NEWS! A really huge… HUGE STEP in the Correct Direction in my opinion!!!

Happy Monday Dinarians,

Personally I’m really coming unglued with excitement today – this NEWS is a really huge, HUGE STEP in the correct direction in my opinion!!!

If we see Dr. Shabibi back in control of the CBI, then the 2015 Budget is passed which means basically we got Article 140 / Erbil agreement included with the 2015 Budget, friends, we have in my opinion taken 2 very HUGE steps to finally seeing a significant increase in the value of the IQD.  

It won’t happen over night, but it certainly encourages me to believe that it will happen sometime in 2015, and for me, I can be patient, especially for that kind of return!

Just to summarize the Articles below – the first article is about the new Prime Minister Abadi saying that he wants Dr. Shabibi to take over the CBI when the corruption charges (levied by Maliki’s corrupt regime) are dropped – DONE!  

The following articles talk about those corruption charges BEING DROPPED and Dr. Shabibi being RELEASED – AND DONE!!!  

~ Mr. IQD

REAL NEWS (NOT HACK GURU BS!):

6893173_orig[1]A source in the prime minister: Shabibi will return to his central bank governor

22/12/2014

BAGHDAD / JD / .. An official in the Prime Minister’s source, the intention of the prime minister Haider al-Abadi return of former central bank governor Sinan al-Shabibi to office after the issuance of the court acquitted.

The source, who preferred not to be named, told / BD /: “The day Monday, 22.12.2014 date the trial of former Central Bank Governor Sinan al-Shabibi for the acquittal of the charges against him by the previous government under the pretext of wasting public money.”

He added: “The prime minister Haider al-Abadi waved the return of the conservative story office Kmhafeza the central bank in the event of an acquittal from the court, the fact is Shabibi figure of great economic mentality.”

She had announced the Integrity Committee in the House of Representatives of the previous session that sack Shabibi been through it, that the competent court of inquiry to consider the fairness issues negated the charges to the Governor of the Central Bank of the article Shabibi, describing him out of office, “targeted personally” for failing to grant money to Prime Minister Nuri Maliki and his son Ahmed, where the investigation has shown that he does not court entered the central bank and former boss Shabibi process waste money mentioned by the investigative committee formed by the House of Representatives, not even the BSA “Report ./ ended / 8 /

http://www.dananernews.com/News_Details.php?ID=5406

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Bayraktar: Release Shabibi and Mohammed Allawi, for lack of evidence

12/22/2014 11:23 GMT

Follow-up – and babysit – The spokesman of the Supreme Judicial Council spokesman Abdul Sattar Bayraktar, Monday, releasing Shabibi and Mohammed Allawi, for lack of evidence. 

http://translate.google.com/translate?hl=en&sl=ar&tl=en&u=http%3A%2F%2Falrayy.com%2F&sandbox=1

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The release of the former central bank governor Sinan al-Shabibi and former Minister of Communications Mohammed Allawi

22/12/2014 14:17   |   Author: ka Editor: br Reporter:

Tomorrow Press / Baghdad: Iraqi judiciary decided, on Monday, the release of the former Central Bank Governor Sinan al-Shabibi and acquitted of the charges against him as well as the former Minister of Communications Mohammed Allawi.

He said the name of the judiciary spokesman Abdul Sattar Bayraktar in a statement received by “tomorrow Press”, “The Rusafa Criminal Court decided to release the former Central Bank Governor Sinan al-Shabibi and acquitted of the charges against him for lack of evidence.”

He added that “the same court decided to release the former Minister of Communications Mohammed Allawi of the charges against him for lack of evidence.”

The warrants issued earlier against former Central Bank Governor Sinan al-Shabibi and former Minister of Communications Mohammed Allawi on charges of financial corruption.

It is noteworthy that the Iraqi judiciary issued in (4 September 2014), was sentenced to seven years imprisonment against former Central Bank Governor Sinan al-Shabibi based on the charges against him during his administration of the Central Bank.

It is noteworthy that Communications Minister Mohammed Tawfiq Allawi, has submitted his resignation of former Prime Minister Nuri al-Maliki on the background and suspicion in Mali corrupted files affected his ministry and the attempts by some telecommunications companies pass shady deals in Iraq, which was denied by the Minister of Communications, asking not pushing his ministry in the political differences and intersections. 

http://alghadpress.com/ar/news/24503/%D8%A7%D9%84%D8%A5%D9%81%D8%B1%D8%A7%D8%AC-%D8%B9%D9%86-%D9%85%D8%AD%D8%A7%D9%81%D8%B8-%D8%A7%D9%84%D8%A8%D9%86%D9%83-%D8%A7%D9%84%D9%85%D8%B1%D9%83%D8%B2%D9%8A-%D8%A7%D9%84%D8%B3%D8%A7

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The trial of former Central Bank Governor in the Rusafa Criminal Court

Ali Mohsen Radi   |   December 22, 2014 1: 41 pm

Sources said the Supreme Judicial Council, Monday “The Rusafa Criminal Court began the trial of former Central Bank Governor Sinan Al-Shabibi balhiah second specialized issues of integrity in the Rusafa Criminal Court on charges of corruption.”

My source was the early detection (26/11/2014) that both the former Central Bank Governor, and former Communications Minister, appeared before the Court upon their return to Baghdad, following promises that they will receive a fair trial, noting that the judge released on bail.

