Thread: Iraq/Dinar News. 09/05 to 01/14/07

Is it me or, does it seem like all of our Fact-Finders seem to be awfully quite after hearing this news...

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Translated version of http://www.iraqipresidency.net/news_detial.php?language=arabic&id=3544&type=news

Photo Slideshow | Reuters.com

http://www.state.gov/documents/organization/77251.pdf

Translated version of http://www.pukmedia.com/

Maliki-Security :: Aswat al Iraq :: Aswat al Iraq

Michael Gordon of The Times assesses the impact of a leaked memo criticizing the Iraqi Prime Minister Nuri al-Maliki.

Click this link and then wait for th TV to load.. There is a commercial first of the Last King of Scotland Movie. Then a few live videos. Just to give the eyes a break. It loads on its on: http://video.on.nytimes.com/ifr_main...475.4314248525

I apologize if this has already been posted.

South Oil Company repairs 75 oil wells in Rumaila

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30 November 2006 (Iraq Directory)
Nasser Hussein Al-Shimmari, who supervises the reconstruction process of oil wells in the South Oil Company, said last Sunday, that the engineering cadres in the company was able to repair 75 oil wells in Rumaila oil fields north of Basra.

Al-Shimmari said that the engineering cadres were able to repair 75 wells in North Rumaila (60 km north of Basra) using their own capabilities.

He said that work is still going on to construct 100 wells and incorporate them in the service, pointing out that the energy of each well is estimated at (3000) liters.
Al-Shimmari added that the company is determined to reform all stations and wells associated to it.

Hundreds of wells were exposed to neglect and vandalism after the chaos that followed the fall of the previous regime in 2003, and the South Oil Company seeks to restore life to these wells.

Adster asked earlier when did the CBI auction originally start, so I thought I would see if I could find it for him. I found the article below and thought it VERY interesting, so I figured I would post it, seeing it explains ALOT! Wm Knowles did an excellent job in his posts to us and this pretty much backs up every word he has said. So while we are sitting back waiting for more RV news, have a read.

The Foreign Exchange Auction In Iraq

By Simon Gray
Simon Gray is Adviser, Markets and Financial Infrastructure, Centre for Central Banking Studies (CCBS), Bank of England. During his secondment to the Coalition Provisional Authority (CPA) in Baghdad, he was Senior Advisor to the Central Bank of Iraq. He wrote this article for MEES.

The Central Bank of Iraq (CBI) introduced a foreign exchange auction on 4 October 2003, just under a fortnight before the start of the currency exchange (which replaced the old banknotes, and ran from 15 October to 15 January 2004). The timing was to a large extent dictated by that of the currency exchange, but the underlying need reflects Iraq’s position as a major oil-exporting country.

Background
The government’s revenue is predominantly in US dollars, from oil sales. To this extent, Iraq’s position is similar to that of many countries in the region. And in common with many countries in the region, its expenditure is largely in domestic currency, in this case Iraqi dinar. The Ministry of Finance therefore needs to sell dollars for dinar.

Typically, a Ministry of Finance with foreign currency revenues will sell surplus foreign exchange (it will use some for the purchase of imports for government projects etc; and may keep some in a separate oil stabilization fund) to the central bank; and the central bank will on-sell dollars to the market, via the banking system. Under a fixed exchange rate regime – and many oil-exporting countries in the region operate such a policy – it is clear at what rate the Ministry should sell to the central bank. The central bank can then on-sell, at the same rate, whenever banks request dollars. Prior to the war, Iraq operated a fixed exchange rate regime (albeit with a hopelessly non-market exchange rate), supported by exchange controls. But post war, the central bank was not in a position to operate a fixed exchange rate regime, and in any case did not want to lock into the exchange rate prevailing at the time.

1-From the end of the war though summer 2003, the exchange rate was purely market-determined – the market in question being a street market for physical cash in three main locations in Baghdad. But the Ministry and central bank did not need to make use of this market, as official expenditure at that time was mostly in US dollar bills.
2- From October, things had to change. Once the currency exchange was under way (from 15 October), it was clearly important – if only from a political point of view – for the government to make disbursements in the new Iraqi dinar, rather than predominantly in dollars as had been the case since May. This meant that the Ministry needed a reference rate at which it could sell dollars to the central bank; and the central bank needed a mechanism for on-selling dollars to the market.
Without a mechanism to rechannel dollars to the economy, there would have been two consequences:
A shortage of dollars could hit the dinar exchange rate, leading potentially to a very sharp depreciation;
A dollar shortage would also cut off import supply, pushing up prices sharply. (Large amounts of dollar expenditure by the CPA and MoF had, predictably, fed through to a huge increase in imports, as previously suppressed demand could now be satisfied.)
Associating the introduction of the ‘new’ currency with sharp depreciation, cutting of the supply of consumer goods, and a hike in prices for those goods still available would have been disastrous.

