“IS IT TIME TO REMOVE THE ZEROS?”, Economist Yasser Al-Mutawali clearly reworks the pros and cons of the project, something we all heard a millions times already. Nothing new…right? But let’s go a bit deeper even as to why Al-Mutawali is bringing this topic up in the first place and what his conclusions are.
If you read the article carefully you will realize he is not saying so much as it is not the right time as he states under certain conditions it would not be right and he then goes on to say how do we accept the risk and manage the risk. Remember he is writing this article in the midst of all the corruption going on with the dollar. His solution will help fix this crisis but he says the solution does have risk (cons) as well as advantages (pros). He states and I quote from the article – “From the above analysis, it is clear that the procedure of deleting zeros is not appropriate at the present time. However, with the use of electronic payment operations, the environment will be mature and acceptable for the idea of implementing the decision to delete zeros, and the process will be automatic without the citizen feeling it.” It’s his “however” you have to read through. He states the appropriate time would be when electronic payment operations is successful thus mature enough. He is alluding to the number of citizens that have bank accounts and are using the bank regularly. Again, this electronic payments or as they call it the “digitization program” brought up again. This means using electronic payments at the marketplace, electronic deposits of salaries and retirement money from the government and later from private employers, etc..
Do you see now how critical undertaking this “digitization program” is? I can remember way back to 2011 under Dr Shabibi with the many articles about this initiative. I got to tell you that I would never, ever believe that in 2024 this initiative would not now be completed or very close to being completed. Folks this is over a decade later. What the hell is going on here in Iraq?
Oh… but it gets better.
But when is there enough digitization to pull the trigger on the Project to Delete the Zeros?
Al-Mutawali even gives a possible timeframe when he states and I quote – “The experience is still limited to absorbing such a transformation, and when the percentage of acceptance and use of electronic payment tools reaches 90 percent of citizens, then the decision to delete zeros can be implemented easily and smoothly.”
Then in another article financial and economic affairs expert Alaa Jaloub Al-Fahd revealed on Sunday (August 18, 2024), a weakness in the Iraqi banking system, while confirming the presence of 80% of the cash mass is in citizens’ homes. No wonder why they keep telling us there is a shortage of notes in circulation. Again, I am rehashing and we studied this before but this is important to understand. This too will be behind the reasoning for conducting the project to delete the zeros. At a time when the CBI is trying to shrink the monetary mass the last thing they will want to do is to print more currency. Yes, more of the larger three zero notes. Even if they did, it too would only end up in stashes again anyhow.
So, what is the solution?
Again, the solution is to digitize, then this will enable them to switch out the currency almost seamless to the citizens, thus they have mitigated the risk. They must implement the digitization program first in ALL banks. (by the way they also call it the “E-Governance System”). It’s all basically the same and the goal ultimately is the same – to take the currency out of the hands of the corrupt. By using a electronic systems they can track and monitor where the money if going and unless they find ways to hack the systems, the corruption should slowly fade and they should meet their goals.
I asked my CBI contact on Saturday just how far is Iraq in this process of digitization/ electronic payments/E-Governance?
I was given no more information on this as I was told the criteria is high and to get nearly 80% of the citizens on bank accounts and using debit cards. If you go back to my Appreciation Newsletter dated 8/20 and take a look at the RECAP list of articles during just the last 30 days you will see many significant articles on the progress. But what we don’t know is just how far they still have to go. My contact told me that eventually the Finance Committee will tell us and she suspected it would be shortly.
Here are many of the titles to these articles showing progress:
- ECONOMIST: THE IRAQI BANKING SECTOR HAS ACHIEVED SIGNIFICANT GROWTH
- IRAQI BANKING SYSTEM.. A SIGNIFICANT INCREASE IN THE NUMBER OF BANK ACCOUNTS AND THE VOLUME OF DEPOSITS FOR CITIZENS
- The banking system in Iraq is gradually regaining citizens’ confidence with the increase in the number of bank accounts in the country.
