Thursday, July 5, 2012

The Ambiguity of "Revaluation"

I browse through dinar forums frequently to get a sense of what people are saying.  Some of these forums and blogs have debates going on between people who believe that Iraq is going to RV to 86 cents and those who believe that Iraq is going to lop to 86 cents, which is always interesting to me.  Sometimes the loppers claim that Iraq has never used the word "revalue" in regard to the IQD, and cite that fact to bolster their belief in a redenomination.  Well, unfortunately the word "revalue" has appeared in many articles about the upcoming currency reform. 

For example:

"The Iraqi Parliament and the Finance Committee support the Central Bank of Iraq (CBI)’s efforts to revalue of the Iraqi Dinar through the removal of three zeros from the currency."

That's one of the problems in this investment - semantics.  Articles are being translated from Arabic to English.  Representatives at times are issuing statements in their second or third language of English.  Reporters often use the wrong terminology in their ignorance.  And what results is mass confusion in a world full of novice currency speculators.

Let's first of all define some terms.
  • Revaluation - A policy-based increase in a nation's currency.  When a country raises the official value of their currency to adjust for changing economic conditions they "revalue" it.
  • Devaluation - A policy-based decrease in a nation's currency.  When a country lowers the official value of their currency to adjust for changing economic conditions they "devalue" it. (Not to be confused with "depreciation" which is market-driven.) 
  • Appreciation - A market-driven increase in a currency. 
  • Depreciation - A market-driven decrease in a currency.
  • Redenomination - The process of changing the face value of banknotes or coins used in circulating currency.  Usually this is done to undo the effects of hyperinflation by removing zeros from the exchange rate, issuing a new currency of higher value, and eventually demonetizing the existing currency.  This process makes cash transactions easier and has a psychological impact on the people using the new currency.  In the case of the euro the participating nations converted at a ratio determined by their respective currencies' valuations.  In the case of Kuwait in 1991 there was no adjustment to the face value since the purpose was merely to replace the former Kuwaiti dinar, much of which had fallen into the hands of Saddam Hussein.
When ambiguous terminology is used you have to look beyond the wording and determine the meaning from the context.  If the context describes an increase in the value to more accurately reflect current economic conditions as has occurred with China in recent years, then the term "revaluation" would be correct.  However, if it describes the process of removing zeros from the exchange rate, issuing new currency, and demonetizing the existing currency then the correct term would be "redenomination".  In the case of the Iraqi dinar, these stories typically describe the redeonomination process.  "Lifting zeros", "new currency", "easing cash transactions" ... etc. 

This ambiguity plays right into the hands of douchebags who want to convince people that Iraq is going to raise the value of the IQD held by speculators by 10,000% - 400,000% or more.  The opportunity of a lifetime.  A blessing from God.  A brilliant plan put together by Dick Cheney and the Federal Reserve to reboot the world's economy and generate a tremendous windfall for the US and all the fortunate investors who weren't really supposed to know about this secret plan but wouldn't you know it, it leaked out anyway.  Lucky ba$tard$!

When Turkey lopped six zeros from their currency in 2005 this article called it a revaluation and so did this one.

When Russia lopped three zeros from its currency in 1998 this article called it a revaluation.

The same thing happened with Venezuela when they lopped in 2008.

It was also called a revaluation when Ghana lopped off four zeros in 2007 and when Zambia announced their plan to remove three zeros earlier this year.

And Wikipedia refers to Romania's redenomination in 2005 as a revaluation.

(NOTE:  Thanks to DaveD a.k.a. Stew for these links.)

As some of these gurus are so fond of saying, you have to watch what they do and not listen to what they say.  Even if they use the word "revalue".  If all of the above cases were redenominations where zeros were deleted from the exchange rate, a replacement currency was issued, and nobody got rich in the process, why would anybody conclude that Iraq's description of the same process is going to make anybody a millionaire?