The parliamentary legal Committee confirmed, on (29 November 2014), a guide for the retrial of a number of politicians and officials who had been subjected to prosecution previously, while I returned that fall within the broad process of “judicial reform”, revealed the changes included more than 90 officials in the judiciary.

It is expected that the Tribunal acquitted Shabibi because the charges against him were malicious and untrue posts his former Prime Minister, Nouri al-Maliki who wanted to simplify his hands on Central Bank and used safe from the currency and making it an easy tool for him but this was rejected by Sinan Al-Shabibi, Maliki had issued an arrest warrant for him under the pretext of the existence of financial and administrative corruption files committed by Al-Shabibi

He justified the former Central Bank Governor Sinan Al-Shabibi, at (10 November 2012), in the absence of the World Bank and the international organizations to comment on the dismissal, the lack of interest of the characters that manage central banks as far as dealing with monetary policy, and would likely be watching the Central Bank’s policy stance of monetary changes by the new management of the Bank.

The Supreme Judicial Council announced in (19 October 2012), the issuance of an arrest warrant against the Governor of the Central Bank and a number of officials in corruption cases after he was quoted in the local media (14 October 2012), regulatory sources that has issued an arrest warrant against Al-Shabibi on corruption charges, saying he fled out of the country after the issuance of the memorandum, the Bank denied those reports, saying the Governor is currently involved in an annual Conference in Tokyo and return to Baghdad.

The Iraqi Cabinet decided, in (16 October 2012), head of the Office of financial supervision Abdel Basset Turki as the Governor of the Central Bank said.

The integrity Commission described in the parliamentary (10 November 2012), the Special Committee to investigate corruption cases attributed to the Central Bank of Iraq is “illegal” and stressed that the new Committee will be formed to investigate this file, called for a freeze on the decision to arrest the right Bank Governor Sinan Al-Shabibi

http://burathanews.com/news/255362.html

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ARE YOU GETTING EXCITED YET???

Remember the most important thing is NOT to “buy into” the Hack Guru cons and bull-S that they will be throwing at you!

~ Mr IQD

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4 thoughts on “NEWS! A really huge… HUGE STEP in the Correct Direction in my opinion!!!

  1. Many say it’s a scam and after reading this it opened my eyes to what’s REALLY going on, CBI FRIEND OR FOE! You Dissuade, Yes these articel’s go back a bit but still looks like the same game is being played TODAY!

    Iraqi Dinar Stabilization

    Will the Dinar be Revaluated?
    By Joseph Cafariello
    Wednesday, April 24th, 2013

    For a nation that has only recently come out of decades of dictatorship, war, and mismanagement, Iraq’s currency—the dinar—has been remarkably stable.

    Perhaps too stable. Something is going on with the Iraqi dinar.

    iraqi dinar to usd chartSource: [URL REMOVED by MrIQD Admin]

    (Chart shows dinar per $1 USD. Descending plotlines indicate dinar strength.)

    After a gradual strengthening from 2007 to 2009, the Iraqi government decided it wanted a weaker dinar in early 2010, and the currency has remained remarkably stable ever since.

    A couple of months ago, however, the currency abruptly strengthened against the USD, as can be seen by the sharp drop at the far right. Immediately, the Central Bank of Iraq scrambled to weaken the dinar back to 2012 target levels.

    Why? Isn’t it supposed to keep strengthening? After all, Iraq has the world’s second largest oil reserves. What ever happened to that highly anticipated revaluation? Is the CBI deliberately weakening its own money?

    CBI Control

    One short sentence answers all these questions: the Central Bank of Iraq regulates the flow of money through controlled auctions.

    july 2011 new iraqi dinar 50Needless to say, this is not normal. In most other countries, money can be easily exchanged into a number of currencies at the will and whim of any citizen. The exchange rates are allowed to move freely according to the forces of supply and demand, interest rates, etc.

    According to Middle East e-paper Al-Monitor:

    “Every day since 2004, the CBI has held an auction through which hard currency is sold to banks, companies and traders in exchange for evidence of import and transaction receipts. The auctions aim to prevent market speculation and stabilize the exchange rate of Iraqi dinars to the US dollar.”

    The purpose of these auctions is to control the IQD:USD exchange rate by controlling the amount of USD circulating in Iraq. At these auctions, USD is issued exclusively to banks, companies and traders for the purpose of conducting business transactions with foreign entities (ie: importers, securities traders, banks, etc).

    By controlling the amount of USD available in Iraq, the Iraqi government controls the value of the USD relative to its own currency, thereby stabilizing the dinar. It is as close as you can get to an outright currency peg.

    Cracking Down on Auction Abuses

    Things were going really great for years, until evidence turned up that some buyers at these auctions were falsifying their transaction receipts, enabling them to purchase more USD than their business activity legitimately entitled them to have.

    The government believes much of the excess dollars purchased were smuggled across the border into Iran, which has a shortage of hard international currency due to sanctions. Money laundering and black market demand account for the remainder of auction abuses.

    When it came to light earlier this year that more USD had made it into circulation than was officially thought, the value of the USD relative to the dinar abruptly dropped and the dinar rose. The supply/demand ratio dictates that the more supply you have of something, the cheaper its value. More USD in circulation than previously thought meant a cheaper USD, which meant a stronger dinar. Hence the sudden inverted spike at the right of the chart.

