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Iraq halts plans to cut zeros off dinar currency-cabinet

Thu Apr 12, 2012 3:10pm EDT

* Cabinet says stops plans to redenominate dinar “until further notice”

* Iraq has over 30 trillion Iraqi dinars in circulation

* Plan to trim zeros not seen as a priority

By Aseel Kami – Reuters

BAGHDAD, April 12 (Reuters) – Iraq has decided to hold off on a plan to knock three zeros off the nominal value of bank notes of its currency because it does not believe the economic climate is suitable, the cabinet secretary said on Thursday.

The central bank said last August it planned to redenominate the Iraqi dinar to simplify financial transactions in an economy that is still heavily centralised and dominated by oil, and where deals are often carried out in cash.

The proposal to restructure the dinar to bring more liquidity into the market has been awaiting parliamentary approval since last year.

On Thursday, a statement on the website of the cabinet secretary said the cabinet had decided to halt all procedures relating to the redenomination of the dinar “until further notice”.

“The economic committee discussed this issue and so did cabinet … There is a possibility that it could cause some problems in the economic situation. Besides that, this operation is so big that cabinet sees circumstances are not right to control this,” cabinet secretary Ali al-Alaq told Reuters.

Iraq is slowly getting back on its feet after years of war and sanctions. Oil accounts for 95 percent of government revenues and the country’s banking system is still highly underdeveloped.

 

HUGE PROCESS

The central bank has kept the dinar fixed at 1,170 dinars to the dollar in its daily auction but it recently moved to revalue the dinar slightly to 1,166 dinars after demand for the U.S. currency soared.

The central bank said it also had to tighten regulations over who can participate in the auctions as Iraqi traders sought to snap up dollars for resale in neighbouring Syria and Iran, both under Western economic sanctions.

Sales of dollars in currency auctions held by Iraq’s central bank rose as high as $400 million on some days in December from a previous average of $150 million, according to central bank data.

“We have more than 30 trillion dinars in circulation. To withdraw this amount from the market and then to examine them and to dispose of them is a huge process. Even the technical and the monetary capabilities to control a process like this, we consider as insufficient and it is not seen as a priority currently,” Alaq said.

The central bank says Iraq’s large foreign reserves, which have risen to a record $60 billion on the back of high oil prices, will shield it from any damage to its financial system on the national level.

 

via REUTERS

Iraq’s Next Challenge: A New Currency

A man leaves a currency exchange shop in Baghdad, January 30, 2012. (photo by REUTERS/Saad Shalash)

A few weeks ago, a source at the Iraqi Central Bank announced the government’s plan to [re-denominate] the [Iraqi] currency by cutting three zero from all notes, effectively dividing these notes by 1000. 1000 dinar notes would be changed to one dinar notes and 5000 [old dinars] would equal five new dinars.

ABOUT THIS ARTICLE

Summary:

Iraq is planning to revalue its currency, the dinar, cutting three zeros from its notes. The purchasing power of the dinar will remain unchanged if the government adopts the correct measures, writes Thaka’ Mokhless al-Khalidi. The author argues that this will lower the level of dollarization of the Iraqi economy.

Publisher: Al-Hayat (Pan Arab)
Original Title:
The Currency Change in Iraqi and its Expected Effects
Author: Thaka’ Mokhless al-Khalidi
Published on: Monday, Feb 27, 2012
Translated On: Wednesday, Feb 29, 2012
Translator: Ibrahim Jouhari

Categories: Economy Analysis & Opinion  Iraq  

The new currency will be introduced in 2012. The process will take up to two years, at the end of which the old currency will ultimately be void. However, banks will continue to accept [the old notes] for another 10 years – for exchange against new notes, not for circulation.

The source added that the purchasing power of the new currency would remain unchanged. For example, a product that currently costs 1000 dinars, would be worth one dinar of the new currency. A product that currently costs one million dinars would be worth 1000 dinars.

Two questions must be asked, for this is an issue of great importance and there are several misconceptions surrounding it – for example, some believe that they will be able to profit from buying [old] dinars now and selling them later. First, what does the government hope to accomplish with this change? Second, how will the government, or more precisely, how will the monetary authorities be able to guarantee the exchange rate between the two currencies, and make sure that the process harms no one?

In response to the first question: Until 1981, the Iraqi dinar was backed by gold reserves, foreign currencies (up to 70%) and in part by Iraqi treasury bills given that Iraq still adhered to the gold standard at the time. In order to [guarantee the value of the Iraqi currency], successive governments linked Iraq’s current and investment expenditures to their foreign assets, oil revenues and their gold reserves.

