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

Have a read of this, could be onto something. Tells me they have in mind a peg to a basket of currencies as well as adding oil to it....1/3 Euro=.4231, 1/3 Dollar= .33, 1/100 Oil = .64, making the dinar value around 1.39......

Sounds good to me.



A Crude Peg for the Iraqi Dinar


by Jeffrey Frankel
June 13, 2003
Reprinted from the Financial Times


Rebuilding Iraq involves many difficult problems. It may seem that the question of the
exchange rate should be one of the easier ones to solve. The choice of cur-rency
regime - particularly what to anchor the currency to -is perhaps the most widely
studied topic in international monetary economics. Yet this question too turns out to
be difficult; none of the traditional solutions will quite fit.

Given instability in the region and the absence of credible institutions, the Iraqi di-nar
requires an anchor of considerable credibility. Some have proposed a rigid peg to the
dollar, as through a currency board. But this idea has significant drawbacks. That it
would mean giving up the ability to set monetary policy independently is not such a
big cost, as few governments have been able to use such discretionary pol-icy well
anyway. But there are other serious disadvantages.

One big drawback of a fixed exchange rate is that it means giving up the automatic
depreciation that a floating currency would experience at times when the world market
for the country's exports were weak. In the case of Iraq, the most important export is of
course oil. Large fluctuations in the world price of oil have wrought havoc on the
economies of other big oil-producing debtor nations such as Indonesia and
Venezuela, often entailing a serious currency crisis before a change in the terms of
trade is accommodated.

A second big drawback of fixing the dinar to the dollar would be the introduction of
gratuitous volatility when the dollar fluctuates against other leading currencies.
Argentina's currency board collapsed two years ago, not just because the straitjacket
was so rigid but also because the rigid link was to a currency, the dollar, that had
appreciated strongly against the euro and other trading partner currencies during the
second half of the 1990s. That meant Argentine exports suffered a huge loss in
competitiveness at a time when world market conditions were already weak.

Finally, imposing the dollar on Iraq could also feed widespread fears of US
imperialism. The politics would get even trickier if, as in Argentina, the arrangement hit
a crisis - for example, as a consequence of an increase in US interest rates.

An alternative would be to peg the dinar to the euro. But this idea has big draw-backs
as well. The euro has been appreciating against the dollar and might continue to do
so as a result of ever-widening US trade deficits. A peg to the euro would thus risk a
future loss of competitiveness against non-euro trading partners. The problem is that,
as Iraq's trade returns to normal, its trading partners will be so dispersed
geographically that a peg to either currency alone - the dollar or the euro - would
introduce unwanted volatility with respect to the other. Like other countries with
geographically diverse trading partners, Iraq may thus be headed for a basket peg,
with equal weight given to the dollar and euro.

But a basket peg does not solve the problem that, in the event of large future declines
in the world price of oil, the currency of an oil exporter must be able to depreciate in
order to accommodate the adverse shift in the terms of trade and help stabilise export
earnings. Fortunately a proposal designed for small commodity-exporters, which I
have called "peg the export price", addresses precisely this is-sue.

The proposal is for a country to peg its currency to the export commodity. It could be
implemented as follows. The central bank would set the daily price of dinars in terms
of dollars in direct proportion to the daily price of a barrel of oil in terms of dollars. The
result would be to stabilise the price of oil in domestic terms. This approach combines
the best features of both fixed and floating exchange rates. Like fixed exchange rates,
it constitutes a transparent nominal anchor and also helps promote integration into
world markets. And yet, at the same time, it retains a crucial advantage claimed by
floating exchange rates: automatic accommodation of fluctuations in world markets for
the export commodity. In short, it offers the best of both worlds.

To fix the dinar simply to oil alone may be too radical a proposal. While it would
facilitate the recovery and expansion of the oil sector, it might at the same time dis-
courage production of other internationally tradeable goods by shifting the entire
burden of price uncertainty on to them. My proposal for Iraq, therefore, is to add oil to
the basket of currencies to which the dinar is pegged. For simplicity, give equal weight
to all three units. Or, what is almost equivalent, define the value of the dinar as one-
third of a dollar plus one-third of a euro, plus one-hundredth of a barrel of oil.

Unlike other proposals for nominal anchors, this is one that Iraq could live with even if
there are big swings in world exchange rates or oil prices in the future. The country
faces enough challenges without worrying about the risks of a future currency crash.