- RAFIDAIN ANNOUNCES THE IMPLEMENTATION OF THE COMPREHENSIVE BANKING SYSTEM IN 37 BRANCHES
So, you can see that Iraq is optimistic in getting the electronic initiative completed sooner than later. They are not talking about years.
Are you listening to what they are now telling us? Have you been paying attention to the news this past 30 days and the list of initiatives presented by Economist Yasser Al-Mutawali ? ALL of these articles are interconnected. Get it? They all about moving the banking reforms thus the currency reforms are part of it.
Next, I need to cover another topic of the suggested method of re-pegging the dinar. There are a couple new articles on this topic. What do I make of them? Let’s take a look at the article titled “ GOVERNMENT ADVISOR EXPLAINS THE POSSIBILITY OF USING THE DINAR INSTEAD OF THE DOLLAR IN OIL SALES” The key points about this article that stuck in my mind when I read it are these:
1.This initiative is from The Prime Minister’s Advisor for Financial Affairs, Mazhar Mohammed Salih, not just some common economist;
2.It is not the Dr Shabibi re-peg to a basket of currencies as in his plan;
3.I believe the risks are high as the new peg is to the price of oil and moving from the petro-dollar peg to a petro-dinar peg. But it is what I don’t know for sure that I would think Saleh does know that makes him even suggest this move;
4.It still get us to the bank as it state to be successful they must trade the dinar on the global currency exchanges. This is a crucial part of Saleh’s plan. This is when we go to the bank and exchange.
When they do liberate the dinar, it will include two main steps in the process. Please go to my blog to read all about these upcoming steps. They CAN NOT and WILL NOT just jump to reinstate without first following a process of the Project to Delete the Zeros. I have explained this process many times already to you. You can read it and follow it HERE. But today’s news is also about deciding whether they will peg the Iraqi dinar to a petro-dinar instead of petro-dollar? Yes, you heard right. Didn’t I talk about this months ago? Didn’t I tell you my CBI source told me they were considering this? How risky is it? Is this really Dr. Shabibi’s plan?
As you might remember each month, I started compiling a list of the newest events we have witnessed during a period of time. I wanted to continue this effort also for the month of August. So, this period we chalked up yet another 58 more major events just for this period of late July into August so far. What fifty-eight? Yes, there has been so much going on in Iraq to combat corruption. Are you listening? Are you taking note? Things may have looked like they were being temporarily stalled but this is not the case, as we can see.
Conversation with my CBI Contact Aug 17, 2024:
I had a very interesting call to Iraq last Saturday 8/17 and I am going to share most of it with you today. I was told that there are sectors of the US Treasury that are ready to roll out the new rate of the IQD on FOREX. I said “wait a minute, didn’t the US Treasury just occupy an entire floor in the CBI building for the purpose working with the Central Bank to reorganize the banking system and institute new reforms? Now they want to reinstate the dinar? Is this completed?
I thought this was confusing and I managed to get it finally straight. She told me that Iraq is so very close to the reinstatement. I said there are some in the USA telling us the US Treasury is telling them the reinstatement could go any day now or was supposed to go yesterday or the day before even. Is this true? Is this accurate?
I was answered with a NO. My contact told me these are not US Treasury representatives but rather fakers and liars spreading rumors. She said there was absolutely no possibility of a reinstatement until the Project to Delete the Zeros is underway. She scolded me for not remembering this. I replied that I did remember but that only that I am hearing this on the internet. She said to do otherwise would be suicide for the dinar and would cause massive panic and hyperinflation. It is ridiculous to even think this would happen.
Next, we went on to discuss the possibility of a Petro-dinar. My contact asked me how I found out about this. I said it was in your country’s news channels on the internet. I read this news. I got the feeling the public was not supposed to know about this? She then said this was just another concept that is being explored by the Finance Committee and not the CBI. There was a meeting between the Finance Committee and the CBI last week on this topic. She does not think Al-Alaq is pursuing this path. She did not think this was going to happen. I asked about the Dr Shabibi plan for the currency (that we discussed so many times) and she said the CBI is on target with it and this is the plan they fully intend to implement and are implementing. She encouraged me not to listen to other rumors and stay focused on it.