    Following the recent arrest of the CBI’s former governor, Sinan al-Shabibi, the CBI has introduced additional auction controls, as Al-Monitor explains:

    “The CBI prohibited any bank or company with capital of less than $400,000 from taking part in the currency auction. Additionally, all participants had to submit their [transaction receipts] to the criminal division in the Ministry of Interior, the economic crime unit and the money-laundering division of the CBI for approval.”

    Reducing the number of buyers at the auctions meant reducing the amount of USD making it into circulation, strengthening the USD relative to the Iraqi dinar, and weakening the dinar back to that desired 2012 target level.

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    Anger Over Weakening Dinar

    Iraqi citizens and businesses who do not have dealings with foreign entities are understandably angered by CBI controls aimed at keeping the dinar weak. A weak currency means citizens and businesses need to pay more for goods and services, especially since so many goods are still being imported from abroad.

    Iraqi parliament’s Amin Abbas stressed to Al-Monitor that the CBI must take “full responsibility for the fall of the … Iraqi dinar … because of its restrictive measures in granting permits to exchange companies.” And Mohammed Khalil, an official on Iraq’s Economic and Investment Committee, accused the CBI of deliberately “hinder[ing] the flow of US dollars into the market.”

    Others are pinning the blame on Iraqi banks, as Al-Monitor informs:

    “Hussein al-Yasiri said some banks have stopped selling dollars to regular customers and instead have been selling them to exchange companies. This has prompted Iraqis to buy dollars from the exchange companies at prices favorable to the companies. The exchanges are not subject to government monitoring.”

    And Iranian involvement is still suspected by Ahmed al-Alwani, head of the Iraqi parliament’s economic committee, who believes Iran is supplying Iraqi partners with false trade receipts in order to obtain USD from the auctions.

    But Ahmed Bureihi, a former senior official at the CBI, denied such accusations. “Iran has nothing to do with the increased exchange rate,” he told Al-Monitor. “The CBI sells foreign currency to Iraqi customers to be used in funding trade transactions outside the country.” “There are Iraqi traders who defraud the CBI and provide counterfeit documents of virtual imports to Iraq. However … this has nothing to do with political issues.”

    Oil Revenues Spent

    For its part, the government has a simple explanation for the dinar’s weaker value back to 2012 levels: the country spent it down.

    “A former senior official at the CBI [Bureihi] said the rise is linked to increased government revenue from oil sales, leading to an increase in government spending,” Al-Monitor explains.

    Bureihi then describes a very logical chain reaction that stems from these increasing oil revenues, which really is a bona fide explanation. “Oil revenue increased, which in turn increased government spending.” “The increase in government spending means higher per-capita income. [When] spending increases, there is an increased need for importing goods. Providing these goods requires an increased demand for foreign currency, which led to the increased exchange rate [for USD].”

    On the dinar’s side of that equation, as more oil is exported, more revenue is generated, and the nation becomes wealthier “per capita”. Enabled by this increased wealth, the government starts funding sorely needed rebuilding and expansion projects on infrastructure, energy, education, health care, and industry. In so doing, it pumps more of its local currency into circulation, which in turn weakens it.

    This is a valid explanation for the stronger USD and weaker IQD. However, what the CBI is reluctant to admit is that apart from these increased oil revenues, the government is controlling the dinar’s exchange rate by controlling the amount of USD in circulation via its daily auctions.

    It will only let into the economy the same amount of USD that is leaving the country. “X-amount” pumped in equals “X-amount” wired out. The balance of USD in circulation stays unchanged, and thus the exchange rate stays the same.

    (Actually, the CBI does have to pump in very slightly more USD than is going out of the country in order to apply upward lift to the dinar as a counter to the downward push on the dinar exerted by the increased spending described earlier. Spending pushes the dinar down, USD auctions lift the dinar up, cancelling each other out to keep the exchange rate flat and steady.)

    What About the Revaluation?

    But what ever happened to that dinar revaluation everyone has been expecting? Even I wrote about it a couple months back (Dinar Speculation).

    All over the web you will find plenty of investors who expect the Iraqi government will be forced to revalue its currency upward. Iraq has the world’s second largest oil reserves, and it is rapidly increasing its production and exports. The International Energy Agency recently projected Iraq’s oil output to more than double in the next decade.

    So the revenue is there. Unfortunately, so is the spending. Remember, Iraq is still rebuilding from decades of dictatorship, war, and mismanagement. The economy is in shambles, and social services are appalling. Any money coming in through oil exports is quickly being spent on reconstruction and industry, not to mention its debt burden.

    This is why the CBI is going to such great lengths to control the amount of USD in circulation through auctions. It wants to keep the dinar cheap. Not too cheap so as to introduce hyper inflation. But cheap enough to maximize the value of its export income and get as much construction and labor for its money as it can.

    What if it takes another 5 or 10 years for that revaluation to come? Might there be better returns elsewhere? Investors have to weigh the pros and cons and make their own investment choices.

    If one still believes the global economy will once again run full steam ahead, then metals such as copper, iron, and steel will be in great demand, as will lumber.

    If one still believes the global credit crises are not over, then precious metals will also be in demand, such as gold and silver. Who knows, perhaps this recent pull-back is a good entry point; no one knows for sure.

    And there is always the stock market, which is remarkably resilient given the Federal Reserve’s easy money policy. Wealth Daily provides valuable trading information to help you make the right choices for you.

    Perhaps the most crucial variable in any investment formula is time. You can have a sure-fire bet in a stock, gold, or even the Iraqi dinar. But how much time will you be waiting for it to pay off? Could you score better returns elsewhere over that same period of time?

