As the IQD RV train rolls down the tracks to its final destination, the reinstatement we read yet another article by Ali Daadoush, the Iraqi economists. Remember him? He wrote a couple articles in the past about how the Project to Delete the Zeros will work and the benefits and drawbacks of it. So, just recently he published yet another article on this same subject matter titled “DELETE ZEROS AND EVALUATE THE DINAR“. But this time his new article is concentrating on the Revaluation part giving examples of countries that recently revalued and how it worked. The part that sparked my interest the most was about when he wrote and I quote “After the revaluation, it was linked to a basket of global currencies.” He was referring to the Chinese government Yuan and its revaluation of its currency in 2005, which was then linked to the US dollar prior to the revaluation. However, after the revaluation, it was linked to a basket of global currencies. Why is he telling us this? Is he saying Iraq will experience the same kind of move with the IQD?
I believe he is telling the citizens of Iraq that this also is what will occur to the IQD when it too revalues soon. I have to tell you again this has been the IMF’s plan all along to take the Iraqi Dinar off the sole de facto peg to the US Dollar and then place it in a basket of currencies with weighted percentages for each of the currencies. This will mitigate the risks on the peg if anyone of the currencies takes a hit. In 2011 Iraq published an article by the CBI also telling us that five (5) currencies would be used in the basket and a year later changed it to six (6). We will have to wait to see what the final basket looks like. These are the currencies of the major developed countries. The author does not go on to explain how these new pegs work in these baskets so I will explain a bit today for you.
You can reference the PDF on the internet. From this link for further information on this subject matter. It explains the technical issues behind the choice, composition, and operation of a basket peg under a system of floating exchange rates. It is by economist Shinji Takagi.
Following the generalized floating of the world’s major currencies in 1973, a number of smaller countries began pegging the value of their currencies to an average value, or basket, of selected foreign currencies. At the end of 1985, 43 member countries of the Fund maintained such basket peg arrangements. Taking into account countries that adopted and then abandoned a basket peg, the total number of countries with such arrangements during 1973-85 was 63
While the ability to maintain a market determined exchange rate is a benefit of free floating shared by all countries, it can be a relatively costly arrangement for small countries, with their smaller volume of foreign exchange transactions, relatively inelastic trade flows, and less developed financial markets. These countries, therefore, have a greater incentive to choose a fixed over a freely floating exchange rate. In the current environment, however, when most major currencies are floating independently, no small country can maintain a strictly fixed exchange rate system: a decision to peg the currency to any major currency inevitably leads it to float against all other floating currencies.
The choice of a basket depends upon the exchange rate policy objective of the authorities. This objective may be defined in terms of a readily identifiable relative price variable, such as the terms of trade or the real exchange rate, or in terms of a macroeconomic variable such as the balance of trade or, more important, the balance of payments. Once the objective is defined, the choice of currencies and the weights to be assigned to them in Finance & Development I September 1986 41 ©International Monetary Fund. Not for Redistribution the basket can be made on the basis of the relative importance the authorities attach to exchange rate stability against various currencies in the light of the chosen policy objective. The greater the need for stability vis-a-vis a particular currency, the greater its relative weight in the basket. Determining the exact weights is a complex exercise.
Bottom line is this – the IMF fully intends to Repeg the IQD to a basket of currencies once they revalue it and turn it back on FOREX (as you know this is called a reinstatement for all you newbies). It will initially be a FREE FLOAT driven by market fluctuations however it will be monitored and my CBI contact has told me they will cap it at a level to control the initial massive swings, if needed. Then over a period, the rate is expected to settle down to its nominal rate. I am told this could be about $3.85ish. The then CBI director in 2011 Dr. Shabibi told his audience in a news media conference on the Iraqi economy that the dinar could sustain a fluctuation as high as $16 USD.
I am told that the IMF will use the cap at about $9-$11 to prevent wild swings out of control that could potentially hurt the basket. I also want to bring out the very recent article on the Special Drawing Rights (SDR) and how important this article is, however, most readers did not even realize or catch on as to why they were explaining all of this to us. So, let me bring it to your attention again. Let me bring out the main points of this article since we are talking about this basket today and connect this SDR news to the basket of currencies we are about to see for the new peg.
