Tuesday, May 13, 2014

A Few Questions for John Jagerson

Addressing guru BS is like playing "Whack-a-Mole".  You knock one lie down and another one pops up.  You whack it and another one pops up.  You start after it and the first one pops up again.  It never ends.  It's also like eradicating a mutating virus.  It starts off as "The RV" and then it mutates into "The Global Currency Reset (GCR)", and then it becomes "Private Exchanges with Non-disclosure Agreements (NDA)".  Most of the time I can respond adequately, but there have been times when I either felt unsure of how to respond or unqualified to offer a valid response.  When that happens I turn to my online buddy and currency/investment expert John Jagerson for help.

John Jagerson
When I first heard about the dinar investment I thought it might be a scam, so I looked around on the internet for information.  Among other things I found a couple of videos by John explaining why it's a scam.  Unfortunately I didn't completely grasp what he was saying at the time and got drawn in by the hype and ended up buying millions of dinar "just in case".  Well of course nothing happened and I eventually did my own research and came to the conclusion that everything John said was right.  After I started the blog John started reading it some and left a comment following a post that I wrote.  That led to an interview and a follow-up interview a couple of years ago.  Well over the past two years a few other things have crept into the guru talking points that I felt needed to be addressed, so I asked John if we could do another little Q&A session and he agreed.  (As one might expect from somebody who works in this field, John uses terminology that most of us aren't familiar with, so I've taken the liberty of providing links and editor notes for clarity.)  The results are below.


Sam: With a pegged currency like the IQD, are the foreign currency reserves backing the cash outside of banks, the M1, or the M2?

John: FX reserves aren’t really backing either. A pegged currency just means that the central bank stands ready to buy or sell their own currency and the benchmark currency to maintain a target rate in the currency market. M1 and M2 are measures of money supply but they aren’t the exchange rate. It is possible that expansions in money supply could lower the exchange rate, which the central bank might want to do by buying bonds or lowering reserve requirements if they needed to lower the value of the domestic currency versus the benchmark. Or they could contract the money supply by increasing reserve requirements, or raise rates by selling bonds in order to raise the value of their currency. However, its really important to remember that a peg isn’t just something you set and then forget about. You can’t have a peg if you don’t manage the peg. Its not an automatic thing. A peg can be broken so they have to be pretty active about their management. The central bank basically has to stand ready to honor that pegged exchange rate for financial institutions. They can’t do that if they aren’t managing their money supply very carefully.

Sam:  Okay, the CBI website lists the cash outside of banks at about 35 trillion, the M1 says 72 trillion, and the M2 says 85 trillion.  So when you say "their own currency" is there any way of determining which figure they would go by?

John: Those are just progressively more comprehensive measures of money supply. So when they set an exchange rate it doesn’t have anything to do with the different measures of money supply. Any of these kinds of supply could be manipulated to maintain the peg. M2 is the most comprehensive measure of money supply because M1 and M0 are included in M2.

Sam: How reliable are the figures on the CBI website or any other central bank's website?

John: I believe no one knows for sure outside the CBI but I don’t think it is unreasonable to assume that there are at least some material, unintentional errors. Most central banks are subject to very little audit oversight so it is possible that the numbers aren’t accurate. Auditors aren’t fraud detectives so its also reasonable to assume that if they were faking something that the auditors may not catch it. In developed economies, it would be very difficult to fake the numbers in a big way because it would show up in the market. For example, this is what happened in the 1970’s in the U.S. when they hid the war spending and it ended the gold standard. The market ‘knew’ what was really going on. However, in the case of the CBI, I doubt the “market” would know if there were problems right away. It would probably come out eventually but it may take a while to really be discovered. I would not be surprised to find out that the numbers are inaccurate but are they intentionally inaccurate? I have no idea.

Sam: So if those figures are inaccurate, how much could they be off percentage-wise before the market would notice?

John:  Honestly, I have no idea. The Iraqi government is pretty opaque. I can’t imagine it’s an order of magnitude but if I had to guess I suppose their numbers could be off +- 30% in different measures. Despite their publications, I seriously doubt they have accurate measures of inflation, which is usually the first ‘market indicator’ to react to fake numbers. So without an accurate measure of price inflation, it is really hard to say how far off they are. There isn’t a robust international market for IQD so that isn’t much help either.

Sam: Some of the gurus are saying that the money supply figures on the CBI website include US dollars, and that if you remove dollars from circulation inside of Iraq those money supply figures will come down.  Any truth to that?  Do any central banks include US dollars or any other foreign currency in circulation in their currency's money supply figures?

John: No, foreign currency is not counted in money supply unless you are using the foreign currency as your domestic currency. If foreign currency is being included in money supply it would be broken out separately. I can’t think of an example of this but I suppose a country could do it. However, combining them would be useless because it would make the rest of the information meaningless.

Sam:  So those figures of 35 trillion, 72 trillion, and 85 trillion are all in dinar?

John: Yes, they are all dinar. M0, M1, M2 and so forth are simply measures of hard currency, demand deposits, timed deposits and money market funds that are all denominated in IQD. So M0 is mostly just hard currency. Then M1 adds together hard currency, checks and certain deposits. M2 includes all of M1 (which includes M0) and also accounts for money market funds and other kinds of timed deposits. The U.S. money supply is measured the same way. M0 in the US is a mere fraction of M2 (which includes M0, and M1) and is currently over $11Trillion USD.

Sam:  Money supply has been defined as "the aggregate amount of monetary assets available in a country at a specific time".  Some gurus take the word "assets" and try to make it appear that Iraq's assets are included in the money supply, and that means that the money supply figures aren't necessarily liabilities that require backing by the reserves.  I'm going to admit that what accounting I took in college was mostly over my head, and I'm guessing that most of my readers were no better.  Without getting too technical, could you explain assets and liabilites in money supply, and how these concepts relate to the dinar and the CBI's figures?