Folks, a rose by any other name would smell as sweet. And a lop by any other name is still a lop and it won't make anybody rich. Call it a revaluation. Call it "raising the value". Call it "currency reform". Call it "removing the zeros". Whatever you call it it's a revenue neutral event that has happened dozens of times in history and never made anybody rich, and it won't in Iraq's case either.



  1. Then what you are saying is the same as the U.S.A. re-denominating a $100 bill by taking off the zeros turning it into a $1 respectively. That leaves the original $1 bill worth either the same or .01 cents, then making the original .01 penny now .0001 and so on.....

    See how this does not make any sense? That would be like evaporating wealth from those who had it to begin with prior. It does not work that way. A $100 bill will always be worth $100. Just like the $1000 bill and $500 bills no longer made, but those that exist are still worth the FACE amount.

    Iraq can revalue IE increase or decrease the exchange rate against other currencies by removing zeros from the valuation. Example against the U.S. dollar like going from $1 equaling .000852 dinars today to $1 equaling only .00263 dinars tomorrow and so on....

    This is what can be done, not changing Face value worth.... Many do not understand this fact.

    1. Hi Julie. Actually it would be like removing three zeros, only they would be removed from the exchange rate. The US has never redenominated in the sense of changing from one currency series to another at a new exchange rate, but if they were to do that the bills Americans hold now would not lose any value. Let's say the US went through a period of hyperinflation as Iraq has, and needed to put notes with three zeros into circulation like Iraq has - 1K, 5K, 10K, and 25K. A redenomination would replace the 1K note with a new 1, a 5K with a 5 .... etc. After a year or two the old currency would be declared worthless and only the new USD without the three zeros would be recognized. But as long as those older notes are recognized they retain their value. No wealth is evaporated. Some of these gurus have confused people by saying that a lop removes value from the currency. It doesn't. It just replaces older notes with new more valuable notes to reduce the money supply and make cash transactions easier.

      Iraq can't simply increase the value of their currency by 100 or 1000 times. Revaluations don't work that way. With 70 trillion dinar in their M2 an RV to $1 would mean that they have over $70 trillion while their GDP is only about $120 billion. That's impossible. The largest revaluation in history was China at just over 30%. If Iraq RVs it will likely be less than that, but even if it's more than 30% it will only be to an amount that they can sustain. As long as they're not reducing the money supply they'll only be able to raise the value in proportion to their increase in currency reserves. The only other option is to lower the percentage they are using to back their currency. Right now they're backing it 100% but if they lower that to 50% they could double the dinar's value. That's not likely until things stabilize considerably but even when they do Iraq probably doesn't want the dinar's value to go up that much. Contrary to what the gurus are telling us countries don't necessarily see a more valuable currency as a good thing. China only raised their currency's value in recent years due to political pressue. A lower value gave them a competitive advantage with exports. Iraq might take the same approach.

      Bottom line is either Iraq RVs to a level that they can support or they lop or they leave the value where it is. No matter which choice they make no investor will get rich.

    2. I disagree. Iraq had spent millions to print the new currency. It is not being replaced again. This was done already. You think that Iraq's central bank did not understand their current economy when they printed the new bills? They may add smaller denominations or remove the large ones like the U.S. had done years ago so one person can not carry large sums of money easily as time goes by, but there will be no revalue. There is only about $40 Trillion or less dinars. Not sure where you cam up with $70 Trillion. And their economy will not stay stagnant much longer. They have more wealth on their grounds than all of the middle east combined.

    3. Other countries have done multiple redenominations. Zimbabwe did 3 RDs in 3 years. Argentina did 3 RDs in 9 years. Brazil did 5 RDs in 8 years. So it's not out of the question for Iraq to do 2 RDs in 9 years, especially when you consider that the first one wasn't a lop to reduce the effects of hyperinflation. Iraq changed their currency in 2004 but they didn't really get inflation under control until 2009. That's when the "delete the zeros" talk began.

      I got the 70 trillion M2 figure from the CBI website. (line 87)

      The wealth underground doesn't matter. What matters is their GDP and money supply, and those figures don't support the idea of a substantial revaluation right now.


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