An Auction As The Solution
The solution was to introduce a foreign exchange auction. This was kick-started by the CBI selling a small amount of its foreign exchange reserves to the market. Thereafter, the auction rate could be used for MoF dollar sales to the CBI (so that it would be a genuine market rate, rather than something based on a straw poll of street exchanges); and the market could bid for dollars in the auction to meet the level of demand. If demand was excessive, the rate would adjust.
We were aware that, once the new currency was available, the MoF would be selling several hundred million dollars a month to the CBI, and that auctions could easily exceed $10mn a time as the domestic demand generated by government expenditure (payment of salaries, pensions etc) fed though to import demand (since many consumer goods had to be imported), and thus demand for foreign currency. It was important to prepare the market for the auction system, and ideally to have a mechanism up and running, before the amounts became large. This meant starting in early October at the latest.
The full details of the auction need not be covered here. Importantly, several meetings were held with the commercial banks and the non-bank licensed foreign exchange dealers to discuss the mechanics and the purpose of the auction. Three dry runs of the auction were held, to give participants a better feel and ensure the mechanics worked. The first dry run was very messy; but by the end everyone understood not only how to complete bidding forms correctly, but how to participate in the price formation process and learn from the previous auctions.
All the banks and foreign exchange dealers also understood how the CBI would participate. It would look at the volume and price of bids from the market before deciding on its own participation, so that it could choose the cut-off rate. Clearly, no central bank can have full freedom in this: trying to keep the dinar too strong could lead to an unsustainable drain on limited reserves, while trying to hold back appreciation could have an inflationary impact. But at the margin, and for a time, the CBI could influence the rate. Since the market is allowed to participate in the auction in either direction (buying or selling dollars), it is possible that the central bank will not need to participate at all. But in practice there will nearly always be a large net demand for foreign currency by the market.
Banks and licensed foreign exchange dealers were allowed to submit bids directly to the central bank; but the dealers had to accompany their bids by a confirmation from their bank that funds were available to honor the bid, if successful. Settlement is book-entry only, across accounts at the central bank. Most bids are made in the 15-30 minutes before the cut-off time for the auction; and results are published 30 minutes after the close of bidding. Details can be found on the CBI website (www.cbiraq.org). Settlement is same-day. The short time-scale – only possible with book-entry settlement – helps to keep the auction and the rest of the market in line with each other.
The Auction, Exchange Rate Policy And Inflation
The first auction was held on 4 October 2003, and received a single bid, for $20,000. There was some debate about whether to accept it, since it was arguably below the market rate. But the CBI decided it was important to give a positive signal to the banks, to encourage participation in the future, and the bid was accepted. Within a couple of weeks, the bid rate at the auction and the street price – CBI staff went out three times a day to check prices at a range of locations (preferring those where prices were displayed, rather than given in response to a request) – had merged; and volumes were soon close to $10mn3. The majority of Iraqi banks participate regularly.
The CBI has said regularly in the auction result announcements that its aim is to achieve broad exchange rate stability, in order to support domestic price stability. There is no exchange rate target or band. The CBI has been able to meet demand, and there is not enough economic information for the market to take a strong view on what an ‘appropriate’ level of the exchange rate might be, certainly not to push for change in the rate.
But while the ‘right level’ was not clear, the CBI could be confident that excessive volatility was harmful. After the massive shocks to the economy and to society more widely in the previous months, it was important as far as possible to engender an atmosphere of stability – particularly in the early days of the currency exchange, when many Iraqis would see their income switching from dollar cash to new dinars. In any case, in view of the upward stickiness of some prices, it was likely that exchange rate volatility would tend to increase the level of inflation
Especially in the early days, it was not clear what a ‘normal’ level of day to day volatility might be, since there was no ‘normal’ period to compare with. The chart above shows the daily returns on holdings of new Iraqi dinar, and clearly indicates much more volatility in the early days of the auction, and of the currency exchange, than more recently. Two particular spikes in the chart – in early December and mid January – can be linked to the announcement of Saddam’s capture (when it was not clear what the long term impact would/should be), and the end of the currency exchange, when the trend appreciation of the dinar (arguably starting with Saddam’s capture) led to ‘irrational exuberance’.
In the former case, the CBI made no attempt to stand against the trend, but did help to smooth it by the level and rate of its participation in the auctions. By contrast, the very sharp appreciation of the dinar in early January seemed unwarranted and almost certainly unsustainable; and it was clearly upsetting the market4. On this occasion – on 15 January 2004 – the CBI bought a small amount of dollars at the auction, and indicated that the recent appreciation of the dinar ‘was not supported by any recent political or economic announcements’. In other words, the CBI again avoided taking a stance on the appropriate level of the exchange rate, but merely noted that nothing had changed recently which would justify the very sharp movements in preceding days. This worked, as the chart below indicates. (SEE LINK BELOW FOR CHART)