John: Currency issued by the central bank is considered a liability of the bank in the same sense that your deposit at your local bank is also considered a liability to that bank. This is confusing because it’s a little different than how you normally think about debt or liabilities. Think about it like this… the money belongs to you but it is issued and backed by the central bank/government. So its your asset but the bank has a responsibility for it, so it must be their liability. It can’t be an asset to both entities. The assets of the central bank are real assets. They could include securities, bonds, property, gold, foreign exchange reserves, etc. The assets of the bank would also include loans made to other financial institutions.

Sam: So the 35, 72, and 85 trillion are liabilities to the CBI?

John:  Yes, those are liabilities to the CBI. If you pull their financial statements, you will see all the components of M2 (which includes M0 and M1) in the liabilities section of the balance sheet. Its going to vary a little because they are categorized differently but the numbers should be pretty close.

Sam:  Some of the gurus insist that Iraq is reducing the money supply because there have been articles about a reduction in the note count.  Is the number of notes in circulation relevant to money supply totals?

John:  Yes it is. In developed economies the hard, physical currency is a very small fraction of the money supply so it wouldn't really matter that much. However, in the case of Iraq, hard currency is a major percentage of the money supply. So the question would be are they reducing the lower denominations because they just aren't in demand? They have been doing that in the U.S. for a while now as well and it is pretty normal as you determine what kinds of notes are used most frequently. I actually don't know what kind of notes they CBI is reducing or if that is even true but printing more or less of a certain note that is used in the economy will change over time as prices change. Its normal to do that in any economy. In any case, according to the CBI, the hard currency amounts aren't shrinking so I am not sure where they are getting their information.

Sam: One of the gurus talks about Iraq creating demand for their currency by using it for trade with other countries.  Is the frequency of use relevant to the value of a pegged currency?

John:  Yes it is. The more the dinar is used for trade the more demand for the IQD will rise. This is relevant because a pegged currency strategy will require the Iraqis to then subsequently sell dinar to keep its value low. They are in fact doing this very thing right now and it is all normal. Its exactly what you would expect from any net exporter who isn't suffering from massive inflation. If you have to buy oil for Iraq, you have to do it in dinar. So demand for dinar grows, which would push its value up. The Iraqi's do what every other net exporter with a pegged currency does and they then sell dinar to keep its value from rising due to demand.

Sam: The same guru says that Iraq is holding the value down for now so that they can build their infrastructure cheaply, the implication being (as I understand it anyway) that as they approach the completion of their infrastructure they'll begin to raise the value.  Is there any validity to this theory?

John: This guru has it exactly backwards. If the dinar were expensive they could import what they need for infrastructure more cheaply. Internal costs aren't likely to be affected in the short run by market fluctuations of the dinar so it doesn't help them there either. In fact, they have to walk a tightrope right now. If inflation rises too quickly, not only will imports become much more expensive but internal costs will skyrocket. The IMF has issued very strong warnings to the Iraqi government this year that deficit spending is getting out of control and could become a big problem. The big savings in infrastructure would come from an expensive dinar that can buy international goods and services cheap.

Sam:  Just a hypothetical scenario here .... if somehow the CBI were to remove three zeros from the dinar without redenominating (in other words a revaluation from $.00086 to $.86 per dinar) what would that do to their economy?

John: If you hold everything else equal (unlikely in this situation) then the average price level would just go up by 1000 fold. So what used to cost 100 dinar would cost 100,000 dinar.  In Theory-Land there would be no effect on the economy. The currency’s notional value may have been increased a thousand fold but your purchasing power (in notional terms) just dropped a thousand fold. It would just wash itself out. However, in reality I would imagine this would be incredibly disruptive and would hurt confidence. If countries could do this, why don’t they? It actually reminds me of when Saddam set the value of the old Saddam dinars at an artificial rate. It didn’t affect anything in the real world or inside Iraq, it just made revenue collection and book-keeping impossible.

Sam: Some are now talking about the dinar going to a free float and appreciating on the open market to $1 or more.  Could you give us your take on that possibility?

John: Will the Iraqi government float the dinar? Maybe, but most big oil exporters don’t. It causes a lot of problems as the Russians can attest. (NOTE: Russia is a big oil exporter, and their currency the ruble has depreciated considerably in recent years.)  I suppose they could, but it seems unlikely. Will the dinar appreciate to $1 in a free float? Not a chance. That would be a complete disaster for the Iraqi economy. There is a reason no economy wants their currency to appreciate too fast. These reasons are even more important for commodity exporters.  Its important to note that there is no such thing as a floating currency that isn’t manipulated by the central bank to a certain extent. So if you float your currency, that just means you aren’t targeting a specific rate and the central bank doesn’t stand ready to exchange at that rate. However, it does not mean that the central bank (as we have seen over the last several years) won’t intervene to drive the value of their currency down in the market.

Sam:  "But Iraq's commodity is oil.  Isn't their oil sold for USD?"

John:  Yeah, I should clarify that. Oil is sold for dollars by OPEC nations. Those dollars are called petrodollars and is at least part of the reason the USD is the world's reserve currency. However, the cost of oil production, infrastructure investment, and government spending still has to be covered in IQD. The production costs for Iraq are incredibly low but volume is still going to be very high, which would lead to an appreciation in the IQD alone. However, in addition to production costs, those petrodollars are going to have to be spent (like they are elsewhere in OPEC) on infrastructure spending, social programs/government spending, and other investments. Very little of it is likely to wind up in a surplus after imports are accounted for. So the problem remains a big issue.
If those petrodollars are converted to IQD then the IQD would still appreciate in value. For example, lets say that oil's price per barrel is $100. Now lets assume that Iraq needs 100,000IQD to pay for production costs, investment and government spending. So that would mean that $85.76 of that $100 is converted to IQD and the rest is surplus that can be spent or invested outside the country. Now assume that demand for the IQD drives its exchange rate to 800IQD to the dollar. They still need 100,000IQD to pay for intrinsic and extrinsic costs but now that $100 per barrel is only worth 80,000IQD. They would essentially be selling the oil at a loss when converted to IQD.  Unlike Canada or the UK, Iraq will sell its oil in dollars (petrodollars) but eventually part (or most) of that payment has to be converted to IQD. The end effect is the same... a rising IQD puts Iraq in a losing situation. They may not lose marketshare (as I suggested) but they will lose profitability.  Now, also keep in mind that this situation is unique to the oil trade. OPEC countries are and should be working to diversify their industrial production. I know Iraq wants to do the same. Although it may take a long time, a more diversified export trade will need a stable (mostly non-appreciating) currency.