    Joseph Cafariello

    If you liked this article, you may also enjoy:
    ◾Iraqi Dinar Trends
    ◾Iraqi Dinar News
    [URL REMOVED by MrIQD Admin]

    The Future of the Iraqi Dinar

    Three Misconceptions
    By Joseph Cafariello
    Wednesday, June 26th, 2013

    In early 2010, the Iraqi government announced plans to redenominate the dinar, giving rise to one of the most globally anticipated “get-rich-quick” speculations in recent times.

    Three and a half years later, investors are still waiting, still hoping, and still buying more dinars. Their hope is that since Iraq has the second largest oil reserves in the world with the prospect of doubling its oil revenues over the next 10 years, any currency redenomination will be accompanied by a revaluation, resulting in a huge increase in the dinar’s value.

    july 2011 new iraqi dinarIn this, there is not one but three misconceptions that may unfortunately shatter the expectations people are placing on the dinar. These misconceptions center on a) the redenomination process, b) debt forgiveness, and c) the central bank policy.

    Misconception A: Redenomination Process

    In most cases, a country will redenominate its currency when inflation erodes its value to such an extent that it becomes increasingly difficult to process transactions – when there are just too many darned zeros on every bill.

    To simplify matters, nations will often chop a few zeros from their currency. For example, Bolivia in 1987 and Peru in 1991 dropped 6 zeros from their currencies, a redenomination of 1 million old money to 1 new money. To avoid confusion, the currencies were renamed. In Bolivia, 1 million pesos became 1 boliviano, while in Peru, 1 million intis became 1 sol.

    But no one became a millionaire. In either country, you still had the same value in USD after the conversion as you had before. When you went to a Peruvian bank to exchange 1 million intis for 1 sol, you walked in with 1 USD worth of money and you walked out with 1 USD worth of money. It was a flat exchange.

    The same will be the case with the Iraqi dinar, as indicated by [URL REMOVED by MrIQD Admin]:

    “In 2010, the Central Bank of Iraq announced their plans to redenominate the Iraqi Dinar to ease cash transactions. The intention would be to drop three zeros from the nominal value of bank notes; but the actual value of the dinar would remain unchanged.”

    Misconception B: Debt Forgiveness

    But what about foreign debt forgiveness – as much as 80% in Iraq’s case? Won’t the erasing of so much debt make the new Iraqi currency so much more powerful?

    Indeed, Iraq’s debt cancellation is substantial, as a 2006 CRS report for the U.S. Congress explains:

    “When fully implemented, the Paris Club’s treatment of Iraq’s debt will reduce the total debt owed to Paris Club countries from $38.9 billion to $7.8 billion. This remainder (20% of the original total), will be rescheduled over a period of 23 years with an initial six-year grace period of repayments.”

    However, the report shows that this forgiveness of debt has already taken place – first by the U.S. in December 2004 and then by the remaining Paris Club member countries in December 2005.

    The remainder of Iraq’s debt forgiveness has largely been completed as well, as the Central Bank of Iraq notes, “Negotiations with non-Paris Club creditors are ongoing (mainly with Gulf countries), and resolution of the commercial debt is largely complete … This portion of the external debt has been reduced to $45 billion in 2010.”

    The CBI further states that while Iraq’s debt for 2010 was estimated at $92.3 billion, its GDP for that year was $82.2 billion. While the debt is high at 112% of GDP, it is not uncommonly high, and it is manageable. It is highly doubtful that any remaining debt forgiveness will be substantial, nor that it will ever impact the currency all that much.

    Misconception C: Central Bank Policy

    Another major misconception is that the Iraqi government wants a stronger currency that better reflects the wealth of its substantial oil reserves, which are currently the second largest in the world.

    As the following graph of the dinar versus the USD shows, the IQD has remained largely flatlined and stable since the beginning of 2009.

    Iraqi dinar chart 6-26-13
    Source: [URL REMOVED by MrIQD Admin]

    (Chart shows dinar per $1 USD. Descending plotlines indicate dinar strength.)

    Just by looking at the graph, any trader familiar with currencies will tell you the IQD is being manipulated by the Iraqi government. There is no way any currency could maintain flatlines as steady as this if it were trading freely.

    The CBI has been using daily currency auctions to control the amount of USD in circulation. It will allow banks, importers/exporters, and other authorized companies to buy USD at these auctions based on their trade receipts and only for the purpose of paying foreign entities.

    The central bank, therefore, allows into the economy only as much USD as is going out through international trade. In so doing, it maintains a steady balance between the amounts of USD and IQD, thereby keeping the value of the dinar stable. You can find a more detailed explanation of this currency manipulation process in my previous article, Iraqi Dinar Stabilization.

    Time and again the chart will show how the dinar returns back to a pre-determined line, which the central bank controls simply by controlling the amount of USD in circulation. It is as close as you can get to a currency peg.

    As the CBI explains, “The primary objectives of the Central Bank of Iraq is to ensure domestic price stability and foster a stable competitive market based financial system. The CBI shall also promote sustainable growth, employment and prosperity in Iraq.” This includes to “implement the monetary policy and the exchange rate policy of Iraq.”

    Price stability involves ensuring the IQD remains weak. Even the wealthiest of nations are opting to devalue their currencies, such as Japan (to a greater extent), the U.S. (to a lesser extent), and a whole host of European countries in between.

    A weaker currency allows a nation to earn more from its exports. As the country exchanges its goods for a higher priced foreign currency, that export income is converted into more of the local currency. And the weaker the local currency is, the more income is earned from those exports.