From the Harvard Business School Article on Price Waterhouse Coopers:

Include Oil in a Basket

To fix the dinar (or other countries' currencies) simply to oil alone may be too radical a
proposal. While it would facilitate the recovery and expansion of the oil sector in Iraq,
it might at the same time discourage production of other internation-ally tradable
goods by shifting the entire burden of price uncertainty onto them.

My proposal for Iraq, therefore, is to add oil to the basket of currencies to which the
dinar is to be pegged.

For simplicity, give equal value weights to all three units. Or, what is almost
equivalent, define the value of the dinar as one-third of a U.S. dollar plus one-third of
a euro, plus one-one-hundredth of a barrel of oil.

Unlike other proposals for nominal anchors, this is one that an oil producer like Iraq
could live with even if there are big swings in international exchange rates or world oil
prices in the future.

Originally Posted by neno

Now this is where I am. But The Compact was done and International Investers have 20 billion in their hands trying to give it away.

Then you have ShotGunSusie (Bless her Heart) which has went sofar out on the limb that she may just be hanging there, Gauarntee's before the 18th.

Hummmm, Adster. I am going with the r/v thought. Unless I am worng about the Compact.

The Compact won't be fully active until November with regards to taking investors money. Sorry, I'd love to be wrong but I honestly think we're looking at November now for a r/v.

That's the bad news, the good news I fully believe they can support a r/v of around 1.39 if they go with what I said above. Now whether they go down this route or allow the markets to decide on the dinar value and open it lowish and let it float is anyones guess at this point. Either way we end up a lot wealthier which is what we're all here for. :0)

With people like us are they called "Dealers"

Or would they be more appropriately called "Pushers"?

We DO read everything from our frame of reference "through Dinar colored glasses" so to speak. So we need to keep everything in proper perspective.

But Damn!! I AM looking forward to this anticipated DinARGASM !!

RF

Hey Susie,
anything to add today?

Originally Posted by Adster

The Compact won't be fully active until November with regards to taking investors money. Sorry, I'd love to be wrong but I honestly think we're looking at November now for a r/v.

That's the bad news, the good news I fully believe they can support a r/v of around 1.39 if they go with what I said above. Now whether they go down this route or allow the markets to decide on the dinar value and open it lowish and let it float is anyones guess at this point. Either way we end up a lot wealthier which is what we're all here for. :0)

Ok, want be fully active until November. Then the announce ment want be that. The Investers I am talking of, are the ones waiting on the FIL to be announced.

So maybe there it isn't so bad news after all. I just want to see if I got this right. Adster you still the man here. And really do like the float ideal too. Yes, agree we are going to be richer.

Originally Posted by Fidgets Father

Annon is a dealer trying to drum up some last minute business.

kofi annan head of the un??? lmfao@dealer

Originally Posted by Vipor

Hey Susie, thus far, we've been tracking the 0.93Euro mark from your sources. Any rumblings within your circle of trust along the lines of the below post from Clueless?

im hearing that too. the best way to think about simplicity is this, move that decimal point 3 places on ALL goods and services AND the currency value. hence 1.47

i tried to point out when the article came out about the zeros that to a mathematician removing the zeros meant moving decimal places.

but then in print we read that in fact the MOF had meant lop but that the CBI would not have it....its all so mixed up ya know..... but then again it could be they want you to look over there while they do something else over here......

You know when Susie first started this I was very opptomistic about what she had to say, but I told myself that I was not going to let my self get too excited. I have crashed so many times in the last year and a half

But you know what, it happened I am excited

I really like the way everyone posts over here, you actually get to see where everyone is coming from and make your own deductions.

Thanks for the great info folks.

Mike

I have been in this "internet world" for years, and consider myself a "seasoned investor" (or rather gambler; never seem to invest in the right things! ). Meaning that I am capable of taking my own decisions and sticking to them. I have NEVER, EVER required hand holding...until now!

Right now I am soooo anxious, worried, tense...so I would like for SGS or anyone in the know to just tell me, every day...or rather SEVERAL times a day!... that it WILL be ok, that there WILL be a RV "soon" (like tomorrow!) and that I WILL be able to pay my mortage next month also...

I read over at IIF that SGS said that as long as she didn't post otherwise, what she had said was still valid and that people should stop asking for confirmation all the time...but I can't help myself!

And I feel that OF COURSE it won't revalue now...because that is what I want...and things never seem to go my way lately

Ok, off my soap box...
/K