Sam:  So in your opinion, what would happen if the dinar were placed on a free-float?  Would it go up, down, or would the CBI attempt to manipulate it and keep it relatively stable?

John: Well, the dinar does float. These are distinctions that I think dinar pumpers are making out to be something they aren’t. If you can buy and sell it on the market (which thousands of dinar investors can confirm) then it is floating. The question is whether that float is pegged or not. So by definition, a ‘free float’ means you are either not intervening or intervening very little in your currency’s value. You can’t just dictate its value to the international market, you have to work to get it set where it is. 
So what if they allowed the dinar to float freely without intervention? Interesting question and it’s a little complicated. It is really a balance between the current account and fiscal spending. If they don’t intervene then oil exports and their current account surplus could drive the currency higher. However, if the price of oil drops from where it is now and the government’s budget deficit continues to grow then inflation will rise and the currency will drop.

Which of these two factors is more likely to play a dominant role? I don’t know but past history shows that it is far, far more likely for the fiscal side to outweigh the current account surplus. If brent oil prices drop below $100 per barrel, I think they are pretty hosed. However, if brent prices rise (a lot) then I think they could keep the IQD’s value relatively stable in the short run despite their spending.  So the bottom line is that if they stopped intervening in the market I think the IQD would rise a little until the current account surplus evaporated due to a more expensive IQD and then it would get crushed under the weight of deficit spending and low investment. Since no one can predict the future I have to go with history and that shows that a big appreciation in the IQD is extremely unlikely. I think the bolivar is a really good analogy to this situation.  (NOTE: Venezuela is also a big oil exporter like Iraq, and their currency the bolivar has depreciated considerably in recent years.)

Sam:  You're referred to the dinar investment as a scam.  For those who are still on the fence, could you briefly explain why there's no chance of getting rich from a revaluation or a float of the dinar?

John: It is not in the best interest of the Iraqi government or its people to intentionally increase the value of their currency. They don’t want it to drop to nothing either but rising in value is a problem for an oil exporter and they would be expected to fight that trend. Why would you invest in an asset that is controlled by an entity that wants it’s value to either stay flat or slowly depreciate over time? That is the scam. Commodity exporters work very, very hard to make sure they stay competitive in the international market. Part of that means they have to keep their currency from appreciating against their customers’ and competitors’ currencies. Fortunately (or unfortunately depending on your point of view) almost all emerging economies have the opposite problem. Their currencies depreciate over time too quickly until inflation starts to harm the economy and they can’t import things they need.

Sam:  Many people are buying the Vietnamese dong, too.  It's not an oil-based economy, so is there any chance of getting rich from owning VND?

John:  In my late teens I translated (very poorly) for Vietnamese immigrants in Philadelphia for doctors and social workers and such. So let me brush off a little of my tieng Viet and answer this way… múa gay vuan hoang. In other words, they are trying to get blood from a turnip with that investment.

Its possible the VND could appreciate a little but very unlikely. I am not an expert on their economic situation but my understanding is that the manufacturing sector is growing rapidly. If they are able to keep inflation under control (suppressing snickers) then demand for their exports could drive the VND a little higher. However, for the same reasons the Iraqis would not want the dinar to appreciate, the Vietnamese would NOT want this to happen. It puts them at a disadvantage to competitors like Bangladesh, Philippines and Ecuador. The bottom line is that developing countries that hope to run a trade surplus do not want an appreciating currency and they will fight it.


I learned a lot from this exchange, and even had a couple of misconceptions of my own brought to light.  This makes three times that he has discussed the dinar investment on my blog. I would like to challenge any of the gurus to bring someone comparable onto their broadcasts. I saw one the other night lamenting over the fact that people don't want to discuss the dinar with him on his show. Gee, I wonder why? 

You can read John's bio here, and watch his videos here.  Thanks to John for taking time out of his busy schedule to answer these questions.  This is a guy who is sought out by Fortune 500 companies for his expertise in these areas.  He's not an anonymous, faceless guru with no credentials or accountability.  He's a man whose livelihood depends on knowing his stuff and getting things right.  You wouldn't want to take medical advice from an anonymous guy on the internet, so why take financial advice from one?  In the five years since John produced those videos debunking the dinar investment scam absolutely nothing has happened to prove him wrong.  Compare his track record with the gurus, folks.  It's a no-brainer.


  1. Great exchange Sam. If I may add a few things:-

    Part 1:-

    JJ - "Honestly, I have no idea. The Iraqi government is pretty opaque. I can’t imagine it’s an order of magnitude but if I had to guess I suppose their numbers could be off +- 30% in different measures. Despite their publications, I seriously doubt they have accurate measures of inflation, which is usually the first ‘market indicator’ to react to fake numbers."

    I'd agree with this, but the other way as to what "guru's" think. In reality, there isn't a single govt on Earth that consistently OVER-estimates inflation or the money supply for political reasons. If real-world inflation was 9% they might try and "fudge the figures" by declaring it to be say, 6% but they certainly wouldn't call it 12% to make it "look better for public consumption"! It would be like a new police commissioner being "delighted" to announce a 30% rise in crime under his watch instead of a 10% actual rise. LOL. The complete opposite to reality of someone wanting fake figures would want!

    Likewise, if Iraq's money supply is wrong, it's far more likely to be underestimated given the high percentage of M0 vs M2 (70tn out of 87tn = +80% of Iraq's money is banknotes), ie, Iraq has a relatively primitive economy, few exotic instruments, etc, which means counting the number of banknotes they churn out is actually fairly accurate without wading through complex instrument calculations, etc. If they "miss a few" rolling off the printing presses, then the figure is under-reported, not over-reported, whilst they gain literally nothing from over-reporting how much they print. Yet another thing the "Iraq must be lying about the figures" guru's have back to front. Iraq's persistent 1220:1 market rate also raises that question of the figures potentially being under-reported, not over-reported, so if anything guru claims of "fake figures" against work against the guru's logic...

