Awake-In-3D

A Sky High Iraqi Dinar RV Boils Down to This

On October 24, 2023 By Awake-In-3D

This is Section 2 of: The Ultimate Guide to Every Economic and Political Reason for an Iraqi Dinar Revaluation (RV)

A working knowledge of the economic and political factors that support a currency’s stability and strength is a powerful tool for determining the potential exchange rate within the Iraqi Dinar RV landscape.

This article outlines what you need to know.

Part 1, Staging an Iraqi Dinar Revaluation (RV): A Unique Background of Events provided a detailed, historical context surrounding the Iraqi Dinar, This included its evolution, the impact of wars, the role of economic sanctions, and the popular reasons for speculations regarding an Iraqi Dinar revaluation.

Coming Soon

Part 3 will bring everything together to analyze and present a comparison between economic and political indicators for Iraq and the three strongest currencies in the world – Kuwait, Oman, and Bahrain.

This section explains the key economic and political stability indicators that are used to generally assess and determine the potential strength and stability of any nation’s currency.

2.1 Key Economic Indicators for Currency Strength and Stability for an Iraqi Dinar RV

While there are many economic indicators that influence currency exchange rates, these are the top five indicators that best serve the scope of this study (keeping it straight forward).

Inflation Rates: Lower inflation rates signify a stable economy, bolstering a currency’s value.
Economic Growth: Indicators like the GDP growth rate are essential in evaluating a country’s economic health. Strong economic growth often results in a robust currency.
Current Account Balance: A surplus in the current account, where a country exports more than it imports, positively supports currency appreciation.
Public Debt: Countries with large public debts are less appealing to foreign investors due to the risk of inflation and default, putting downward pressure on currency value.
Foreign Exchange Reserves: The amount of foreign currency held by a country influences its own currency’s value. Countries with substantial reserves have the ability to better manage and maintain (currency pegs) their currency’s value.

2.2 Understanding Currency Peg Policies

A nation’s monetary policy related to currency pegs ultimately sets the exchange rate. Large economies today, such as the United States and the European Union, allow their currencies float (no peg is used) solely on market forces.

Smaller economies will peg their currencies to other, widely utilized currencies such as the U.S. Dollar, the Euro, or a basket of globally dominant currencies.

When countries engage in international trade, they aim to maintain the stability of their currency. Currency pegging, or fixing, is a method used to achieve this. It involves tying a nation’s currency to another currency, such as the U.S. dollar.

Countries choose to peg their currency to safeguard the competitiveness of their exported goods and services. A weaker currency benefits exports and tourism, as it makes everything more affordable for foreign buyers.

The fluctuation of exchange rates can negatively affect international trade, making currency pegging a viable option for stability.

Many countries, including some that peg their currency to the U.S. dollar, opt for this approach to ensure their goods and services remain competitive.

2.3 Ending the Bretton Woods Agreement Created Fixed vs. Floating Currency Practices (Global Fiat Currencies)

The 1944 Bretton Woods Agreement pegged the U.S. dollar to gold, reducing volatility in international trade relations. As a result, most global nations then pegged their currencies to the U.S. dollar and it became the new world reserve currency.

THE 1944 BRETTON WOODS CONFERENCE WHERE THE US DOLLAR WAS PEGGED TO GOLD AND BECAME THE NEW WORLD RESERVE CURRENCY

However, the Bretton Woods system ended in 1971 when the United States de-pegged the dollar from gold, and the Great Global Fiat Currency System Experiment was born almost overnight.

Since then, countries now decide how their currencies operate in the foreign exchange market – a hard peg or a floating exchange rate.

There are, in essence, two primary types of currency exchange rate policies today: floating and fixed.

5-YEAR CHART: THE US DOLLAR IS A FLOATING CURRENCY RATE – CHANGING VALUE THROUGH MARKET FORCES

Major currencies, like the Japanese yen, euro, and U.S. dollar, are floating currencies, with their values determined by supply and demand in foreign exchange markets. This system is influenced by market forces, signaling economic strength or weakness.

On the other hand, fixed currencies derive their value from being linked to another currency, providing increased stability. Many developing economies use fixed exchange rates to ensure stability in their international trade activities.

5-YEAR CHART: THE IQD IS A FIXED CURRENCY PEGGED TO THE US DOLLAR AND RARELY CHANGES

Iraq employs a fixed exchange rate policy, pegging the IQD to the U.S. Dollar.

2.4 Political Stability Likely the Critical Factor Influencing Potential Iraqi Dinar RV Rate

Countries with greater political stability are more likely to maintain stable currencies with higher exchange rate valuations. Political stability is a key factor in currency valuation and vitally important for a “high-rate” Iraqi Dinar RV.

For a significant currency revaluation to take place, Iraq must address various challenges, including political instability, corruption, and security concerns. Achieving economic stability and implementing necessary reforms are crucial prerequisites for the potential revaluation of the IQD.

2.4.1 The Political Stability Index

The Political Stability Index measures the likelihood that a government will be destabilized or overthrown by unconstitutional or violent means, including politically motivated violence and terrorism. It is based on various indexes from reputable sources such as the Economist Intelligence Unit, the World Economic Forum, and the Political Risk Services.

A Political Stability Index value of 2.5 points indicates a strong, secure political environment in a country. Conversely, a country with a value of (-2.5) points indicate a very weak, insecure political environment. The average index value for 2021, based on 193 countries, was (-0.07) points.

Source: https://www.theglobaleconomy.com/rankings/wb_political_stability/

Conclusion of Section 2

This section has examined essential economic and political stability indicators that influence a country’s currency valuation. Understanding the role of these factors is vital in evaluating an Iraqi Dinar RV exchange rate potential.

In Section 3, we will apply what we’ve learned here and review how Iraq compares to a regional selection of strong, stable currencies, assessing Iraq’s economic and political position in the context of its neighboring countries.

This will reveal a clearer picture of how Iraq stacks up and its ability to set and maintain a much stronger exchange rate for the IQD in an Iraqi Dinar RV.

Coming Soon

Part 3 will bring everything together to analyze and present a comparison between economic and political indicators for Iraq and the three strongest currencies in the world – Kuwait, Oman, and Bahrain.

Tags: awake-in-3d