Tuesday, June 5, 2012

Deleting the Zeros

From time to time we read news articles coming out of Iraq mentioning their plans to "delete the zeros" from their currency.  Sometimes it's stated as "remove the zeros", "lift the zeros", "drop the zeros", or "cut the zeros" but they all mean the same thing.  They're talking about a redenomination similar to what has occurred with dozens of other countries over the past century whose currencies have depreciated in value after a period of hyperinflation.  Here a few examples:
  1. Nigeria - "removing zeros" "dropping two zeros"
  2. Turkey - "lop six zeros" "drops six zeros"
  3. Venezuela - "lopping off three zeros"
  4. Afghanistan - "drop some zeros"
  5. Iran - "take three zeros" "slice three zeros" "remove three zeros"
  6. Zimbabwe - "lop 10 zeros" "removing 10 zeros"
  7. Romania - "slash four zeros"
  8. Russia - "lose three zeroes"
I could provide more examples with similar references, but you get the idea.  All of these redenominations worked essentially the same way.  The old currency was replaced by a new currency that was more valuable by multiples of ten, along with a proportionate reduction of the money supply which typically resulted in no net change.  A transition period was announced and people were allowed to use the old currency or exchange it for the new before the old was "demonetized" or declared worthless.

In the case of the Iraqi dinar, also a victim of depreciation resulting from a prolonged period of hyperinflation, armchair economists have decided to educate the dinar community that "deleting three zeros" actually means pulling the larger notes with three zeros out of circulation in preparation for a substantial RV.  This interpretation is completely baseless.  It is unprecedented, it's not supported by the testimony of people in Iraq reporting the scarcity of larger notes in circulation, and it certainly isn't supported by the figures from the CBI which show a growing money supply rather than a shrinking supply as one would expect if this were the case. 

Recently Ali Agha of Dinar Trade (a man who claims that his family has been in the currency business for generations) has conducted interviews where he discussed the subject of "deleting the zeros".  His interpretation is consistent with the articles I cited earlier.  He says that it means a lop, although he's of the belief that there's not enough support in parliament to push the plan through, leaving wide open the possibility of the IQD growing in value over a period of time which would be the best scenario for investors.   

To reduce the money supply by removing larger notes from circulation in preparation for an RV with no corresponding rate adjustment would result in economic ruin as the people and businesses would be undercapitalized.  This scarcity of money would likely result in deflation, which is considered worse than inflation because it causes people to stop spending money.  This leads to a slowing economy and a downward economic spiral toward depression. 

Since we've seen no significant rate adjustments over the past couple of years, and since the GDP is still growing in Iraq, and since the CBI financial reports show a growing money supply I have to conclude that the "removing the larger notes" interpretation is shall we say ... caca del toro. 

One popular dinar pundit from Texas is fond of saying that removing the zeros means removing the larger notes because they've already removed 70% of the zeros and "you can't remove 70% of an exchange rate".  This is no doubt based on yet another misreading of an article from 2010 stating that Iraq had reduced excess liquidity by 70%, an interpretation which has repeatedly been debunked both here and in several forums.  All you need to do is look up the definition of "excess liquidity" in a financial dictionary.

"cash held by a bank above what is required by the regulatory authorities" - qfinance.com

As you can see nothing in this definition refers to the amount of cash in circulation.  It's the excessive amount of cash held by a bank. 

The word "delete" means "to eliminate especially by blotting out, cutting out, or erasing". It doesn't mean "to remove by gathering or withdrawing from circulation". It's referring to the zeros in the exchange rate, not to the larger notes with three zeros.  So if I wanted to I could make a similar declaration that "you can't delete paper money".

Now consider this excerpt from Wikipedia's discussion of "redenomination".

In times of inflation, the same number of monetary units have continually decreasing purchasing power. In other words, prices of products and services must be expressed in higher numbers. If these numbers become excessively large, they can impede daily transactions because of the risk and inconvenience of carrying stacks of bills, or the strain on systems, e.g. automatic teller machines (ATMs), or because human psychology does not handle large numbers well. The authorities may alleviate this problem by redenomination: a new unit replaces the old unit with a fixed number of old units being converted to 1 new unit. If inflation is the reason for redenomination, this ratio is much larger than 1, usually a positive integral power of 10 like 100, 1000 or 1 million, and the procedure can be referred to as "cutting zeroes".