Similar action in January 2005, just ahead of the national elections, was also undertaken in response to an increase in volatility, but otherwise the market has been remarkably quiet.
Reducing exchange rate volatility, and then supporting a remarkably stable nominal exchange rate since the beginning of 2004, has proved to be a very powerful tool in meeting the CBI’s objective of low domestic inflation (formalized in the new CBI law, dated 6 March 2004). In Iraq, as in many commodity-exporting open economies, there is a rapid pass-through from the exchange rate to domestic inflation. The correlation is bound to be unstable, as it will be affected by expectations, changes in the level of demand (eg reflecting changes in the security situation), changes in the direct costs of importing goods in an unsafe environment, and periodic supply disruptions. But prima facie, there is strong evidence that a stable exchange rate has helped to support price stability.
Footnotes:
1. In fact, there were differing exchange rates depending on the denomination of note used (with a difference of 25-30%); and the rate was very unstable.
2. The ID10,000 note was not widely accepted at face value, in part because of (legitimate) counterfeit concerns; and the smaller-denomination ID250 notes (worth around $0.12 at the time) could not be printed fast enough.
3. Within a year of the first auction daily turnover was regularly over $25mn.
4. In the words of a senior official at Rafidain on the evening of 14 January: “The market is going crazy. People are offering 1,000 for the dollar. What are you doing about it?”

The Foreign Exchange Auction In Iraq

Cheers!

Originally Posted by Dinar-Excited

Hi Everyone,

I was watching the news while I was in line at the Bank and it is looking pretty bad with Sadr disrupting the Government. I am just going to throw this out there but do you think that CBI did not have an auction because of all the chaos.

Dinar-Excited

but you see THE CBI WAS READY TO HAVE AN AUCTION AND WAS PREPARED TO HAVE AN AUCTION. nobody came to play at the auction from the bank! lol
that would have nothing to do with security or anything except for the fact that the banks dont want to spend their dinar on dollars because they are aware the dinar will soon be worth more than the usd.

Thank all of these WONDERFUL people for their contributions in keeping us up to speed with information regarding the dinar; to type names would take most a page. I really admire CharmP for pushing so hard and not backing down on November December 3 is MY ONE AND ONLY SON, CARLOS BIRTHDAY. He will be in Cancun for a conference, but would I love to tell him the dinar r/v and HAPPY EARLY BIRTHDAY SON. Come on CharmP; make it happen. I feel in my heart this is the TIME.

Originally Posted by Alphamystic

Is it me or, does it seem like all of our Fact-Finders seem to be awfully quite after hearing this news...

Let me also add...Is it me or, does it seem like all of our Fact-Finders seem to be awfully after hearing this news

Originally Posted by Webster

I am soooooooooooo very sorry CP but it is already December in Baghdad. I know, I know. You actually are referring to USA time. If that's the case you still have some hours to go. Thank you for your valuable posts.
Current time Friday, 1 December 2006 at 12:50:06 AM
I read some post yesterday that someone thought that most r/v happen on the last day of the month and someone corrected this by stating that it should happen on the 1 st of the month. So here's hoping.

Correction: It's the 1st BUSINESS day of the month...The 3rd (This Sunday)...Yazzman Rate 1.61...



Cheers!
DayDream

Originally Posted by Dinar-Excited

Hi Everyone,

I was watching the news while I was in line at the Bank and it is looking pretty bad with Sadr disrupting the Government. I am just going to throw this out there but do you think that CBI did not have an auction because of all the chaos.

Dinar-Excited

But not No But, "HELL NO". he is just a Outsider now. All his Parliment and Minister People are History. They walked out. Maliki did not do his request and not meet with bush. So Sadr screwed up and quit. Now he is a Outsider and will be classified as a Terrioust if he continues his ways of Brain Washing. And Maliki's security Control will have to deal with Sadr to prove his Loyalty to the People of Iraq. IMHO.

Plus The CBI acts on their own. Like Our Federal Reserve does.