Article: “The central bank determines the sale of $ 5000 for citzens across the bank Rafidain and Rasheed”
If these two major banks are now selling the dinar at 1200 per dollar what do you think will happen in the short term, especially since the street rate is 1290 per dollar?
The answer is two-fold:
First, this will put downward pressure on the street rate…to bring it in line with the official rate, or at least within 2% of that rate (a requirement of the IMF for entry into Article VIII);
But secondly, and this has not yet been mentioned, the lower 1200 per dollar rate will quickly draw in large amounts of dinar from the mattresses of those who were frustrated because the street rate was so low compared to the official rate.
This is the secondary but extremely important factor that will be necessary in order to move to a float.
As the dinars in mattresses are removed and sent to the CBI through these major banks they can be destroyed, thus allowing the CBI to reduce the money supply.
Remember, they have to reduce it gradually as the value of the dinar rises.
The reduction is enormous, from 40 trillion dinar to 40 billion dinar.
This is a part of the mechanism that will make this possible.
If the dinar in mattresses do not come out then the float cannot begin or, if it does begin, there will not be enough upward pressure to raise its value UNTIL the mattress money is removed.
Thus this move by these two major banks (initiated by the IMF) will help to kick-start that removal process.
I might add one more point: by using this strategy the need for the issuance of the 100,000 dinar note is eliminated.
Originally this note was going to be introduced so that the 25000 dinar notes hidden in mattresses could be drawn out.
However, that is only a false ameliorative, since those 4 25000 dinar notes would still be replaced with another dinar note (although larger).
However, through this new strategy of exchanging dinar at 1200 per dollar the large 25000 dinar notes can be drawn out of the mattresses WITHOUT replacing them with other dinar notes, thus allowing a direct reduction in the money supply.
