I can't take credit for what you are about to read, I came across it this morning and found it to be extremely well thought out, logical and encouraging. It was written by a woman who writes for the "Currency Newshound". Take a moment or two and read it, and see if you agree...
It's always good to have sound logic as a foundation for our optimism! Enjoy
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Live True...Dream Big...Stay Well
Rick
(Full Article is Copied Below......If you wish, Link is http://groovgalsblog...ues-of-the-iqd/ )
As for the concern of at what amount Iraq will exchange at… I want to say that when I express my theories on rates it is done so with not a mere whim to expel what I’ve heard. I truly enjoy studying economics for fun and I’ve run over the various theories over rates several times in an attempt to prove my own theory in correct, however each time I find further evidence to conclude and even concrete my theory that a higher rate than that of a 1/1 trade is probable and sustainable without extreme risk to Iraq’s economy or its assets. While I have been continuously told that the rate will be in the $3+ range by my very near and dear friend who I trust tremendously; I’ve still taken it upon myself to prove that it is possible. Throughout my studies I created the opinion that I cannot see Iraq emerging into the free exchange market with a currency valued less than approximately $2.80 IQD to every 1 USD. Yet, I feel to even out trade imbalances and to create a healthy relationship with other Arab nations and oil producing nations, I feel that it would be in Iraq’s best interest to emerge at a rate closer to $3.00 or above, yet not as high as that of the KWD.
The rate of 1/1 ratio would be an undervalued currency for the region. The rate itself undermines the value of Iraq’s assets even as we speak. If you consider Iraq’s neighbors they are well above the 1/1 rate as well, due to their vast reserves of oil and / or other reserves or GDP. Iraq is on a growth pattern similar to that of Superman being “faster than a speeding bullet.” Iraq in itself has out grown the rate of 1/1 with their 12 – 16 million barrels of oil produced daily, coupled with increasing growth in private sector even though it is extremely held back do to the foreign investor laws having not been passed yet, and the still lower rate of unemployment.
It is obvious that since October of last year, Iraq is eagerly pursuing the release of Chapter 7. The Chapter holds vast amount of riches in gold, real estate, foreign assets etc… The full and conclusive amount of those assets can only be assumed and/or approximated, however it is easy to see that they are well into the billions in value. With the above having been laid out in a sort of short hand way, I believe that a rate of any less than even $2 would be a shift/upset with the balance of trade and commerce. It would undermine the intelligence of the global community and more importantly, Iraq’s neighbors. And, Iraq most certainly will have more than enough in foreign reserves as well as assets to defend a rate of 3+…
The only disadvantage Iraq truly has is within the mindset of the Iraqi society and the rest is merely hanging in the foreground waiting on them to catch up. If you’re one who is looking for information that will lead you to some sort of conclusion in the midst of confusion with how this is all unfolding I suggest you begin to study other war torn nations or similar nations with their history of economic policies or methods. One nation you might wish to look into would be that of Europe. You’ll see that they have valued their currency several times and you’ll also find information on the reason and/or method’s of thinking behind their revaluations.
I know that many of you are somewhat stumped to my interest in the Queen and the Pope’s recent actions but again, I will say that it has everything to do with history and little to do with heresy.
If we’re wishing to learn more about monetary policy we must consider history as well as patterns. We all have minds that create thoughts in many different ways. Some of us have analytical minds and we enjoy tearing theories or hypothesizes apart in order to gain greater understanding, while other’s have more artistic minds who need a situation or theory painted for them as a picture to be summarized for better understanding. I will attempt to help both sorts of minds to understand some of my foundational philosophy on rates and global powers… We’ll see how well I do, eh?
If we take a look at the Bretton Woods agreement of 1944 we will have a greater understanding of it’s appointment and it’s role into today’s situation. In 1944, representatives of 44 countries, which included the Soviet Union, met in New Hampshire and chose to create the IMF and the IBRD (International Bank for Reconstruction and Development also known as the World Bank). This was in existence until the 1970’s when they realized that the system they created, which were based upon Fixed Rates, were collapsing. In 1971, they restructured the system and replaced it with the system of Floating Exchange Rates. The United States was the country to develop the entire system we are speaking of. If we compare dates of the birth of the IMF and IBRD/WB to other United States monetary movements we will discover even more about the purpose of these organizations.