    With extra money on its balance sheet, a government has more money to spend internally. It can hire more workers, putting the unemployed to work. It can upgrade infrastructure, expand industry, stimulate the economy, and support social services such as education and health care.

    Think, too, about all that Iraqi oil still locked underground. The country needs to develop new oil fields, extend railways and pipelines, increase refining capacity, and improve its export facilities.

    Iraq is in rebuilding mode. The more it puts into its oil industry now, the more it will get out later. Only by keeping its currency cheap can it maximize its oil revenues and pay for more expansion.

    If even the wealthiest of countries do not want a powerful currency, why in the world would Iraq want one, given the sorrowful state it is in?

    Beware of Lofty Promises

    Sellers of the Iraqi dinar are making a killing on all this talk of a currency revaluation. DinarTrade, for one, is selling 1 million dinar for $980 USD but buys the same amount for just $810 USD. According to [URL REMOVED by MrIQD Admin], the trading value for 1 million dinar is $860 USD.

    According to a Salt Lake City, Utah news report, financial attorney and Forbes contributor Jay Adkisson believes there is “a proliferation of websites and social media created by scam artists pushing the dinar as an amazing investment opportunity. They tout a thousand-percent-plus return just as soon as the Iraqi Central Bank revalues the currency by resetting its exchange rate to a more favorable one.”

    “There’s no realistic possibility of the revaluation of the dinar anytime soon,” Adkisson dispels. “And anytime soon is within the next 10 years.”

    Even the U.S. state of Washington has become alarmed enough to issue the following alert:

    “The Washington State Department of Financial Institutions is warning consumers about potential scams regarding Iraqi Dinar currency exchange services … asking the consumers to send a check, wire, money order, or pay cash upon delivery of the Dinars.

    “What consumers are not told is that the Dinars can be redeemed only in Iraq, as most of the established currency exchange houses and banking institutions cannot convert the Dinar to US dollars. Since no exchange exists for the Iraqi Dinar, dealers can charge whatever they want to sell and buy back the Dinars.

    ”In addition, most of these websites are operating illegally in Washington State, without a currency exchange or money transmission license issued by the Washington State Department of Financial Institutions. Make sure you only deal with licensed, legitimate companies when making financial decisions.”

    The alert was last updated December 2012.

    Time Frame

    Yet some investors feel purchasing dinars is a great way to participate in the expansion of Iraq’s economy, which is set to boom over the next 10 years. As the International Energy Agency summarized in the Wall Street Journal:

    “Iraq’s oil output is on track to more than double in the next decade, supplying almost half the growth in world oil supply” and eventually “taking the place of Russia as the world’s second-largest oil exporter.”

    But there are more secure ways of benefiting from oil than the risky trading of a speculative foreign currency. Knowing how much Iraq’s central bank is involved in keeping the dinar at a steady exchange rate would make any currency trader nervous. You just don’t know what the bank will do or when.

    It could be years or even a decade before the Iraqi government allows its currency to trade as freely as most other currencies do – according to the laws of supply and demand, interest rates, and economic activity. And remember, too, that a flat “redenomination” is not to be confused with an increased “revaluation”.

    Better returns could be found in one’s own country or in economies where continuing stimulus will keep stocks strong for years to come. And if oil is your thing, there is no shortage of global petroleum giants that offer more tangible returns on your investments than the pie-in-the-sky promises made by dinar vendors.

    Joseph Cafariello

    If you liked this article, you may also enjoy:
    ◾Iraqi Dinar News
    ◾Iraqi Dinar Revaluation
    [URL REMOVED by MrIQD Admin]

    Like

    • This is your opinion Paul.

      As always I want to be 100% clear that I personally believe based on the information and news that I have studied about the Iraqi Dinar, eventually the IQD will increase significantly in value. I am willing to wait, it will not be an “overnight” process which is too often HYPED by the Hack Gurus like Tony TNT and Okie Oil Man!

      I would like to also point out Paul that your supporting articles date back to 2009 – remember over this long period of time we have had the Maliki Dictatorship in place. So, yes, those articles are correct when they talk about the IQD not increasing in value against the Dollar, etc.

      Today we have a new Administration which is being run by Abadi, and despite constant resistance by Maliki and his henchmen, Abadi has managed to make significant strides within Iraq. Soon we will see the formal passing of the Erbil Agreement and Article 140, the Federation Counsel, and even the passage of the Budget on time and faster than it has within the prior past Decade of the Maliki tyranny!

      In my opinion Paul – you may still look at the glass as “half-empty” – Today, I observe that you are looking entirely at the wrong glass.

      Like

  2. I don’t negate the progress Abadi has made and that he is over flowing with good intentions for his country and it people. I did state at the beginning “Yes these articel’s go back a bit but still looks like the same game is being played TODAY!” And I would still support my glass half full why and how by updating it with this article below from some one far smarter than myself. I don’t have the time to do constant research of my own so I chose to find a read on where I align my feelings on this. After all I’ve been in this thing since 2005 and I’ve been a real pain to some of those hacks out there over the issue’s of Iraq. I usually get banned from site’s but never yours because you and your readers are open to opposite points of view. my class is only half full may be but the waiter is still stand behind me with the pitcher,

    The combination of the ISIS insurgency and low oil prices are producing an economic shock unprecedented in Iraq’s troubled history. The ongoing conflict will require a sharp rise in security expenditures at the same time that government oil export revenues are collapsing, forcing the government into deficit spending. This deficit spending, combined with a loss in reserves from the Central Bank of Iraq, calls into question the much-vaunted stability of the Iraqi dinar.