    Sam - "Some of the gurus are saying that the money supply figures on the CBI website include US dollars"

    As John said, the guru's claims are flat out false. The CBI openly states it as "Dinar", as do the IMF, World Bank, etc, reports. They also count USD's hold as currency reserves separately. USD's are part of American's money supply not Iraq, and you can't double-count them by including them in both countries M2 simultaneously. It's as silly as calling Dinar held by Americans "part of the Federal Reserve" USD money supply. It's just another desperate guru tactic to try and "pretend" away the giant elephant in the room - the scammers simply cannot acknowledge Iraq's massive inflated money supply without their scam imploding, which is why they do everything they can to avoid talking about it...

    JJ - "In any case, according to the CBI, the hard currency amounts aren't shrinking so I am not sure where they are getting their information."

    I admire John's diplomacy, but I think we all know where the RV guru's get their "intel" from - the same rear-end holes the sun doesn't shine out of! ;-)

    JJ - "This guru has it exactly backwards.

    Yup. As John said - holding down a weak Dinar for better imports is as backwards as you can get. Same applies to the absurd inverse claim of "Iraq wants a strong Dinar for exports" - totally backwards - net exporters benefit from WEAK currencies (see China's underpegging the Yuan vs USD) whilst net importers benefit more from strong ones (USD, Euro, GBP, etc).

  2. Part 2:-

    JJ - "If you hold everything else equal (unlikely in this situation) then the average price level would just go up by 1000 fold. So what used to cost 100 dinar would cost 100,000 dinar".

    People outside of Iraq aren't going to pay 1,000x more in real terms (buy 10,000 Dinar for $8,600 @ 1.16:1) to import a 10,000 Dinar product (still worth $8.60 in every other country) which HASN'T been redenominated to 10 Dinar by "lopping" 3 zeros. End result = everyone ditches a massively over-pegged Dinar, and just switches to trading in USD's or Euro's and the fake 100,000% over-peg collapses when the market rejects it (as already happened to Saddam's "$3" over-peg, North Korea's over-peg, Venezuela's over-peg, etc). This is precisely why redenominations exist in the first place - to allow countries to delete 3 zeros of past inflation without screwing anything else up.

    Saddam's theoretical "official" $3.2 is visible on xe.com up to 2002, but the actual market rates of the Dinar are visible to the contrary:-

    Year = Money Supply / FX rate
    1991 = 24,670m (24.7bn) / $1 = 10 IQD
    1992 = 43,909m (43.9bn) / $1 = 21 IQD
    1993 = 86,430m (86.4bn) / $1 = 74 IQD
    1994 = 238,901m (239bn) / $1 = 458 IQD


    There's a big difference there between what happens in reality (ie, how the market would react to an RV fantasy of Iraq supposedly demanding non-Iraqi's now pay 1,000x more for Iraqi products in real-terms vs how guru's laughably want them to react). There are guru's out there who genuinely are "away with the fairies" on that one...

    For years North Korea had an absurd rate of 2.16 Won = $1 - a figure chosen for no other reason than it was "Dear Leader's" birthday (Feb 16th = 2.16). That was their peg. Seriously. No-one accepted it. Now it's been dropped, it's "official" rate is now 130:1 and yet it's true internal market rate is still more like 4,000 Won = $1! Either way, no-one's buying North Korean products in Won, North Korea simply has to price everything in USD's or Chinese Yuan because the entire planet is still rejecting their fake peg. Same thing would happen to Iraq with a massive RV - everyone would ignore the over-peg or their export economy would virtually cease to exist plus massively increased dollarization, probably driving its value down in real-terms.


    In fact, since these scammers have been pumping the Dong, it's fallen 20%, which speaks for itself! ;-) The nearest equivalent to the "RV" scam mentality genuinely is North Korea - complete with fantasies of wealth confiscations, laughable currency pegs, special privilege for "the chosen few", etc. The "ultra-entitlement" mindset of "RV" scam victims and die-hard ultra-Communists is eerily similar...

  3. Sam I am (no pun intend!) still confused on a certain point, the very first question I asked when I came to this blog was never really answered for me. It wasn't that folks didn't try it was that I suppose I didn't really get across what it was I wanted to know and the answers, while enlightening, still left me a bit puzzled but I decided to just watch and wait to see if I could figure it out on my own. The question basically is that if it's not in Iraq's best interest for the value to rise, and I have no doubt that's true, then what about their clearly stated intent for a re-denomination? The reason for my confusion is that quite often some who are trying to debunk the myth will explain to a Dinar "investor" why even a $1 to 1 Dinar "RV" of the exchange rate would be undesirable to Iraq by making it more expensive for foreign investment and would also make exporting more difficult (with the exception of oil) yet that's what would happen if they go through with the "RD", I understand that in the "RD" scenario the actual exchange rate would likely end up being closer to .86 than an even Dollar but the point remains the same. I suppose I am getting the exchange rate and actual value confused but how would an (impossible!) "RV" of the exchange rate to $1 be different to the Dinar reaching the $1 value by "RD"? In both scenarios the exchange rate per Dinar would be the same so how come the Dinar rising to a $1 value by "RD" would not have the same devastating effects as if it did so by "RV"? I understand about the price changes during a "RD" and that theoretically prices would remain the same in the event of the mythical "RV" but still I am confused by the way it's explained why the higher $1 to $3 "RV" of the Dinar would make doing business with Iraq devastatingly more expensive while reaching the same exchange rate by the very likely "RD" does not?

    Those who know me know that I am not in any way trying to make an argument supporting this utterly ridiculous and totally impossible "RV" scam, rather I am just trying to clarify a point of confusion on my part in order to be able to carry on a more informed discussion when participating in some of these debates.