The definition of "deleting the zeros" is one of the main reasons I concluded that nobody will get rich off of the IQD.  It was clear from my research that the term was being misrepresented by dinar gurus and that the CBI was talking about a textbook redenomination which would in all likelihood leave investors with a loss. 

When Shabibi was in DC last year he was asked about revaluing the dinar and his response was essentially that it depends on inflation because that's how they've been keeping inflation under control.  They've been periodically adjusting the exchange rate.   Later in that same meeting he was asked about deleting three zeros from their currency.  Here he made a clear distinction from a revaluation in that he said deleting the zeros was simply a way to facilitate payments and they had already decided to do this.   You can hear his remarks in the video below.  (At the beginning of the video he is responding to the question about whether or not they would revalue the dinar.)  Shabibi even states that "deleting three zeros" means a redenomination.  (3:50)  How much clearer could he be?

Maybe Iraq won't delete the zeros.  Maybe parliament will vote down the measure and force the CBI to adopt a policy of slow growth toward a penny as Ali has suggested.  If so dinar investors could realize some significant profits even if they don't get rich from a 1000:1 RV.  But whatever happens investors need to be clear on what "deleting the zeros" means.  It means lop.

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34 comments:

  1. I'm away from home for a few and only have my phone with no info readily avaliable, but could someone post the links to the CBI financial numbers which show the growing money supply. It will help those who aren't armed with facts.

    Also one more thing to point out about this whole "deleting of zeros = removing the larger notes". Those who claim that is what it means, Kap SWFloridaguy to name a couple, can not nor do not have an explaination as to why articles say, "they are ready to implement the deleting of zero process". If "deleting to zeros" meant they were and are pulling the larger notes in and have been for awhile now, then that would mean the process has already started according to the roos who say that. That is in direct contradiction to what the articles are now saying. Aside from the fact the CBI figures show an increase in the supply instead of a decrease, these guys' article interpretations, suck at best.

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    1. http://www.cbi.iq/documents/key%20financial.xls

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    2. Also, if they already removed 70% of the notes two years ago how do the gurus explain that they have decided not to delete the zeros until 2013?

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  2. There were many articles in the past that stated they were working on deleting the zeros, and even that they had completed removing the zeros. What the gurus so conveniently over looked was that all those articles were referring to the PLAN to delete the zeros. Not the actual execution/implementation of the deletion of zeros.

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  3. Along with the lies about deleting zeros.....another lie is that the auctions are used to pull dinar out of circulation. That's another forum fact that has been debunked over and over again. Our society scares me at how ignorant and easily brainwashed people can get regardless of facts and truth. It's very sad and disturbing.

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  4. Well... they are half right in that. The auctions do pull dinar from the system. But Iraq turns around and puts them right back into the system... along with more. That's why the number has gone up almost every month for 6 or 7 years now.

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    2. Exactly!! And, in addition to all you named as being part of the scam, I believe the Iraqi government is in on it too.

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    14. I have deleted all of the comments that included namecalling against other participants in violation of the stated guidelines. The software doesn't allow me to ban anybody in particular or to close comments for just one thread like forum software does. My only options are to put all comments on mod approval which discourages discussion, monitor the blog around the clock which I can't do, or allow discussion and delete the posts that cross the line which I am now doing. I think a better solution is for people to just honor my repreated requests to keep it civil and avoid the namecalling. We're all adults here. Let's act like it.

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    15. Sam with all due respect I don't think my comments or reeder or Erin comments should have been deleted. Sonny is the one who crossed the line with his threat and child like rant of name calling and cussing.

      Sonny is always throwing rants like that instead of proving we are wrong. This site is called douchebags and sonny is not just a member but a "guru" who misleads and should be called out like everyone else that gets called out on this site. He works for and helped Adam start up dv. We all know about James Montana and that's sonny1 side kick.

      I did nothing to have sonny go at me like that. I lumped him in a category with all the other d bag dinar gurus and he got childish and attacked me.