    In the eleven years since the U.S.-led invasion overthrew Saddam Hussein, Iraq has faced brutal conflict and sharp drops in oil prices but – until mid-2014 – never both at the same time. Following the destruction of the Golden Mosque, Iraq descended into what many analysts saw as a full-fledged civil war in 2006-7. However, not only was a large proportion of Iraqi security expenses paid for by the United States but also world oil prices rose sharply. Combined with a gradual increase in oil export volume, this resulted in a substantial growth in government revenues. And when oil prices collapsed in 2009, the level of violence and associated expenses was the lowest since before the 2003 invasion. The recent combination of an acceleration in violence and an oil price collapse is unprecedented.
    Dollar Flows in Iraq

    The flow of dinars and dollars within Iraq is critical to dealing with the ongoing crisis and yet little understood even within the country. The figure below illustrates the pattern of these flows. As is well known, the primary source of government revenues – over 95% – is from oil exports. For over a decade, the dollars earned from these exports have been paid into the Development Fund for Iraq (DFI), which is held by the Federal Reserve Bank of New York. The primary reason for having oil export payments paid to the DFI rather than directly to Iraq’s Ministry of Finance (MoF) is to avoid confiscation of these funds by foreign courts in settlement of Saddam-era lawsuits.

    Upon request, dollars from Iraq’s oil exports are transferred from the DFI to the MoF. At this point, a divergence occurs. Over half – about 60% in 2013 – of the dollars flow out again to the rest of the world as payments for government imports, debt service, and miscellaneous transactions. The remaining dollars are sold to the Central Bank of Iraq (CBI) for dinars at a rate of 1166 Iraqi Dinars per US Dollar. The MoF then uses these dinars to pay for the Government of Iraq (GoI) expenditures in the Iraq economy such as salaries, pensions, social safety net, security, etc. The dollars accumulated by the CBI through these dinar sales are, of course, the nation’s international reserves.

    dinars-dollars However, many of these dollars immediately flow out again. The CBI holds daily auctions to provide dollars to the Iraq economy. Financial institutions buy dollars from the CBI in order to provide them to individuals and organizations that want dollars as a more secure savings asset, to facilitate domestic transactions, to purchase legal and illegal imports, and for capital flight. This demand for dollars is quite large. For example, during the first 14 auction days of December 2014, CBI dollar sales totaled $2.25 billion. Those Iraq individuals or organizations that are forbidden by the CBI to directly access the currency auction must purchase dollars at a premium in the parallel currency market. On December 18, 2014, the exchange rate in the parallel market was 1199 Iraqi Dinars per US Dollar – about 3% higher than at the CBI auction.

    In every year but one over the last decade, the inflow of dollars to the CBI from the MoF exceeded the outflow of dollars through currency auctions resulting in an increase in the country’s international reserves. For example, in 2013 the MoF sold about $55 billion to the CBI while about $53 billion flowed out again through the currency auctions resulting in about a $2 billion increase in international reserves. The large increase in international reserves since 2004 has been the major support for the country’s enviable exchange rate stability. However, the results for 2014 were grim.

    Because of political disputes, Iraq never passed a 2014 budget. Instead, government expenditures in 2014 were based on an arguably unconstitutional extrapolation of the 2013 budget. And the Government of Iraq (GoI) has continuously delayed even a partial accounting of 2014 revenues and expenditures. However, recent data from the International Monetary Fund support the view that Iraq’s fiscal and monetary situation is deteriorating. At the same time that oil export earnings are declining, GoI security-related dollar imports have increased dramatically. One effect has been on fiscal reserves held at the DFI, which have fallen from almost $18 billion at the end of 2012, and $6.5 billion at the end of 2013, to about $4 billion at the end of November 2014 (IMF Press Release 14/560, 9 December 2014). Equally worrisome is the drop in the country’s international reserves.

    From $77 billion at the end of 2013, the international reserves held by the CBI fell to about $67 billion at the end of November 2014. This is only the second year-over-year fall in international reserves in the last decade. In the absence of reliable data from the GoI, there are two possibilities. Either there has been a decrease in MoF sales of dollars to the CBI and/or a substantial increase in dollar auction sales to financial institutions. However, through November 2014, auction sales of dollars by the CBI have totaled about $47.4 billion, which is roughly in line with 2013 dollar sales. Therefore, the cause of the drop in Iraq’s international reserves is more likely a result of the collapse in oil export revenues combined with increasing security-related dollar expenditures by the Iraqi government and, possibly, accelerating capital flight. Thus in 2015, Iraq not only faces a fiscal crisis from falling oil export revenues but also a monetary crisis because of the loss of international reserves. The fiscal crisis might be best understood by distinguishing between the “break even” price of oil and the “crisis” price of oil.
    Break Even and Crisis Prices

    Despite the fact that the country’s 2015 fiscal year starts this month, the crucial assumptions underlying the budget are uncertain. Over the last several months, no sooner has the GoI announced a planning price for oil for the 2015 budget then world prices have fallen below this level. The most recent announcement on December 25th was for a $102.5 billion budget based on an annual average oil price of $60 per barrel resulting in a large deficit (Gulf Research Center, December 25, 2014). Expenditures of $102.5 billion in 2015 means that the GoI expects to spend almost $22 billion less than its actual expenditures in 2013! Where will the cuts occur? The drop in oil prices to similar levels in 2009 provides insight into both the reactions of the GoI and the effects on the Iraqi economy.

