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Vietnamese Dong (VND), Zimbabwe Dollar (ZWL), & Rial (IRR)

FACTS ABOUT THE DONG, ZWL AND RIAL

We should use reason and careful analysis when considering these currencies for investment purposes. Be sure your premises are correct and that the foundations of the investment support your conclusions. These are facts we’ve been compiling with our subscribers.

The term “factual information” is used quite frequently in the Dinar community, but it’s redundant. Facts can be proved or disproved. Facts and opinions are information, but only facts can be proved or disproved.

A fact can be false or true. The best source of information we have includes articles pertaining to the economics of the country and its currency. Let’s focus on the facts and make rational determinations, this will be required of us once we receive our Dinar windfall.

Let’s discuss the Dinar first. This is a solid investment, it will pay off and big. The cause of the delay over the last four years, as admitted in news articles from Iraq, has been mostly corruption and sectarianism.

It is the culture of people in Iraq, the Sunnis, Shiites and Kurdish people that an acceptable aspect of negotiating is to cheat someone. These people believe that if you can cheat someone or exploit him in a deal, it’s ethical.

This has caused many of the necessary negotiations to be stifled, such as, the implementation of the National Guard Act. The Shiites believe that since they now have control of the government, they should not give up one bit of that by allowing the Sunnis in Sunni provinces to have guns and money and autonomy.

This is changing, but again, it’s been part of the delay.

The important laws we are still waiting for include the HCL, (implement Article 140), National Guard Act, Amnesty (and no, Amnesty is not “done”), Accountability and Justice, De-Baathification, Investment Law, Federal Court Act and one more, but I don’t think we’ll see it until after the next parliamentary elections (when we won’t care anymore), is the Federation Council.

The Federation Council is not just another layer of bureaucracy, it’s the senate version of Iraq’s parliament. Most modern republics have a bicameral legislature but Iraq still only has a unicameral system (only a house of representatives).

And the most recent revelation, Iraq appears to be unable to sell its bonds in Dinar, where the bond holder would be paid his return in USD. Countries are dumping the dollar and no institutional or knowledgeable investor wants to buy bonds that guarantee a default the moment they are purchased.

The USD is about to collapse, get over it, there is no more “King Dollar”, that system crashed in 2008. We will see this when silver exceeds $100/oz, and possibly exceeds $500/oz.

Iraq cannot sell its oil in USD because nobody will buy it… until after the collapse. Once the USD collapses, there should be no problem for Iraq to either sell its oil in USD and even Dinar.

This is a 50% collapse by December 31 of this year. Or, if Iraq were free to sell its oil in Dinar today, I think we’d have seen the revaluation already. Remember that the reason the United States attacked Iraq in the first place was because Hussein said he was going to stop selling oil in the USD and replace it with the Euro?

Iraq would risk being re-invaded by the United States unless it had enough international support to deter the United States from forcing Iraq to sell in the USD. We are waiting for the important laws, the end of most corruption and recovery of stolen money (or the near likelihood of it) and Iraq’s ability to trade internationally in its own currency, or even the RMB.

I also believe we are waiting for the merger (kind of) of two banks, but first they must be made private, that is, the Rasheed and Rafidain (pron. Ya-HAAF-ee-dah or RAF-uh-vayn). Be careful, don’t hurt yourself.

I think that Rafidain is not as financially stable as Rasheed and I think once these banks are truly private, the Rasheed Bank will absorb the assets of Rafidain but continue to use its name, instead of a merger. This will sustain public confidence over a published merger. Until these things happen, we’ll be waiting.

I don’t buy other currencies, I’m not a currency speculator, even though I have much Dinar. Instead, I buy as much silver bullion as I can get and frequently use Bitcoin in that process. When I see some forward movement in Iraq, such as the HCL being passed and/or the merger information, I will resume buying more Dinar than Silver.

Vietnamese Dong

The Vietnamese Dong (VND) has been on an inflationary trend since 1996. On June 19, 2014, the State Bank of Vietnam (SBV) devalued the Dong by 1% against the USD. It went from a 1 : 21,036 ratio to 1 : 21246. The SBV Governor stated that this inflationary move was necessary but had little impact on the overall economy. Its purpose was to make exports more profitable.

Vietnam’s exchange rate regime is officially described as a managed floating regime and yet has some characteristics of a crawling peg, with a steady pace of depreciation against the U.S. Dollar.

The objectives of the SBV are inflationary, not deflationary as some people incorrectly believe that the Dong will dramatically improve in value against the U.S. Dollar in the near future.

Zimbabwe Dollar

On December 9th 2014 the SBV sold 1.1 Billion USD to stabilize its presence in the Forex market. As of this date, the commercial bank rate is up (inflated again) to 1:21,400 against the USD.

The only way that the SBV could reverse this trend would be if there were some economic imperative to add value to the Dong and in that case, the SBV would need to de-dollarize its economy.

This might happen as large markets are dumping the U.S. Dollar, but it does not appear to be consistent with the 18 year inflationary trend at this time.

Changes to the exchange rate appear unlikely. Just because a country’s currency is thousands of times less in value than the Dollar, does not mean that the currency will be dramatically revalued against the Dollar. In the example of Vietnam, this country stands to benefit greatly from exports, and a deflationary trend against the Dollar would adversely affect these benefits (job creation, rise of the middle class, etc.)

