came out saying that Iraq is working toward making the dinar worth 1/10 of a penny at 1000 IQD to 1 USD.  This would perfectly position them to RD and gain parity with the US dollar. 








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16 comments:

  1. It's all smoke and mirrors!!!!!!!

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    Replies
    1. LOL!!! That, and do you really think the Iraqi politicians would accurately report what the real rate was? No way!!

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  2. Sam. Here’s what I found out when I investigated “Program rate”. I had seen it in print a few times and was surprised to find no real info on what it meant. Well after looking and looking I came to realize all it means is… Iraq is under an IMF program. The Stand By Arrangement. While they are under that program, the rate is referred to as the program rate. I backed that up by finding articles about other countries under IMF programs and it was the same thing. Their rates also were referred to as program rates. The program doesn’t necessarily dictate or control the rate. Proven by the fact that Iraq has changed their rate numerous times while under the program.

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  3. So in other words. It’s a very meaningless statement that has been twisted by douchebags to mean something it totally does not mean for the purposes of suckering people into their scam.

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    1. Kinda-sort of. Iraq is operating under a policy that allows countries to artificially maintain their currency value ABOVE it's natural value. As someone has pointed out, the current value is actually pretty close to intrinsic value but still, the Dinar is propped up by the CBI in a way that most countries cannot do without trade restrictions being imposed. For 8 years Iraq has had permission to artificially prop up the value of the dinar to more than it would otherwise be worth.
      And another thing, Iraq is getting closer to the Dinar fluctuating like normal currencies. The move from 1170 to 1166, is what the Dinar would do and will do when it's picked up by exchanges, if you look at pairings on the FOREX market you'll see that's about the kind of move that all currencies make pretty much everyday.

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    2. F8 are you saying that Iraq's natural value is less than $.000857 or that the program just allows for them to do that if they wish?

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    3. The IMF states this about Iraq's exchange rate.
      IX. Exchange rate arrangement:
      The Central Bank of Iraq has been conducting foreign exchange auction on a daily basis since October 4, 2003. The central bank followed a policy of exchange rate stability which has translated in a de facto peg of the exchange rate since early 2004. However, from November 2006 until end 2008, the CBI allowed the exchange rate to gradually appreciate. As a result, the exchange rate arrangement of Iraq was reclassified to the category of crawling peg effective November 1, 2006. Since the start of 2009, the CBI returned to its earlier policy of maintaining a stable dinar. Consequently, the exchange rate arrangement of Iraq was reclassified effective January 1 2009 as a stabilized arrangement.

      The Dinr is a pegged or crawling peg.
      From the web:
      A currency peg, also known as a fixed interest rate, can be set by fiat, which is to say it is simply made illegal to exchange at any other rate. More often, however, currency pegs are accompanied by a corresponding monetary policy through open market operations with reserves of the currency to which they are pegged. If there is too much of it circulating, the law of supply and demand dictates the value of the currency will decline. The supply is too great. In response, the country exchanges reserves of the peg currency for its own, which it takes off the market. If the supply is too small, the country puts new money into circulation by buying the reserve currency.
      http://www.ehow.com/about_4675892_what-currencies-pegged-dollar.html#ixzz1wNp9q0Cm

      Iraq has been forced to buy trillions of dinar back through the auctions for years now. If they hadn't the supply would have gone out of control (as if 32 circ and 72 M2 isn't already high enough) and the real value would have sunk like a brick in water.

      So to answer you question Sam. Iraq manipulates supply and demand through the auctions to try and maintain a stable rate at the peg of 1166. They try to keep the street rate near the official rate. Lately they have not been able to do that very well and the street rate has sunk to near 1300. So currently the natural value is is less than the $.00085 rate.

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  4. Just a little change of subject. For some of you guys who haven't been around the dinar for very long. Check this out. Someone dug up this post on IIF the other day.

    'Prior' Dinar
    Announcement could be made public this week
    The announcement could be made public this week. And I was told that it would most likely be done before THEIR weekend..... The rate is looking like it is around .41, but he would not tell me the exact amount. I know that they were talking about 70-1.25 USD, but I have not received any updates on that amount. That’s why I stated .41 which was the amount originally agreed upon at the G8. I was told that the "leak" from two weeks ago was the start of it, but the Aimma Bridge deaths delayed it until this week. So, we should see something this week. I know we have been down this road before, and delays do in fact happen.... let’s hope no delays are in the future.