Why were these branches of the UN developed? Well, lets take a ride through history, shall we?
The history of convertible de facto gold standard was first adopted by England in 1717. However, it wasn’t until the year 1900 when the United States Congress passed the Gold Standard Act. If anyone hurriedly researches the “Gold Standard,” they will think that it was Nixon who abandoned the foundation of the USD, but this is one half of the answer. The first steps were taken in 1933, by President Franklin Roosevelt when he ended our right to “surrender paper dollars for the gold and even to own gold bullion,” by nationalizing gold. President Richard Nixon administered the second step in 1971, when he completely abandoned the gold standard.
Now, you will see above that the restructuring of the IMF/WB began in 1971 and we also had Pres. Nixon abandoning the Gold Standard that very same year.
Many of you are wondering at this moment what any of this has to do with where we are today and it’s relation with the value of the Iraqi Dinar. It very much has to do with the current economic environment as well as the future value of the IQD. The Bretton Woods Conference was the beginning to basket currencies. Foreign countries that were invested in the value of USD because it could be converted into gold found themselves holding paper and nothing else as of 1944. The entire makeup of the global financial system changed overnight and is still in effect.
Today, we now have a modern World Banking system that is only modern by face value but very much entangled by its history. The World Bank controls the world’s debt in conjunction with the IMF. We have all invested in a country that has filed for Chapter 7 Bankruptcy and we are witnessing history as we speak, but how is this going to play out? How does all these piece’s to the puzzle fit to create a clearer picture?
We all here rumor’s everyday that lead us to believe things that defy our foundation of logic. We deeply know that some of the rumors defy logic but some of us accept them readily without further consideration. Why is this?
The recent mention of lower rates such as 1/1 ratio’s or lower defy my foundation of economic logic as well as economic policies. This rate defies the rules set forth by the UN under the IMF rules outlined under Schedule C discussing Par Values.
The definition of Par Value is the nominal dollar amount present between the currency of two countries, which is based off of the current official exchange rate. As the exchange rate is adjusted upwards and downwards, the par value of currency ratio will rise and fall in accordance.
According to Schedule C of the IMF it states,
“6. A member shall not propose a change in the par value of its currency except to correct, or prevent the emergence of, a fundamental disequilibrium. A change may be made only on the proposal of the member and only after consultation with the Fund.”
“…A proposed change in par value shall not take effect for the purposes of this Agreement if the Fund objects to it. If a member changes the par value of its currency despite the objection of the Fund, the member shall be subject to Article XXVI, Section 2. Maintenance of an unrealistic par value by a member shall be discouraged by the Fund.”
So what do that consider “unrealistic?” It further states,
5. Each member that has a par value for its currency undertakes to apply appropriate measures consistent with this Agreement in order to ensure that the maximum and the minimum rates for spot exchange transactions taking place within its territories between its currency and the currencies of other members maintaining par values shall not differ from parity by more than four and one-half percent or by such other margin or margins as the Fund may adopt by an eighty-five percent majority of the total voting power.
Now, the idea of a rate ration of 1/1 or lower would defy the above rules and would prove to be “unrealistic” by the IMF and is much lower than -4.5% further proving to be the definition of a fundamental disequilibrium.
Throughout this time (mainly within the last 12 months), we’ve heard various “prominent members” throughout the web community quote their speculative theories on the emerging currency rate of the IQD. Some of these “prominent members” admit that their theory it is mere speculation, while others maintain that it is fact. Nevertheless, the remaining member’s of the investment community sit by the sidelines eagerly listening to proposed rates and are left feeling confused. Needless to say, we as a web community of investor’s who are seeking the same outcome have created our own man-made philosophy. I have strong opinions about various man-made philosophies, which many of you are keenly aware of.