    In 2009, as total revenues decreased by about 33%, salary and pension expenditures increased by about the same percentage. This necessitated sharp cuts in the other major expenditure categories, safety net transfers and public investment, in order to reduce expenditures. The remaining deficit was financed through the sale of GoI treasury bills and the MoF “clawing back” unspent government funds from the state owned banks. The economic effects of the draconian cuts in public investment were severe and long-lasting. Since public investment accounts for over 90% of Iraq’s fixed capital formation, the cuts in the investment budget caused most economic development activities to grind to a stop. Work on improving roads, increasing electricity generation, opening schools and clinics, increasing access to clean water, and so on was abandoned until oil prices finally recovered in 2010. And when the projects were eventually restarted, it was often discovered that previous work had to be completely redone due to looting, vandalism, environmental damage, or planned revisions. By some estimates, it was not until 2011 that public investment returned to the levels achieved at the end of 2008.

    Of course, if 2015 oil prices turn out to be higher than expected, the GoI might be able to restore some of the cuts. However, rather than have the reader chase daily changes in oil price predictions, it might be more useful to consider the implications of two oil prices: the break-even price and the crisis price.

    Assuming oil exports of about 3.3 million barrels per day, Iraq needs an oil price of about $80 a barrel in order to break-even and to be able to pay for its sharply reduced 2015 expenditures without running a budget deficit. An oil price this high would provide sufficient revenues to pay not only for current expenditures and security costs but also for essential infrastructure investment. Since world oil prices are already less than $60, it is extremely unlikely that Iraq will be able to break-even in 2015. But at what price of oil will the required reductions in GoI expenditures become politically destabilizing?

    That depends on the crisis price of oil. The crisis price is the lowest oil price that will allow the GoI to pay salaries and pensions, purchase the necessary supplies for the police and army, maintain a minimum social safety net, pay interest on its debts, pay war reparations, and continue the absolute minimum infrastructure maintenance and construction to allow a steady increase in the volume of oil exports. If the world price of oil falls below the crisis price for an extended period of time and other revenue sources are not available, then the necessary expenditure cuts can be expected to be politically destabilizing. In 2009, this crisis price was an estimated $50 a barrel. Therefore, while the world price of oil in 2009 was below Iraq’s break-even price, it was above the crisis price.

    However, in 2015, the crisis price of oil is expected to be much higher. Not only has there been a steady increase in government salaries and pensions since 2009, but also the GoI expects to sharply increase its security expenditures to fight ISIS. As a result, the 2015 crisis price of oil is an estimated $70 a barrel. Since world oil prices are expected to remain below the crisis price in 2015, the GoI faces a difficult challenge – either find another source of revenue, borrow the needed funds, or make politically unacceptable cuts in salaries or pensions. The latter option can be expected to lead to widespread political protests by government employees and retirees as well as threats of a government shutdown.

    If world oil prices average $60 per barrel in 2015, then the GoI needs at least an additional $12 billion to fund its minimal crisis budget and an additional $12 billion – $24 billion in total – to rise to the break even point. While its international and domestic options to raise these funds are limited, the GoI has a high probability of funding its crisis budget. However, the GoI faces a much lower probability of being able to fund its 2015 break-even budget.

    Options for international lending are limited. Government to government loans from the United States and other countries involved in the current war on ISIS are likely to face strong opposition in Washington and other world capitals. It will be argued – with an element of truth – that Iraq’s budget problems are mostly self-inflicted, the result of GoI mismanagement and corruption. In addition, it will be pointed out that the U.S. and other states have already forgiven 80% or more of their Iraqi debt and that these countries have spending needs at home. Iraq’s regional neighbors such as the UAE and Kuwait – who generally did not participate in the loan forgiveness program – are facing their own budget challenges resulting from the collapse in oil prices. However, it is likely that the GoI will be able to borrow several billion dollars. In addition, it appears that Kuwait has agreed to a one-year suspension of war reparations. These reparations were imposed under an agreement with the UN, where Iraq agreed to pay Kuwait 5% of its gross earnings from oil exports to compensate for the damages incurred during the Iraq invasion of Kuwait in 1990. With a world price of $60 a barrel, a one-years suspension will free up about $3.6 billion.

    There are at least five other sources of funds to meet the fiscal deficit. First, the GoI can readily access the funds held at the Development Fund on Iraq that were an estimated $4 billion at the end of November 2014. Second, in 2009, the GoI was able to transfer about $7.7 billion from state-owned banks back to the MoF. These funds represented amounts that had been budgeted but not yet spent. In view of the constraints on spending in 2014, it is unlikely that more than several billion can be clawed back from state-owned banks in 2015. Third, the GoI could attempt to borrow domestically although the amount raised would probably be less than $1 billion. While there have been several bond issues since 2003, demand for such instruments is limited especially since there is no liquid secondary market for government debt. Fourth, although the country has an income tax system, tax revenues in previous years have been de minimis. It is unlikely that increasing the tax rate will raise substantial revenues in 2015. Finally, and most controversially, it has been proposed that the MoF obtain part of the country’s $67 billion in international reserves by encouraging/forcing the CBI to buy dollar denominated bonds from the MoF. Until a few years ago, it was believed that the CBI could resist such GoI pressure to monetize its debt, but former Prime Minister Nouri al-Maliki was able to remove the head of the CBI without the approval of the National Council of Representatives and replace him with a Maliki loyalist. This event severely undermined the perceived independence of the CBI.

