Thread: Reducing Excess Liquidity

Hello everyone. I lifted this from another forum. It gives a long and somewhat tedious explanation of how several countries have handled excess liduity (inflation). Enjoy!


Significant growth of foreign currency supply on the domestic market creates
preconditions for considerable appreciation of the national currency.

http://www.bankofengland.co.uk/educa...pdf/lshb06.pdf

Hello Wm. Knowles!
A friend of mine that comes to the forum was discussing with me the fact that we had not heard "peep" from you in quite some time. We had despaired that you must have been long gone. May I say it is great having you post again and we hope to get more of your insight/opinion on this investment; you have been missed.
Blessings On YOU! AL

Originally Posted by Wm.Knowles

Hello everyone. I lifted this from another forum. It gives a long and somewhat tedious explanation of how several countries have handled excess liduity (inflation). Enjoy!


Significant growth of foreign currency supply on the domestic market creates
preconditions for considerable appreciation of the national currency.

http://www.bankofengland.co.uk/educa...pdf/lshb06.pdf

Link not working... can you please recheck it and correct it if possible?

Thanks, and welcome back!

Here try this link.

http://www.bankofengland.co.uk/educa...pdf/lshb06.pdf

Good luck - a very long read and alot to take in.

Hello everyone. I posted the article on removing excess liquidity as a reference. In following the monetary policies of the CBI, it appears that they have followed a textbook effort to remove liquidity from the economy of Iraq. We have had the position that they have

1. removed excess currency through the auctions both inside and outside of Iraq in the form of foreign transfers.

2. increased interest rates.

3. Increased reserve requirements.

As a result, only the most obtuse individual would state that dinar availability remains the same as it was 2 years ago. Dealers report an inability to get dinar, fewer e-bay auctions, many reports of difficulty getting it on the street, increased street rates, inconsistent reports that large banks in the US and the UK are reporting shortages or are unable to get the dinar at all.

The article provides confirmation that the CBI’s number one target for the last year was to reduce inflation. But, by implementing their reduction of liquidity, they have in effect, “put the brakes on the economy”. Which means they may have taken out too much. there are only two methods to deal with a restrictive monetary policy.

1. To ease the monetary policy by lowering interest rates, decreasing reserve requirements, allowing more dinar to flow back into the economy through the auction process at an artificially low price. (As they did in the past).

2. Increase the value of the currency to decrease the cost of imports relative to the dollar.

The problem with the first option is that by reversing their past policies, they stand to re-ignite inflation. This option does nothing for the decrease of import prices. The second option is the best choice. As Darock posted, the increase in the price of the dinar has not kept pace with the decrease in the value of the dollar or the increase in prices at the local level. due to the influx of dollars due to the increase in oil, all ME countries are experiencing inflationary pressures that are outside of the usual monetary controls by a central bank. therefore, increasing the value of all of the ME countries is being discussed as the option to deal with the inflationary pressures. And, IMHO, it is the only option for Iraq. In the past we have described The monetary situation in Iraq as a “pressure cooker”. I feel this is still an appropriate description. The monetary policies of the CBI have been the most restrictive. When add the increases in Gross Domestic Product (GDP), you add another variable to the tight money policy being followed and one that in itself, is a large portion of the heat being applied to the “cooker”.

http://www.bankofengland.co.uk/educa...pdf/lshb06.pdf

Monetary policy of the CBI will lead to Economic Contraction
Monday 07 January 2008 (January), at 4:13 pm Baghdad time


Hafiz confirms that the monetary policy of the Central Bank will lead to economic contraction

Head of the Iraqi Centre for Development and International Dialogue Mahdi Al-Hafiz that the monetary policy pursued by the Central Bank of Iraq lead to economic recession being based on interference in raising interest rates.
He added that this policy caused harm to the private sector and hinder play the desired role in the economic life of the level required in addition to reduced potential lending banks by excessively high interest rates.
He explained that the policy of Bank Al-Hafiz led practically to weaken economic growth, which is an essential part of national development objectives and in the fight against unemployment and the provision of productive employment.
He pointed out that what compounded by the consequences of this policy continuing imbalances and weaknesses in the Iraqi banking sector, which requires radical reform as it is known.

Originally Posted by Wm.Knowles

Hello everyone. I posted the article on removing excess liquidity as a reference. In following the monetary policies of the CBI, it appears that they have followed a textbook effort to remove liquidity from the economy of Iraq. We have had the position that they have

1. removed excess currency through the auctions both inside and outside of Iraq in the form of foreign transfers.

2. increased interest rates.

3. Increased reserve requirements.

As a result, only the most obtuse individual would state that dinar availability remains the same as it was 2 years ago. Dealers report an inability to get dinar, fewer e-bay auctions, many reports of difficulty getting it on the street, increased street rates, inconsistent reports that large banks in the US and the UK are reporting shortages or are unable to get the dinar at all.



1. To ease the monetary policy by lowering interest rates, decreasing reserve requirements, allowing more dinar to flow back into the economy through the auction process at an artificially low price. (As they did in the past).

2. Increase the value of the currency to decrease the cost of imports relative to the dollar.

Yes! If you look at the recent CBI Treasury Bill Auctions you will see that only 25-35% of the offering are sold even though they are paying 21% interest.. What's with that? Not enough Cash in the Banks!! Why are the CBI not raising the value of the Dinar?? Even all of the Ebay auctions are selling 700-1,000 to the Dollar. Demand is there for the Dinar to go higher...

Bibba D. I am glad you are tracking the T-bill auctions in iraq. All this tells me is that they do not have the money to take advantage of the auctions. Simply put, they have taken too much money out of the economy. The pressure cooker will adjust this eventullay. Knowles

Sorry I misspelled Bubba. Knowles

Another confirmation that our ideas of reducing the money supply has been RIGHT! Posted today.

Economic studies expect rise of Iraqi Dinar value


Wednesday, January 09, 2008 13:28 GMT



Iraqi Researches Institute noted that several studies for economic researchers have confirmed that if the central bank’s policy continues to boost open auctions and withdraw money liquidity, Iraqi currency will rise in comparison with the dollar and other foreign currencies. Experts have agreed that the gap between the fiscal and monetary policies is the cause of Iraqi currency increase, warning against inflation of the real Dinar value stressing the necessity of finding drastic measures to limit its impact.

http://www.alsumaria.tv/en/Economics...inar-value.htm