The theory of the rate being a mere $1 is going to prove to be a debacle due to the concept of the International Monetary Fund allowing Iraq to emerge back into the global market at $1 defies economic logic and would prove a disaster for the developing country on many levels. I rely on what I have been told by sources with higher understanding and first hand knowledge of the economic models in existence. I’ve been told that the economic model developed for the country of Iraq shows that the plan is to make them as wealthy, if not wealthier than that of Kuwait.
So, I’m going to give a brief economic lesson to those of you who are interested. I have said what I’m about to write before, however as new investors join our site the questions arrive daily as to how and why I hold my theories. The below following excerpt is based off of a rumor that was spreading throughout the web in the latter part of 2009, however even though it is based upon an outdated rumored rate of $1.56, you’ll see that it will certainly apply to anything lower as well. Yes, I’ve been told a consistent rate of higher than $3, however below I’m going to explain that based upon my economic foundational theories as to why the concept of the IMF allowing Iraq to emerge at a rate of $1 or anything lower than $2.80 will be enormously detrimental to the economic sustainability of Iraq.
Please remember that what I’m about to explain is again based off an old outdated rumor of $1.56 which is not true, yet still is applicable to today as it was last year. T
The country of Iraq is currently in the process of building up different sectors within its economy. In the meantime, most of the country is in poverty. No jobs are available to the people of Iraq and unemployment is through the roof. The countries debt far exceeds its annual GDP. Thus, the exchange-rate theory, upon first consideration shows enormous doubt upon the proposed $1.56 conversion rate, in which a Fixed Exchange rate (PEG, as some have mentioned in past days) of $1.56 would contain inflationary pressures which would fundamentally shatter in a sudden balance-of-payments crisis, allowing the currency to rapidly depreciate! Especially considering that currency speculation is a risk they have to monitor and they are going above and beyond to deter attacks by drones of speculator’s. The rate of a $1.56 would obviously prove to be unsustainable.
Currency speculation creates objective economic conditions that make the devaluation more likely….So, even a pegged exchange rate that one would assume could sustain indefinitely in the absence of a speculative attack could succumb to adverse markets throwing of the equilibrium!
By challenging the macroeconomic fundamental sustainability of Iraq by A) having a fixed rate of $1.56 coupled with
currency speculation … would essentially cause Iraq to sell foreign currency reserves (SDR’s) to fix it’s currency exchange rate to private holders (other countries) who can continue holding it to defend the peg.Since we know that Iraq has hardly any if not zero gold reserves as well as limited SDR Allocations then we know that they fall under the Low Reserve dilemma. When this takes place then we know that the limited reserves they currently hold are otherwise in a pre-committed situation rather than free for play, ultimately meaning that currency speculator’s whether private holders or governmental holders can take out the currency peg. If this event were to take place (which it would) then by giving up the pegged rate the government would essentially devalue by 50% or more ($1.56 / 2 = $0.78) thus implying a forced collapse of the exchange rate.
We know that their public debt is astronomically high considering the numerous loans that have been provided to them by the IMF, WB, China, US, and Japan…etc… When a country is highly indebted without any reasonable production of their GDP then their debt to income ratio is out of balance, especially when we are dealing with short-term soft loans. Future’s predictors will expect depreciation and the result will drive up local interest rates…, which will then ultimately cause a devaluation of domestic currency debt…. This is the last thing a newly emerging country needs; it would put them in a major crisis before they could even take off!
So, in short… The idea of a rate of $1.56 is astronomically defying sane economic logic. The CBI wouldn’t benefit and the country of Iraq would essentially be forced into another Chapter 7.
I realize that what I just explained is arguing a PEG theory, however this same argument does apply to rumored lower rates. If a country undervalues its currency they will be forced to sell off reserves to maintain the lower “managed” rate and the same would apply if they over inflate the rate. Even still the bottom line is that the IMF is searching for an equilibrium within currency exchange rates and trade relations, if Iraq doesn’t price their currency appropriately they will be moving against the greater agenda of the IMF and we all know who is in control.