    1. dwm009 - "I suppose I am getting the exchange rate and actual value confused but how would an (impossible!) "RV" of the exchange rate to $1 be different to the Dinar reaching the $1 value by "RD"? In both scenarios the exchange rate per Dinar would be the same so how come the Dinar rising to a $1 value by "RD" would not have the same devastating effects as if it did so by "RV"?"

      Redenomination = Iraq has 87tn IQD. If they redenominate 3 zeros, they exchange the "old" (IQD) for a new one (say "IQN") at 1:1000. This results in everything in Dinar lopped by 3-zeros. 87tn money supply lopped to 87bn. A 25,000 IQD product costs 25 IQN. Nothing changes in real terms. 87bn IQN @ 1.166:1 has the same $74.6bn overall value of 87tn IQD @ 1166:1. Everything balances out (as it has to). Likewise, redenominating doesn't make investing / importing more expensive since if you wanted something currently priced at 1m IQD ($860), you'd now purchase only 1k IQN @ 1.166:1 ($860) - instead of 1m IQD @ 1166:1 ($860). You wouldn't be buying 1m IQN ($860,000).

      "RV" = Iraq has 87tn IQD. If they simply demand everyone on the planet pay 1,000x more for Dinar without redenominating 3 zeros, nothing else changes. They still have an 87tn IQD money supply & no new currency code with the same internal inflationary effect. Now though, those 87tn IQD @ 1.166:1 now supposedly equal a $74,600bn money supply in terms of "declared" wealth (which would be a ludicrous 350x times more than the size of Iraq's economy). Internally, a 1m IQD product is still 1m IQD but simultaneously will have an absurd international value of $860,000 (1m Dinar @ 1.166:1) whilst simultaneously still being worth $860 in terms of intrinsic tangible value, eg, maybe 2.5x tonnes of wheat or an expensive laptop). Likewise, to purchase 1m IQD is now $860,000 instead of $860. Nothing balances, and the value of Dinar-priced Iraqi goods don't even begin to match reality vs any other country. People see this, see the peg isn't real and results in a currency that's useless for trade, and it soon collapses with a black market rate rapidly appearing around the same 1150-1250:1 it is now.

      This happened for real in North Korea. They used to have a similar absurd fake-peg as the "RV" crowd are cheering on of $1 = 2.16 Won despite being massively inflated. At the same time, the internal price of rice is around 3,500-3,800 won per kilo. If people treated NK's peg as "real", that would result in stupid international prices of $1,750-$1,900 per kilo of rice. Even today, the "official" (yet still untradable) rate of 131:1 results in $13-$14.50 per kilo prices, which is why no-one will touch the KPW for trade.

      Same applies to 1,300 Dinar bread @ $3 rates. Iraqi bread is 1,300 Dinar because Iraq have inflated their money supply from 20bn to 87,000bn. Unlike a redenomination, "RV's" takes no money out of circulation, so all that money will still result in 3-zeros on the price of everything. A 100,000% RV wouldn't make a country richer - it would render the currency useless for trade (until the official peg matched reality / market / street rate). The "RV" illusion instantly dissolves when you start pricing goods in that currency vs whatever currency it's pegged to, ie, 0.32 KWD (Kuwait) vs 1,300 IQD (Iraq) for local prices of bread, yet both supposedly having the same $3.5 rate = $1.14 Kuwait vs $4,550 Iraq USD prices for a loaf of bread...

      That's why the RV is total junk. The RD vs RV exchange rates may look the same, but the actual resulting "declared" international prices of an "RV" would be screwed up / thrown 1,000x out of whack with reality of what those goods would be worth in reality compared to other countries when all priced in USD.

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    3. OMG Brian you have done it again. That is the best way of putting this that I have ever seen. I really have to say that you are one amazing intelligent person. Thank You for all this wonderful wisdom that you give us all for free. If you ever make it to Florida I would love to shake your hand I have great respect for you

    4. An RD is just using a different yardstick to measure the same value. This is easy to see since both currencies will exist alongside each other for a year or two in most proposed plans. A company that charges 100,000 IQD for their widgets will continue to do so, while also expressing that same price as 100 IQI (where IQI is the new dinar). Likewise for wages and prices throughout the economy. There is no need to change any value. This of course is the only way such things can happen as the value of the currency (not the economy) is really the reserves at the CBI. Currently those reserves are only about 15% greater than the size of the money supply multiplied by the current exchange rate, so no RV can be more than about 15%. Since that head room (the ability to make small increases in the exchange rate) is the CBi's primary weapon against inflation, they are very unlikely in my view to fire it, unless inflation becomes a problem. So even after an RD I would not expect for there to be rise in the exchange rate to an even $1 to 1 IQI.

      Contrast the RD case (no value impact) to the impact to a manufacturer after a 1000 to 1 RV (which can not happen). Now for this manufacture to remain competitive with foreign companies they must drop their prices by 1000x. To retain their profit margin they must then lower their costs by 1000x, but are they likely to be able to do so? Suppose they drop everyone's wages by 1000x, will the employees stay or leave? When all the workers in the country have just been given a titanically large chunk of cash (if they just got their weekly pay prior to an RV it would be 20 years worth of wages), will they be able to attract workers at all? What about the lease on office or manufacturing space? Why would a landlord who has a contract to provide space for a certain number of IQD volunteer to drop that price by 1000x? What about all the supplies this company uses, will all those prices be dropped by 1000x? I suspect not. It would be difficult to remain in business at all let alone maintain your profit margin, which is not exactly what investors are looking for

      There would be a violent plunge in prices due to the effects outlines above, but there also would be great upward pressure just due to huge demand and limited supply. Everyone would immediately be able to buy all the stuff they have not been able to afford, whether its cell phones or power plants. Who would not be willing to spend 1% of your cash to get all the things you have wanted/needed. But supply can not ramp up overnight so this is huge pressure on rising prices. It would be economic chaos.