Here is the article again below:
IRAQ INCREASES RESERVES AT IMF BY 50%
A meeting of the Iraqi Cabinet this evening approved an increase in Iraq’s quota at the International Monetary Fund (IMF) by 831.9 million Special Drawing Rights (SDR), equivalent to 1.45 trillion Iraqi dinars [$1.1 billion] based on the exchange rate as of October 8, 2024.
This 50-percet increase in Iraq’s previous quota will enhance the country’s voting power within the IMF. The additional allocation will be included in the 2025 budget.
The IMF created SDRs as an international reserve asset to supplement member countries’ official reserves; they are not a currency, but rather a claim on freely usable currencies of IMF member countries. They serve as a potential source of liquidity for IMF member nations.
SDRs represent a weighted basket of major international currencies, and can be held as part of a country’s foreign exchange reserves. Adding SDRs to a country’s international reserves makes it more resilient financially.
Will we get the Project to Delete the Zeros in November or December timeframe? I am still hearing from my contact it is planned and they intend to begin the collection process before the end of 2024 in preparation for the next stage.
Did you connect the dots as to what they are slowly telling us in these recent articles one by one as time passes? The article was titled “ILO: IRAQI GOVERNMENT HAS DEVELOPED PROGRAM TO HELP FACILITATE TRANSITION TO FORMAL ECONOMY”. If you did you can begin to see that when they do transition back to a “formal economy”, as in developed nations, they will need a viable currency. They will get off the sanctioned currency process of the larger three zeros notes. They are doing it now and the major final blow will be at the end of the year when they finally transition off the currency auctions for the dollar for good. The way to transition and complete the transition off the sanction-like economy fully is then to move on to the currency and economic reforms. Yes, they are now moving mostly pass the Pillars of Financial Reforms and onward to using the results of these reforms to rebuild their economy.
Iraq cannot rebuild the economy and attract investors unless they concentrate on these two measures now: the Economy rebuilding (attracting investors and shipping goods) and rebuilding their viable currency (currency reforms and reinstatement).
Finishing touches on getting off the currency auction dollar and freeing the IQD by end of the year:
“EXCHANGE RATES WILL RISE FURTHER.. WARNING OF AN IMMINENT ECONOMIC CRISIS DUE TO THE “COLDNESS” OF THE CENTRAL BANK” (Note: this opinion is due to only having 4 current banks set up as correspondent exchange banks used in place of the CBI currency window…it’s called fear mongering by economists wanting more knowledge of what the CBI intends to do.)
“AL-ARAJI: IRAQ STANDS ON THE CUSP OF A HISTORIC DIGITAL TRANSFORMATION”
“THE FUTURE OF INTERNATIONAL TRADE TRANSACTIONS IN US DOLLARS IN IRAQ” (Note: The final blow to the US Dollar controlling Iraqi trade dominance and the dinar rate artificial suppression)
“THE OIL AND GAS LAW RETURNS TO THE FOREFRONT… WILL AL-SUDANI BE ABLE TO RESOLVE THE DISPUTES OVER IT?” (Note: we also read about the resolution of Article 140 in last week’s Newsletter, this also will be needed to reinstate)
Moving on to rebuilding the economy and currency reform measures:
”WILL IRAQ BE THE SAVIOR OF THE COUNTRIES OF THE REGION IF OIL PRICES FALL? ” (Note: This can only happen through the “basket of currencies” for the new IQD peg. Certainly, as it stands now Iraq cannot be anybody’s savior. The mechanism in which to do so is not yet in place.)
”ECONOMIST ASSESSES ABOUT OIL DECLINE: IRAQ IS ABLE TO COPE WITH PRICE CHANGES”
AL-SUDANI AND AL-AMERI: THE CENSUS IS AN ADDITIONAL PILLAR FOR ECONOMIC REFORM PLANS
”IRAQ SELECTS 11 COMPANIES TO COMPETE FOR FAW GRAND PORT OPERATION CONTRACT”
”EXPERTS: FAW PORT IS IRAQ’S GATEWAY TO A GLOBAL ECONOMIC FUTURE”
“THIRTY US COMPANIES VISIT KURDISTAN REGION, NEW AGREEMENT SIGNED TO ENHANCE TRADE AND INVESTMENT”