      How can anyone take sonny1 serious? He does this all the time. Many members here can agree and confirm that sonny ignores facts and questions regarding his involvement with Adam Montana and his misleading posts and chats and instead attacks members here.

      Again, Sam, I respect your site and your views but it's clear sonny was the one in the wrong and I can email you the conversation that you deleted so you can read it from start to end and see how everyone's posts should have stayed but sonnys. Actually you should have left his comments up to show everyone how immature this guy is and maybe others can see not to take his word at all.

      Thanks Sam and have a great day

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    16. You called another participant a fraud. He wouldn't have responded if you hadn't baited him. I've posted guidelines to prevent this from happening. Just follow the rules and we should be okay. Please!

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    17. Sounds good Sam. It still doesn't excuse his childish behavior or his threat but I will follow guidelines. Thanks again and keep calling these d bags out!!!!!!!!!! It's about to hit the fan

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  5. Here is the text from the 70% removal article.

    The general director of the bank Abdul Hussein al-Yassiri told a news conference attended by the "morning" that the bank has achieved an important work focuses on two aspects, namely the withdrawal of excess liquidity from circulation, and then put into the market again, and managed to withdraw 24 trillion and 800 billion dinars, representing 70 percent of the liquidity

    Notice... right there in the sentence.... "and then put into the market again".

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  7. i am sorry for my part in what happened...

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  8. I wonder if Sonny finally understands he was wrong about Iraq redenominating...he apparently read this thread which very clearly describes what Iraq is doing...however, in the past Sonny as stated that Turkey was a failure and that Iraq used them as an example of what not to do...somehow I think he know the answer all along.

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  9. I’m thinking about buying in to Dinar, but want to make sure this thing is going to pan out. I have plenty of toilet paper don’t need anymore. Can someone please give me some insight on this???

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    1. Do not waste your money. It's all made up. Yes the dinar will rise in value but very very slower over decades. There will never be an overnight rv of anything ranging from .01-$15.00......save your money

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    2. I have a co-worker who has bought alot of dinar. He eats sleeps dreams the RV. He even gets on conference calls about. It all seems so real to him he has believing its true and can happen. He says it happened in Kuwait and is going to happen now in Iraq.

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    3. Lol he must be drinking the kool aid in dinar forums.....trust me, he is eating up the lies. Kuwait did not rv.....that's a forum fact to get people to believe Iraq can. You should have your friend visit this site and read up on all the people he adores. In my opinion stay away from buying any dinar. Your co worker is lost and needs a dose of reality. Send him to this site

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  10. So, I'm fairly new to this stuff, just having heard of the whole dinar reval thing a few hours ago (my mom was thinking of investing). I think I understand it, thanks to this site and a few others, but no one has really brought up a topic, which is what about store managers and others who will try to take advantage of the revaluation (if it happens) by lowering prices, but not by 3 zeros.
    I know something like this was stated in the article, but that focused on the removing of larger currencies in preparation of the reval.
    My question, is whether we know if measures are being taken to stop further inflation which could be instigated by business men looking to make a little more than they used to, or if we will have to hope that the business men will stay strictly to the new currency and the reval. Also, I'm wondering if this is something that we would even have to worry about, as it probably wouldn't make a difference in the scheme of things.

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    1. So you read this site and are still thinking about buying the dinar? I thought it would be the other way around.

      When Iraq redenominates and a 25,000 dinar turns to 25 dinar there will be a window to trade for new currency inside country. I doubt Iraq will honor bills outside its boarders. They have done it before. Stores in Iraq will have 2 prices, one for old dinar and one for new dinar until the Redenomination window of exchange closes. Let's say milk costs 2000 dinar now....they redenominate and now milk cost 2 dinar. You can either buy milk with 2000 old dinar or with 2 new dinar. Hope that makes sense to you.

      A Redenomination is a neutral event but the new dinar will eventually gain in value as Iraqs economy grows.

      Please read more on this site and have your mom read as well and stay away from pro dinar forums as they are all lies and misinformation. I have a feeling if you read what's on this site you'll save your money and do something better with it.

      Good luck

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    2. Since Iraqi dinar is not an internationally traded currency they will shut down boarders when the exchange happens because they do not have to honor bills outside country.

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