My contact then told me there is major restructuring of the banks going on in Iraq. As a result, many banks will be closed and many merged. The US Treasury has statistics on the number of new and existing banks accounts. This is critical to the Project to Delete the Zeros. She did not know the percentage they are aiming for but there is gauge when they feel it would be appropriate to swap out the currencies. She told me just what I read in the articles and confirmed that the CBI wants this event to be almost transparent and smooth to the citizens. I then asked if the CBI still planned to wait a couple weeks after the swap-out to monitor for inflation as one of the measures of success. I was told YES there will be a period of time and the CBI is always monitoring the inflation rate. The length of the period will vary depending on any issues.
Q & A
Question from John Tanner: Mnt Goat, greetings, as far as i understand the parallel market rate does not matter. Sudani could shut it all down today if he wants. its supposedly been widdled down to 25 million dollars per day of trading. so does the parallel market rate even matter at this point?
Answer Mnt Goat: Guten Tag Herr Tanner. Seems to me we have a difference of opinion on how the parallel market or “black market” in Iraq actually works. Do you want the short version or the long version answer? I will give you the long version since it makes the most sense and you should understand that my answer is not a quick one since there is much more to the issue than you obviously present. But thanks too for the question since my answer may also help others reading this today.
First to understand you have to keep in mind that Iraq went to an almost dominated market filled with US dollars in 2003-2004. They did this out of fear of hyperinflation, which really never came. Everyone around the globe wants dollars and accepts them, thus is why when they shut down the IQD with the large three zeros notes and ripped the IQD off of FOREX. They had to use another currency that trading partners would easily accept, thus the USD. But as the years rolled on the corrupt have found ways to manipulate the dollar. Remember that the original plan was to reinstate the dinar within 5-7 years or around 2008-2010. By bad political choices thus with Nori al-Maliki it was delayed and could not reasonably be done (security and stability).
Now almost 20 years later, the Feds and US Treasury are finally cracking down on the abuse of the dollar and the corruption associated with it in overcoming sanctions. Why they waited so long is also part of the sage since much of the corruption stems from the US politicians as they too have their in the proverbial cookie jar.
Trust me on this one in that the US Feds do now really, really want to get Iraq off the sole peg of the dollar and manage it with a basket of currencies for its peg. They want the reinstatement and wanted it this summer. But how do you do that being that the dollar has been king in Iraq, for Iraq way too long already? This corruption is too well seeded and so they must address each issue separately. They are now down to just a few sources of dollar manipulation.
The parallel market boils down to nothing more than still using the forced dollar for trade. Iraq still must do this because the confidence in the dinar with 1/6 of a penny is not high. The stability of the banks is also not too high with the corruption, if even just perception by outside investors. Speculation is real.
So, what happens is the CBI requests needed laws to enforce the use of the dinar instead of the dollar. We have seen this already mostly in 2023. Then laws are needed taking the “sole” dollar out of the country’s economy altogether for trade. The next step is to move the dollar out of the main source for paying for imports. But when your reserves are mainly in dollars (petro-dollars) how do you pay for imports in anything other than the dollar, get it? Iraq’s CBI reserves are dominated by US dollars. So, its not as easy as you have suggested. Iraq would have to either get off the petro dollar, thus allow payment for oil in other currencies. Thus would stockpile these other currencies in the CBI reserves to use for trade other than the dollar.
When you restrict the dollars, the Black Market then supplies the dollars to fill in the gaps. They raise the cost of the dollar to merchants (rate per dollar) who them have to pay more dinars per dollar, thus beyond the “official” CBI rate of 1320. They get their commission. But how does the Black Market get its dollars for this purpose? This is the KEY to resolving their corruption issue with the dollar. Get it?