      But there is only $80B available to exchange (that 1% of M1 would be $750B USD worth, nearly 10x the CBI's reserves), and after that runs out in about 2 seconds, the banks are going to be torn down. Everyone who just sold something big will be thrilled and everyone who just bought something big will be really upset. So you have an economy with wages and prices in chaos, the CBI is bankrupt (not just by some technical measure but actually out of reserves), and of course with well armed militias looking for ways to grab power at the ready. That doesn't sound promising to me. Countries that do provide wealth to their people do not do it by constantly rising exchange rates, but just by giving away services if not base income (Qatar if I recall, offers free medical, free education, subsidized housing, etc. and a first class infrastructure).

      In the CBI's documents it says clearly that its goal is a stable exchange rate (not a rising one, fast or slow) and low inflation. That is because that is what is good for business. That is what Shabibi meant by a "strong currency". If you have IQD, it isn't going to be worth more than it is right now, likely less once this myth finally becomes a myth to everyone (now its true to some), since then the dealers will have to sell back to Iraqi banks instead of to other believers.

    5. It's quite clear now and I suppose I was just as guilty as the Dinar Idgits for seeing only part of the equation, I was looking only at the $3 EXCHANGE rate and not the actual value (or in that case imaginary value).

    6. Brian, thanks for your very clear explanation and the time you spent, that is exactly the info I was looking for! After reading that my confusion has almost turned into embarrassment at not having understood in the first place.

      BTW, if some of the other posts I made seem to make it look as if I am still confused it's because I somehow managed to miss yours and DaveD's replies until I had already posted.

    7. dwm009 - "BTW, if some of the other posts I made seem to make it look as if I am still confused it's because I somehow managed to miss yours and DaveD's replies until I had already posted."

      No problem dwm, I thought that might have been the case.

  4. Great article as always Sam. John's videos and your site have helped me turn a family member around. They sold all of their Dinar and are actually back to having a life. I work for a bank and we talk about this thing every now and then and just shake our heads at how greed and lack of knowledge can hold these people hostage!!

  5. Outsanding!!!!!

    Thankyou John and thankyou Sam.

    Hopefully this is being posted (or attempting to be) posted at all of the Dinar hype sites for all to see. Cant wait to see damage control Dontlop lose his mind in a panic while trying to down play this one. Lol

  6. As Sam and I talked about this interview a thought dawned on me about why the guru's get away with what they do. This stuff is just complicated! For example, although I often summarize the trade situation as "paying for oil in dinar" that is not completely accurate. Its easier to talk about it that way than to get into a long explanation about "Dutch-disease" and petrodollars, but Sam was right to press the issue. It would be easy for a guru to throw out a lot of additional nonsense in the gap that I would have created otherwise. Its important to dig in and deal with the complications so that opening isn't available to the guru's.

    Thanks for giving me the opportunity to blab about the dinar again. I appreciate the chance to try to clear up some of the confusion, even if it means we need to get into the 'weeds' sometimes in the explanations.

  7. John, could you say a few words about the idea of an in-country only RD? After I encountered Sam's blog, that was ultimately the opinion that led me to sell out.

    Thank you.

    1. Not the "john" you were addressing, but I'll but in anyway :-). No one knows what Iraq will do exactly wrt an RD. The articles have suggested a 1-2 year period where both currencies are useable in the market and perhaps a much longer period before IQD are demonitized, so you could turn them in at a bank for perhaps another ten years even though merchants would not be required to accept them.

      It is possible that Iraq could do what they did in 2003/2004 and do the RD only over just a few months and attempt to stop IQD coming in over the border, and then demonitize the IQD immediately afterwards, but I think that is very unlikely as I do not see the justification for it. For the Bremer exchange they wanted to get the Saddam dinars out of the economy as they were very easy to counterfeit, but the notes folks hold now are pretty modern so I don't think that is too much of a worry.

      Some have suggested that Iraq will use this to simply chop off all IQD outside the country to shrink the money supply, but again I think this is very unlikely. A 1000:1 RD shrinks the money supply by 1000x. How much IQD is floating around outside of Iraq is hard to estimate but it seems very unlikely to me that its more than 10% of their money supply, so taking this drastic step would only shrink the supply (if my estimate is correct) by at most another 10%. That seems like a lot of bother, expense, effort and upset for a small gain. The multi-year plan presents it all as an orderly calm change over, no hurry, no worries, while the few months plan is much more crisis evoking. So I think the multi-year plan is what the will perfer.

      So I think IQD holders will be able to exchange once the RD commences, but just for significantly less then they can now. I suspect the dealers will be happy to reverse the flow and make another 20% selling your dinars back to Iraqi banks. Now they can sell them to RV believes for $1050 (Sterling's price today) but once the only market to buy them back are Iraqi banks the prices per million would be more like $780 (the CBI offers $860 but dollars are in demand so banks downstream can get more IQD per dollar. If the dealers can participate directly in the "auctions" perhaps they can get the higher price. So 80% of 780 is $624 which is about what I'm guessing will likely offer you for your IQD. If dealers can get $860, you might get $680. Now dealers will buy them for $820 (about 80% of 1050). So why hang on when there is no possible upside and you will only lose more if you wait to sell?

    2. jrg - "So I think IQD holders will be able to exchange once the RD commences, but just for significantly less then they can now."

      Diane, I have to agree with jrg above. Even if Iraq doesn't do an in-country only exchange, there's still zero obligation for Western banks to trade the Dinar post redenomination at the USA end. And even if they do, they'll be trading only the new redenominated banknotes (just as you couldn't buy Old Turkish Lira after Turkey's 6-zero redenomination started) and will have zero obligation to exchange current NID's for US Dollars. Which means the only place in the West to change them is the same cowboy-outfit MSB rip-off merchants they bought them off. Since an RD will "shatter the RV the hard way" for many, there'll suddenly be a flood of people all wanting to dump the Dinar, which in turn translates to a depression of the "buy-back" price even further.

