We know the paper currency of the large 3 zero notes, now in circulation, are getting to the point of shortages even. They are shrinking the money in circulation for a reason. Remember deflation and an increase in a currency’s “rate” come from shrinking the money supply. Inflation and devaluation come from increasing the money supply thus decreasing the “rate”. So why did the CBI devalue the dinar by increasing the value of the US dollar? This decreased the “rate” of the dinar. Oh…but the money supply does not dictate such a move. So why did the CBI still do it.
This did not make any practical economic sense since on the surface it seemed to go against the laws of economics. But, we have to remember the dinar is still on a de-facto peg to the US dollar and this is part of their dilemma. How to get off this damned peg. We know what they have to do. To reinstate the dinar is to stabilize it. Going to a future basket of currencies to re-peg the Iraq dinar will stabilize it and allow for a controlled free float. This is where the CBI needs to get to.Tags: goat, mnt /