Somehow they use fraud to pretend to have legitimate needs for the dollars through the bank”s currency auctions. They used to get a lot of them through the TRAVEL allowances of dollars also, but most of this is being stopped now as we read of the new process to sell dollars only at airports and then to actually watch the traveler get on the plane, restricting access so they can’t smuggle them out of the airport.
The next step if to go away altogether with the currency auctions and they told us their target is by the end of 2024. But as I said above, they must attract foreign investors thus foreign currencies. They also must boost their exports. Can you see now how all of this makes sense and interconnected?
I do not know where you get your figures from by the currency auctions are going down and going down quickly at just about now where they should be at around 250 million per day. The 25 million you suggested is way too low and Iraq could not survive on that amount since 80% of the goods are still imported.
To solve this issue Iraq will need to export more thus lower the currency auction amounts even more, thus limit the liability of corruption with them. Another way, that most of my blog readers have not recognized but was emphasized to me by my CBI contact is the falsified salaries. Salaries come over in dollars from the CBI to the provinces and Kurdistan and then get converted to dinars. Some of these corrupt officials are making 3-4 or more salaries illegally. What do they do with these dollars? They sell them to the Black Market and make money doing it. Then Black Market takes them and smuggles them out of the country making billions to avoid the sanctions with Syria, Russia and Iran. A solution to this problem is to have a complete list of salary recipients and a way to verify and prevent “double dipping”. To facilitate this they must go digital. This also will prevent thievery since if nobody handles paper then everything is accounted for. So, they are in the process of digitizing salaries and forcing citizens to open a bank account with a debit card. Casual petty cash is via ATMs. Cash in ATMs is dinar only now. So this source of dollars has also dried up. But as we read this digitizing Iraq has been going on for over a decade now. But they are now telling us via the news more and more provinces are being forced to get an account to get their govt salary, pensions, etc. The overall Dr Shabibi strategy (plan) is working. This is why Ali Al-Alaq has said we are almost there but no yet as it takes some time. But the GOI and now the US Feds are impatient with the CBI and want to see the reforms accelerated.
So, knowing all this do you still stick by your comments and did I answer your question? My answer is NO it is not that easy as you think and you are going down that path of the RV intel guru idiot syndrome that is dangerous since its hardly ever based on FACTS and REALITY but rather opinions and hype. If it was that easy for Al Sudani to do it, he would. But remember Al-Sudani also does not run the CBI. Monetary policy is the responsibility of the Central Bank of Iraq with the help of the GOI to pass laws and enforcement of the Central Bank policies. Get it?
Question from Roger Brunstad: I have a question for Mountain Goat: If a person from USA holds 5 million dinars in a bank account in Iraq – 5 000 000 dinars. What happens when CBI deletes 3 zeros and raise the value of the dinar and releases the new small category notes? Will the bank then also delete three zeros from 5 000 000 resulting in 5000 dinars? I have a vague memory that you have mentioned this several years ago.
Answer Mnt Goat: Guten Tag Roger. I will refer you to the section in my blog for the Project to Delete the Zeros for more details. I suggest you go read it. Yes, the three zeros would be converted also in the accounts. I do not know why you are worried about this? Where you stupid enough to buy currency and then place it in an Iraqi banks account. Why would you do this? Who told you to do this? Again more stupid intel guru influence maybe? Like I said the value would remain the same in-country. How many times must I say this?
Now if you live outside Iraq and think your money inside Iraq will be treated any differently just because you live outside Iraq you are wrong. Why are you wrong? Because your money is in Iraq, get it? The process to delete the zeros will apply only to the dinar “inside Iraqi banks”. Get it? Can it get any clearer? Gosh how many times must I say this?
What does the Project to Delete the Zeros say in my blog? It says “in-country”. If you wanted to take that money out of the bank in Iraq prior to the project to delete the zeros and get it in your grimy little hands outside of Iraq, I might think about doing that soon.