      Throw in competition from Ebay (already 7,000 auctions per week and guaranteed to soar into tens potentially hundreds of thousands post-redenomination), and you may be looking at $400-600 per million or even less, since the entire business model of MSB's is to get rid of as many IQD as possible solely on the back of manufactured "RV" hype and acquire as many USD's as possible in the process. The last thing they want is a surplus of Dinar banknotes (old or new) since demand for Iraqi Dinar in general will collapse by 90% or so as the "RV" illusion will have finally burst, ie, it will return to normal of being a currency that gets bought only by people actually intending to travel to Iraq. So you can bet your life at best they'll take another massive 20-30% "buyback cut" (on top of the 20% they already took selling them) to go through the hassle (on their end) of exchanging them. A lot of people are going to be lucky to get half their money back. And that's assuming at worst, the MSB's simply don't close their doors due to both wanting to avoid the hassle / backlash of "you promised an RV" from amgry / irate customers and a collapse in demand for new customers.

      And that's assuming that even with an "open-border" exchange, willing MSB's can simply exchange billions of Dinar across the border easily, as since the 2004 Anti Money Laundering Law, Iraq has some pretty tight money laundering laws with transaction limits (a completely separate issue to the redenomination). Already every Iraqi bank is required to file a report for transactions over 15m Dinar ($15k):-


      If they restrict what MSB's can bring into Iraq as suspicious due to attempting to move a sheer volume of old Dinar within a certain period, then MSB's will in turn restrict the amount of Dinar they "buy back". So even with an official "open-border" policy, there's no guarantee MSB's will be able to exchange them all back. Think of how many Dinar have passed through MSB's collectively over the past 10 years. Now imagine all that lot suddenly attempting to be exchanged in a few months, ie, thousands of suspicious looking suitcases of Dinar passing through Iraqi customs via MSB's exchanging them "on behalf of someone else"... That's precisely the "suspicious as hell looks like money laundering" stuff (from Iraq's perspective) they clamp down on that funds terrorist attacks...

    3. Thanks to both of you. I tried to research this stuff before I got in but fell victim to ignorance and wishful thinking - never a good combination. Now I read Roger for amusement and Sam for illumination. As I have said, it was Sam's blogs and comments from folks like you that quickly led me to "get out while the getting was good." Much appreciation to all of you.

  8. Dwm009. Good question. Thats why im not selling.

    1. It's your money. Waste it any way you see fit. A redenomination is a very common occurrence and widely understood. The exchange rate of an individual currency unit is increased but the number of currency units created is proportionally decreased. Your 25,000 dinar worth $21.44 (.000857 cents each) have now become 25 dinar worth $21.44 (.8576 each). There is nothing magical or mysterious about a redenomination. If you're holding on waiting for a redenomination, you are going to be sorely disappointed (and you may be waiting a long time).

    2. Don't take my question as support for this mythical "RV", don't sell if you want but you WILL lose your money! I don't have any interest in getting anyone to sell, it would make no difference because you could only sell to another sucker or a dealer who would in turn sell to some other sucker so either way it makes no difference at all, hang onto that worthless paper and you will eventually see what I mean!

    3. Dwm and David Phillips.
      It a basic difference between a redenomination and a revalualtion.
      A redenomination is a neutral event. It doesn't really affect imports and exports. A dollar still buys the same thing. What 1000 dinar would buy would then be bought with 1 dinar. (3 zero lop/redenomination)
      A revaluation does have an effect on imports and exports. It’s been talked about many times with regard to China’s and other countries holding down their currency. There’s always talk about trade between the US and European countries as the Dollar to Euro price fluctuates. And these are BIG shocks from 10 or 20% moves over long periods of time, not some mythological 100,000% or bigger move overnight.
      Here’s what gurus are really claiming will take place. They describe some type of hybrid event. They claim the dinar will RV 100,000% (increase 1000 times) or more. Yet they think the entire economy… goods, services, prices, salaries and so on will lop 3 zeros like a redenomination. It’s an absurd notion.
      Just remember this. Iraq has 40 trillion physical dinar in circulation. That’s how they are able to sell stacks and stacks of 25000 dinar notes for peanuts. If you take all the other countries in the world and add all their currency in circulation together it’s about $6 Trillion. So if Iraq were to RV to $1 they would have $40 trillion worth of dinar, or almost 7 times more than the rest of the world combined. Iraq has less than 1% of the worlds economy. Do you think they need, or can support, 7 times the worlds currency with less than 1% of the economy?

    4. As others mentioned you don't have to sell because naturally that is your decision to make just like when you purchased the paper. However, I would suggest you take a look periodically at the "dinar buy back price" of all major dinar dealers and see if the price continues to drop as it has been doing over the last 2 years OR "IF" it is starting to rise FROM the price that you paid for the paper. That alone should give you enough information to think about what you should do. I will give you a hint though, if the price you can sell back for now is significantly lower like $100 less than you would have gotten last year then you are already losing and that doesn't include the ~20% you lost / overpaid when you purchased the dinar.

    5. DaveD - "Here’s what gurus are really claiming will take place. They describe some type of hybrid event. They claim the dinar will RV 100,000% (increase 1000 times) or more. Yet they think the entire economy… goods, services, prices, salaries and so on will lop 3 zeros like a redenomination. It’s an absurd notion."

      ^ This. What guru's are ultimately trying to argue to get around the absurd "$1,000 loaves of bread" elephant in the room issue, is that "Iraq will lop without lopping". It's total double-speak gibberish. The 000 price-adjustment comes directly from exchanging new:old Dinar at 1:1000, ie, a 1000 IQD : 1 IQN exchange rate. Without that there's zero change in domestic prices or money supply.

      What guru's are arguing is the absurd equivalent of Dell manufacturing laptops for $350 / €256 & selling them for $499 / €364 retail price, then Obama "RVing" the USD 1,000x fold, (driving up the cost of laptops to €364,000), then trying to "hide" the obvious absurd export prices by demanding Dell sell laptops which cost $350 to make for $0.49 via a Communist diktat... Either way the maths don't add up, and what the guru's are laughably pumping with "fix the prices 1,000x lower without a redenomination" is literally totalitarian Communism seen only in the basket case North Korea where internal prices at their declared peg bear no relation to reality of same prices in other countries...