Instead of revaluing the Dong, the SBV intends to reduce inflation expectations by measures that include allowing for greater capital outflows and increase its sterilisation efforts. It may also increase domestic interest rates to further control inflation.

Going forward, the most likely path of increasing flexibility in currency movements will be along a more administrative path rather than to formally change the currency regime.

The may be accomplished by the government relaxing documentation requirements in foreign exchange transactions and lengthening the tenor of forward foreign exchange transactions, which are currently limited to one year an allowing more exchange rate instruments available in the market.

One more note, there is no “VNN” currency code, the Dong is and will be for a very long time, coded as “VND”. The International Standards Organization is the only recognized authority for these changes,   http://www.iso.org/iso/home/standards/currency_codes.htm

Let me also make another note about the Zimbabwe Dollar (ZWL). This currency was officially abandoned by the government in 2009 and the use of a list of foreign currencies was legalized.

The people in that country have begun using many other currencies and eighty percent of the population has recently begun using Bitcoin (or a variation of it) on its mobile phones.

Most of these people do not use a bank account, so there is a natural trend to use cash and especially Bitcoin (or other alternative cryptographic currencies). Please review the Coindesk article “Why Bitcoin Regulation Lags Where it’s Needed Most”.

Today, all transactions are in foreign currencies, mainly the U.S. dollar and the South African Rand. But Zimbabwe’s worthless bills are valuable as collectibles (numismatics), if you are an expert in that field.

Zimbabwe is no where near any economic situation to improve the value of its currency, especially when it’s official currency was abandoned by the government.

The current government of Zimbabwe said that the Zimbabwean currency should only be reintroduced if the industrial output was 60% or more of its capacity, compared to the April 2009 average of 20%.

On 29 January 2014 the Zimbabwe central bank announced that the US dollar, South African rand, Botswana pula, Pound sterling, Euro, Australian dollar, Chinese yuan (renminbi), Indian rupee and Japanese yen would all be accepted as legal currency within the country.

Again, just because you can buy millions of this currency with only a few Dollars, does not mean it’s a good investment or buy.

IRANIAN RIAL

The lifting of sanctions has nothing to do with revaluing or dramatically increasing the value of the rial against the USD. There is not one single record of this anywhere.

There is absolutely no history or record anywhere of the rial being worth any more than 10,000 rial to 1 USD within the last twenty years. The greatest value it has ever been in the last century was approximately 38 rial to 1 USD back in the thirties. It was never $3.41.

The Central Bank of Iran has a serious problem with non-performing loans, reaching 90%. This is outrageous and indicates vast corruption where possibly “friends of people in the banking system” are being given loans and not required to pay them back.

It was because of Iran’s strong influence over Iraq, via Maliki, that the Dinar has not yet revalued as well. Those same people certainly have no plans to dramatically increase the Rial’s exchange rate.

The only change in Iran’s currency is the merging of its internal rate with its external rate. The Central Bank of Iran projects at least two years are needed to get inflation under control before any appreciation in the Rial can be undertaken.

Even if the Rial does increase against the USD, it will be a few percentage points, and most likely, the cause will be the USD being substantially devalued against foreign currencies.

 

References:

Dong

Coindesk article “Why Bitcoin Regulation Lags Where it’s Needed Most”
http://www.coindesk.com/why-bitcoin-regulation-lags-where-its-needed-most/

Reuters.com; June 18, 2014, “Vietnam to lower dong by 1 pct against dollar from Thursday”
http://www.reuters.com/article/2014/06/18/vietnam-economy-idUSL4N0OZ3ST20140618

Viet Nam News, vietnamnews.vn; July 21, 2014, “Exchange rate hike pays modest gains”
http://vietnamnews.vn/economy/257761/exchange-rate-hike-pays-modest-gains.html

www.anz.com; December 9th 2014, “Examining the Vietnamese Dong”
http://www.anz.com/documents/economics/Vietnam_currency_update_Aug_2006.pdf

Vietnamnet.vn; December 9th 2014, SBV sells 1.1 billion USD to stabilise forex market
http://english.vietnamnet.vn/fms/business/118071/sbv-sells-1-1-billion-usd-to-stabilise-forex-market.html

Zimbabwe Dollar

Wall Street Journal, May 11th 2011, “The Highest-Denominated Bill Ever Issued Gives Value to Worthless Zimbabwe Currency:

http://www.wsj.com/articles/SB10001424052748703730804576314953091790360

CNN iReport, April 16th 2013, “Zimbabwe Names Bitcoin National Currency”
http://ireport.cnn.com/docs/DOC-957375

BBC News, April, 2009, “Zimbabwe dollar ‘not back soon’ “

http://news.bbc.co.uk/2/hi/africa/7995882.stm

CCTV Africa, August 2013, Return of the Zimbabwe dollar
https://www.youtube.com/watch?v=kUytEHtyjAI&feature=player_detailpage

Rial

Iranian Rials (IRR) to 1 USD
http://www.exchange-rates.org/history/IRR/USD/G/180

“What will lifting sanctions do to Iran’s rial?”, May 7th 2015
http://www.al-monitor.com/pulse/originals/2015/05/iran-foreign-exchange-sanction-relief-imports.html#

“Iran central bank signals no big rial appreciation after nuclear deal”, July 15th 2015
http://english.alarabiya.net/en/business/banking-and-finance/2015/07/15/Iran-central-bank-signals-no-big-rial-appreciation-after-nuclear-deal.html

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