    If it weren't so sad this would be funny. For 7 years these guys have been making up RV rumors. Yet people still fall for it.
    How about a historical Douchie for 'Prior' Dinar. Wonder who he post as today?

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  5. oops... here; the link for the above post.

    From Sept 7 2005… yes 2005.
    http://www.investorsiraq.com/showthread.php?10141-Announcement-could-be-made-public-this-week

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  6. here's what they're posting on Okie's site:



    --------------------------------------------------------------------------------

    Dinar Move a Plus for Stocks

    Posted on 30 May 2012. Tags: CBI, iraqi dinar, ISX

    Last
    week the Central Bank of Iraq (CBI) announced that it was authorizing
    the two largest state-owned banks, Rafidain Bank and Rashid Bank, to
    sell US dollars at auction. The CBI’s goal is to reduce the spread
    between its own auction rate and the unofficial “street” exchange rate,
    which has recently been as wide as seven percent. The CBI expects the
    spread to narrow to four percent initially and eventually to reach two
    percent as the unofficial rate strengthens. (See this story from Alsumaria and the “Economics” section of last week’s Rabee Securities Weekly Bulletin.)
    A
    five percent strengthening in the street rate might not sound like
    much. But the CBI is doing more than just narrowing the spread. It is
    also eliminating uncertainty about the future direction of the dinar by
    signaling that no further deprecation will be tolerated.
    This move
    is positive for Iraqi stocks because a stronger currency will increase
    the expected value of the IQD-denominated earnings of the listed
    companies relative to the return on USD assets. The increased supply of
    US dollars may also push up earnings at the listed banks by allowing
    them to expand their offerings of USD products such as letters of
    credit.
    While you’d never guess it from the market’s tepid
    reaction to the news, the CBI has given investors yet another reason to
    be long the ISX.

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  7. While you’d never guess it from the market’s tepid
    reaction to the news, the CBI has given investors yet another reason to
    be long the ISX.

    As if insanity or gross economic ignorance wasn't reason enough. I'm guessing the source for that quote is some blog that pimps the ISX. Iraq could explode into chaos in the next half hour, it's not a stable country and who knows if it won't turn into Iran, Cuba or North Korea in the next thirty days, or thirty minutes for that matter. Putting any money into Iraq is a wild gamble at best right now.

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    Replies
    1. Iraq Business News... Mark DeWeaver
      http://www.iraq-businessnews.com/2012/05/30/dinar-move-a-plus-for-stocks/

      I wouldn't say he pimps or pumps the ISX. He does usually cover it in a positive light though.
      http://www.iraq-businessnews.com/category/investment/mark-de-weaver/

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  8. I can’t help but get a chuckle as I read more and more articles with Iraqi officials complaining about the smuggling of currency out of Iraq. But it’s the Dollar being smuggled that’s got them all worked up. For years the dinar has been smuggled out and used as a scam to dupe people out of their money and fill the FX reserves of the Central Bank of Iraq. I can’t seem to muster up much sympathy for them considering I’m sure they have been well aware of the dinar phenomenon for years and have never once tried to deter it.

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  9. Actually, it's bad for their economy for dinar to be taken out of country. Dinar outside of Iraq amounts to money that their economy has to support but is not being used in their economy, which is why they restricted it to begin with. That money should be circulating in commerce in Iraq but since it's all overseas it's money NOT being used to grow the domestic economy. And they have tried to deter it, aside from passing a law making it illegal to take Dinar out of Iraq, what can they do? It is true that if they reissue new currency and that currency doesn't get back it's free dollars for the CBI, which is one reason I think that they will absolutely try to make it hard to repatriate that money. A lot of people holding Dinar now in hopes of getting big rich on it are going to lose everything they have in it, cause it'll just be pretty paper some day soon. I posted here before a little story about how bad it could go for them.

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  10. DaveD you should call in to Phoenix show and debate with him.

    Hes a wordsmith and manages to confuse many of his listeners who take his explanation as gospel and Ive never heard one person yet challenge him on his information or opinion.

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  11. Very nice post, I too like to share my opinion on the Iraqi Dinar. Don't be fulled or succeed into this currency scam.
    http://digital-domination.blogspot.com/2013/02/iraq-dinar-good-or-bad-investment.html

    ReplyDelete

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