  9. Thank goodness there are smart guys like John that can counter the hype. Those with intact logic centers and common sense can understand it without much difficulty. Unfortunately, for most dinar victims, when John speaks, they hear: "blah, blah, blah, revalue is not possible, blah, blah blah, dinar is a scam, blah, blah blah." When one of the scam artists speaks, they hear: "blah, blah, blah, you're going to be rich, blah, blah, blah, Iraq has oil, blah, blah, blah." Once greed sinks it's talons into the logic and critical thinking centers of their brain, there doesn't appear to be any amount of information that changes their mind.

  10. Wow....a long standing member on DV is selling off 23 million dinar as of last night. Coincidence?

    Has anyone read the thread on DV about this interview....lots of pure stupidity going on and of course easyrider and his conspiracy nonsense is on there as well. Poor kid

    1. Please, for the love of god, don't post things like above without providing a link...

  11. I cant seem to find that thread CFO. What section is it in? Maybe they took it down. Wouldn't surprise me.

  12. OK, the price change seems to be the answer to what I have been confused about and maybe the common argument against this scam (which a scam it surely is, I am talking to you David Phillips!) that the $1 to $3 exchange rate from the "RV" would be devastating to Iraq's economy might not be entirely correct as is usually argued.

    This came about when I tried to explain to someone that the higher Dollar value of the Dinar would make exports and doing business more expensive and thus less desirable for Iraq and is the reason that countries like China hold their rate as low as they can get away with. This is a VERY common argument used to show why a $3 Dinar would not be in Iraq's best interest but when I tried to explain that I was immediately pounced upon and it was pointed out that the higher Dollar value was exactly what would happen with the "RD" and that I couldn't have it both ways! At that point I had to admit defeat and bow out of the discussion, unlike most Dinarians I do not resort to insults and name calling when I find myself at a loss for a way to intelligently uphold my position. Simply put the question would be "Why would, in the event of the "RV", a $1 to $3+ exchange rate be undesirable to Iraq because of higher export prices (excepting oil) and more importantly because of the increased cost of doing business in Iraq but the same $1 to $3+ rate would be acceptable in the event of a "RD"?

    I understand that the "RD" value would not be a full $1 unless the current rates increase somewhat before the change but it's commonly thought, and entirely reasonable, that Iraq desires to have an even $1 to Dinar or higher exchange rate and they have actually mentioned that $1 in several articles, I have seen these myself and I am not repeating someone else. Of course I am talking about a re-denominated $1 rate and NOT something that would make anyone any money at all, never mind getting rich!

    They were right, I couldn't have it both ways and I was at a loss as to how to explain my position.

    1. Relative to Iraq's meager non-oil exports, the difference between the impact of an RD and an RV (assuming to make it easy that they both went to $1 per dinar, though for the RD its $1 per New dinar and would really only be to .86), is that the RD does not change value. So the prices and costs for a manufacture are all the same, just measured differently. The mythical RV would radically change value so its very unlikely that a vendors costs would drop by 1000x while to remain competitive with foreign companies their prices would have to drop by 1000x. I have a post higher up in response to your earlier question along these lines that has more detail.

    2. Hi dwm
      They could easily have a 1$ per dinar rate...after the RD, a neutral event currency wise. The likely scenario is an improvement in the current rate to 1000:1, this is the best in my opinion the paper holders will as far as rate, then the RD, 000's gone and a new currency issued reflecting the currency reform. Money supply would be 1000X lower and after RD on par perhaps at 1$ if I am understanding the process correctly.

      Great to hear you do not resort to school yard bullying tactics as one often sees on dinar boards. It is all they have to protect their illusion, and fortify their greed I suppose. It is a hostile environment for anyone dealing with truth, truth is not welcomed on dinar boards. Although it is great to see more folks begin to understand the lies and it is sites such as this that is helping to clear the fog! Thanks Sam :)

  13. leastofall51, I wasn't sure if you were just rounding wrt your comment "They could easily have a 1$ per dinar rate...after the RD" or if you were implying they would really increase the rate to an even $1 after an RD. Initially the rate after an RD would be 1 IQI (if that is what the new dinar is called) to $0.86 USD (exactly 1000x greater than the IQD rate). I think (just my opinion of course) that it is very unlikely they will use up their reserve headroom to raise the rate by 15% or so to get to an even dollar, quickly or over time. They likely will want to keep their powder dry so to speak in case they need to slightly raise the rate in future years if inflation becomes a problem.

    1. Hi jrg

      Thank you...I agree certainly, I just used the round figure, but you are correct with .86 AFTER RD. Thanks for pointing that out, 15% is not going to happen maybe for years if ever. It benefits them to manage it tightly as they have been doing, and current rate with reserves is proper support as it should be. Even with their insane supply figures, they have done a good job at maintaining proper backing, and contrary to popular dinar culture, their currency is not "under valued' at all considering the amount in circulation, but try and get that one message across to some, let alone all the other factors that remove even the remote chance of large profits coming from this cleverly created hype and scam. Amazing it has ever reached this level, but when I first bought into this, it did not take long to learn there is always something wrong when the whole scene is only supported by liars and thieves and dinar dealers. I hope for the sake of the people, this gets over with as quick as possible, because each day that goes on is another day for the liars to capture another person who really does not understand the process, and this makes them easy targets unfortunately.

      Thanks again jrg for your thoughts. I certainly agree. :)

  14. Thanks everyone for the replies, I wish there was some way I could remove that last post (5/1614 7:02 AM) since I had already received two very clear and easy to understand answers to my question but I somehow managed to miss both of them until I had posted again.

    Thanks everyone, I do appreciate the time and effort put into those very clear replies!

  15. For anyone interested, this is a great read: http://lib-sca.hkbu.edu.hk/trsimage/hp/08050597.pdf

  16. Slingshot Fuel - It has been a long time since I have read so much and understood so little. My Macroeconomics course was almost 20 years ago and I just don't remember that much of it. Thanks for the link though. Nice reminder of how much I still have to learn.


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