A backgrounder
on the Iraqi dinar, including details on why the
Iraqi dinar is positioned for a huge rise in value.
The Iraq Dinar is set up in a very simple, almost
crude fashion. The set up was a quick fix after
the invasion, seeing that the banking sector in
Iraq was about as developed as a model T. Without
a modern bank system in place, the "crude and
simple" was chosen as a workable interim model.
A Brief History of the Dinar
With Saddam's face plastered all over it, the
old dinar had to go. The Saddam dinar also was
of very low quality, and could be easily forged
on a simple copy machine.
After the invasion, new bills were immediately
ordered, but due to the enormous amount needed,
some of the old Saddam dinars continued to be
printed and circulated until the new ones arrived.
The new dinar bills started to arrive, and they
brought with them all the modern safety features
one would expect. A wide spread of denominations
was chosen, both to make the daily handling easier,
and to cover for value variations in it's exchange.
Finally, a reasonable time period was granted
in order to allow the citizens of Iraq to swap
the old Saddam, and "Swiss" dinar in.
The Central Bank of Iraq (CBI)
The Central Bank of Iraq (CBI) was set up as an
auction system, with the CBI sitting on the newly
printed currency, auctioning older outdated dinars
and other foreign currencies with Iraqi banks
for new dinars. Now that the currency exchange
has been completed, the CBI also sends nearly
half of it's daily auction of dinars to foreign
banks in Kuwait, Jordan and beyond.
If you go to the CBI official website you will
see the daily auction, the currency is now primarily
sold in exchange for US dollars. The CBI is slowly
but surely acquiring US dollars to help back the
worth of the dinar. Everyday the amount of dollars
in it's vaults increases.
The exact number of dinars in print, in circulation
or on hold at the CBI is exactly known. By doing
some very simple steps, full control is achieved
through:
- Limit the amount a person can bring with him
if he is leaving Iraq, to a very small amount
(in this case, 100,000 dinar);
- Knowing the exact amount sold to banks outside
of Iraq.
Once you know the amount of dinars out there,
viola, you have complete control over it's fate.
The CBI simply sells more or less to hold the
dinar in a position exactly where they want it
to be.
Given this situation, the dinar will not strictly
be pegged. It has been called 'pegged' by some,
but in reality you will have some small fluctuations
on the dinar value, which you have likely noticed
if you have followed it over time. These fluctuations
are a balancing act by the CBI.
Simply put, truly pegged currencies don't move
from the currency it is pegged to.
This is the basic Iraqi dinar system. Now some
may already be asking, that if the Dinar is endlessly
sold, wouldn't it flood the market, making them
worthless? No, because you have exchanged your
US dollars for your dinar, which helps to back
the dinar through the above explained CBI mechanism.
Now, this is a very temporary system. Interested
readers will of course note that any currency
that is not free flowing is a hindrance to full
economic development. This fall, new Iraq investment
laws are suppose to be passed by the elected Iraqi
parliament, allowing international investment
companies (read: Big Oil) to invest.
At this very moment, oil company survey and geological
teams are crisscrossing the desert, testing grounds,
staking claims and hopefully not giving each other
a black eye. Again, this is not Iraq government,
US government, US Government contractors, US armed
forces, etc. running around, this is oil companies.
The future mega investment in Iraq which will
help drive the economy forward.
A Question of Priorities
Some may ask if we shouldn't take care of the
violence first. If Joe Everyman is building a
house, is it relevant that his young children
are fighting? The short answer is that 'Big Oil'
is operating in many areas of the world where
violence is the norm, not the exception.
By last June it was announced that no more printing
of the dinar is necessary, meaning that we are
most probably in the end part of the 'first stage',
and are ready for the dinar revaluation. It would
be an suicidal economically to leave the dinar
in it's current low range, and let the oil companies
come in 'on the cheap'. The dinar MUST have a
much higher value at that time, otherwise Iraqi
will be sold off for literally pennies, or dinars,
on the dollar.
While the exact arrangement of the investment
law is not yet settled, deals have already been
made in how the oil revenue will be shared amongst
the different regions and groups in Iraq. So things
are moving forward.
It is not yet known if the revaluing of the dinar
will be an overnight thing, with no previous announcements,
or if it will be a gradual increase as necessary.
It should be pointed out that the value of many
oilfields in Iraq is also not fully known, because
actual modern geological surveys have not been
done for decades, if at all, but even with this
lack of recent study, the known reserve in the
ground rivals that of Saudi Arabia. It is hoped
that in the next decade, Iraq will achieve the
same oil output as its southern neighbor. Nobody
can deny that the potential is there.
From the time the pumps start working, Iraqi
society will start getting more and more benefits
from the oil revenue. The finances will be available
for roads, schools, the electric grid, social
programs, new equipment, better computers, etc.
These oil-funded infrastructure improvements will
help drive manufacturing, and in turn, generate
more jobs. Social unrest is handled with police
and justice, but it must also be handled with
economics. A prosperous nation is a happy nation.
Finally, Iraq has been blessed with something
very few Arab countries have. Water. The agricultural
heartland of Iraq have one of the highest potentials
of big development. With proper development, it
could be the Iraqi equivalent of the orchards
and fields of California's central valley. This
development and the potential of it will only
strengthen the dinar now and in the future.
Exciting Times, a Positive Direction
For the dinar, these are exciting times, but even
more interesting when it comes to investing in
the Iraq stock exchange, because as the oil revenue
will start making things possible in Iraq, the
opportunities to be in on the ground floor on
different investment start ups, will increase.
Knowing this is a nation destined for great wealth
it makes it even more exciting.
Saudi Arabia, Dubai, the Arab Emirates and Kuwait;
are they rich and prosperous states? Of course
they are. Why are they wealthy? Oil. Oil is money.
Iraq is practically floating on oil. When do the
oil companies want to start pumping? ... Yesterday.
Will Iraq continue to be a poor nation? Will
the dinar continue to be at it's all time low?
**END ARTICLE**
Source: ISX Data Services.
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