    Adding together these various sources of funds, the GoI should be able to raise or borrow enough to pay not only for its crisis budget in 2015 but also move part of the way towards its break-even budget. However, if sub-$60 per barrel oil prices continue into 2016, then the GoI will face an even wider budget gap while having exhausted its borrowing options. It may be impossible for the GoI to even pay for its crisis budget in 2016. But a more immediate challenge than the future price of oil is the increasing stress in early 2015 on the Iraqi exchange rate.
    Exchange Rate Options

    A great source of pride for the CBI has been its ability to maintain a relatively stable exchange rate despite intense conflict in 2006-7. In fact, the CBI actually allowed a 20% appreciation of the dinar during this period. However, as discussed above, CBI reserves are falling as a result of lower dollar sales to the CBI by the MoF combined with large auctions of dollars by the CBI to financial institutions. In addition, there is the possibility that the GoI will attempt to relieve its current fiscal crisis by encouraging or forcing the CBI to buy GoI dollar denominated bonds. This would replace liquid assets in the CBI accounts with illiquid assets, GoI bonds. If either or both of these events occur, then there will be a loss of confidence in the ability of the CBI to maintain the current exchange rate of 1166 Iraqi Dinars per US Dollar. Anticipating a depreciation of the dinar, speculation against this currency can be expected to increase. The CBI and GoI have few options to curb this speculation and prevent a loss of the nominal anchor of the Iraqi economy – its stable exchange rate.

    One possibility is to further restrict access to the daily currency auctions. This was the primary policy response when the exchange rate came under attack in February 2012. Buyers of dollars were required to be registered and provide documentation for the precise purpose of the dollar purchases. Further restricting access can be expected to lead to a widening gap between the official exchange rate of 1166 Iraqi Dinars per US Dollar and the rate in the parallel currency market. An expansion of a dual exchange rate system can be expected to increase corruption as institutions use their political influence to gain access to the more favorable currency auction rates. In addition, by restricting access to dollars for less favored groups – primarily in the private sector – it can be expected that there will be a further slowdown in the growth of the country’s non-oil economy, exacerbating the economic crisis.

    A more cynical or possibly realistic policy response to the loss of the country’s international reserves would be a sharp pre-emptive depreciation of the Iraqi dinar. This would not only lead to an increase in import prices and a decrease in the prices of non-oil exports boosting domestic production but also reduce – at least temporarily – speculative pressure on the dinar. The experience of countries in similar situations over the last several decades show that if the depreciation option is chosen, then it is better is to depreciate sooner rather than later and by a larger rather than smaller amount. One view is that the GoI should immediately announce a return to the pre-2006 exchange rate of about 1470 Iraqi Dinars per US Dollar – roughly a 25% depreciation. However, with a new government, it is unlikely that there will be an aggressive dinar depreciation. Typically, governments wait until a crisis brought about by a substantial loss of reserves occurs before depreciating their currency. And there is the fear that without fundamental changes in the Iraqi economy, any depreciation will only be the first of many.

    A more long-term solution to the country’s loss of reserves and accompanying exchange rate crisis would be a return to using a currency board such as the one that provided Iraq with a stable exchange rate during the tumultuous period of 1930-49. Unlike the CBI, the former Iraq currency board guaranteed full dollar convertibility of dinar notes and coins only. This immunized the currency board from the speculative attacks that are often the downfall of fixed exchange rates such as Iraq’s. However, the adoption of an orthodox currency board can be expected to face serious political opposition since it would reduce the GoI’s ability to divert financial resources in order to favor particular economic sectors or to benefit friends of government officials.
    Iraq’s Perfect Storm

    The combination of falling world oil prices and the ISIS conflict has resulted in the most serious fiscal and exchange rate challenges since the 2003 invasion. It is tempting for the new government of Prime Minister Haidar al-Abadi to seek only limited modifications of fiscal and exchange rate policies so as not to run the risk of further destabilizing an already complex situation. And if low – sub-$100 a barrel – oil prices are a temporary phenomenon with higher oil prices returning in 2016, then this limited strategy should work. However, if deceased oil demand from the BRIC countries combined with an increased oil supply driven by both the fracking revolution in the United States and Saudi Arabian attempts to rein in the world oil market, then Iraq may face several years of oil prices substantially below $100 a barrel. It should be noted that, even after adjusting for inflation, the world recently experienced two decades, 1985-2005, of sub-$60 a barrel oil. A future of low oil prices will require difficult and, to a great extent, irrevocable decisions about both fiscal and exchange rate policies. Rich countries with long histories of stable government can afford to make stupid decisions. Iraq cannot.

    About the author:
    Frank R. Gunter is a Professor of Economics at Lehigh University and a Senior Fellow at the Foreign Policy Research Institute. This study is based on discussions at the November 2014 Iraq Economics, Development, and Policy program at the American University of Sharjah in the United Arab Emirates. However, the opinions expressed are entirely those of the author. The Arabic version of the author’s book The Political Economy of Iraq: Restoring Balance in a Post-Conflict Society (Edward Elgar Publishing, 2013), based on his two years in Iraq as an economic advisor, will be published in early 2015.

    Source:
    This article was published at FPRI.
    Published by the Foreign Policy Research Institute

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