To ensure [that a balance was struck between the Iraqi dinar’s value and the country’s gold holdings], administrative restrictions were applied to foreign transfers – both in the trade of goods and services – and capital movements. Moreover, conservative monetary and fiscal policies were enforced. Consequently, the Iraqi dinar’s stability was preserved and its official exchange rate of 3.2 dollars to the dinar did not change. The Iraqi dinar was considered a safe investment inside Iraq and in the region, especially in neighboring markets. However, following the Iraq-Iran war, and given the high cost of this war, the government abandoned this currency law and started spending with no quantitative restrictions. The Iraq dinar consequently suffered from a continuous decline in both its exchange rate and purchasing power.

The economic blockade imposed on Iraq in 1990 made matters worse. Even though the Iraqi Government maintained the public exchange rate of 3.2 dollars to dinar for official transactions, a black market ruled by [the real forces of] supply and demand emerged. On this market, the value of the dinar fell to 3000 dinars to the dollar. After the [US invasion] and occupation of Iraq, the ban on Iraqi oil exports and Iraq’s reserves in foreign countries was lifted and the dinar’s value rose to around 1125 dinars to the dollar.

The Iran-Iraq War and the subsequent economic blockade weakened the Iraqi dinar. This deprived it from its status as a safe investment and [medium of exchange and store of value], forcing most of those conducting financial transactions [in Iraq] to turn to the dollar. As a result, the Iraqi economy suffered from [wide] dollarization. The first effect of the decision to [revalue] the currency would be a return to the dinar, and the widespread circulation of dinar notes of even the smallest denomination. The Iraqi economy would become less dollarized and the Iraqi dinar would take on an exclusive role [in day-to-day transactions].

Now, for the second, more important question. For the exchange rate between the two currencies to be guaranteed will require the monetary authority to issue the following orders:

Iraqi Government expenses – including employee salaries – should also be divided by 1000. An employee who currently receives a monthly salary of 1.5 million dinars would receive 1500 in new dinars. What’s more, the prices of all goods and services [must] also be divided by 1000 – products currently priced at 1000 dinars would have to be priced at one new dinar. The [proper authorities will have to] monitor the implementation of this process.

In addition, all personal, public, corporate and banking debts should be divided by 1000. A one million dinars loan would be worth 1000 dinars in the new currency. All courts and judicial entities will have to take note of this when dealing with certain complaints. However, were the loan made in dollars it would not change; it would have to be paid back in dollars just the same. Moreover, all bank deposits will have to be divided by 1000.

However, the monetary authority would still face the tough mission of determining the Iraqi dinar’s exchange rate. Will it peg the dinar to the dollar, or to a basket of currencies? Or will the authority employ [floating exchange rates] – the current system – leaving the dinar’s value to be determined by market forces, albeit limited to acceptable margins enforced by the government. The best solution for a developing country like Iraq is to peg the dinar to the dollar or a basket of currencies. However, the chosen exchange rate must reflect [economic realities], for the previous official rate of 3.2 dollars to the dinar was exaggerated. Therefore, if the current unofficial exchange rate of 1125 dinars to the dollar is divided by 1000, this will give us a rate of 1.125 dinars to the dollar, which might be reasonable.

Source:- ALMONITOR

Iraq set to take its place on the world stage

Iraq set to take its place on the world stage

 

Posted 3/8/2012 6:30 PM by Emerging Money

Iraq has started loading oil from a long-awaited new floating Single Point Mooring (SPM) platform, with the average loading rate into the tanker Maersk Hirado coming in at 22,000 barrels per hour.

AP Logo

Iraq’s oil exports have been held back by a lack of loading capacity in the Gulf after decades of neglect of infrastructure caused by war and economic sanctions. The opening of its new platform — built by Australian construction firm Leighton — had been held up for weeks, with officials blaming poor weather.

 

The new terminal is the first of four planned, each of which will ultimately have a capacity of 850,000 barrels per day, adding 3.4 million barrels of export capacity to make way for a doubling of Iraq’s oil production in the next few years.

For now, the South Oil Company says the first platform will increase its exports by 300,000 barrels per day.
Iraq said this week it had increased total output to above 3 million barrels per day for the first time since 1979. Iraq’s output last month was just 2.65 million bpd, with production held back by a lack of export capacity. Its exports have been slightly more than 2 million bpd.

 

The Iraqi government aims to more than double its oil output in the next few years and has set a long-term goal of 12 million bpd, which would rank it alongside Saudi Arabia and Russia as one of the world’s oil superpowers .
By that point, Iraq will probably be added to the world’s mutual funds and ETFs as well, making it a factor in portfolios likeMES ( quote ), which tracks stocks in the Persian Gulf region.

 

by Simon Watkins for Emerging Money

 

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

Statement by Iraqidinars.com on Proposed Redenomitization of the Iraqi Dinar

Further to my statement of last week , I wish to state the following :-

  • We have been dealing in Dinars since March 2003 . We are not investment advisers and have never purported to give investment advice . We have never expressed any optimistic opinions about a so called RV (revaluation) that appear in bulletin boards and other forms of social media that we have never taken part in. Whilst we are obviously aware of never ending rumors regards this and have clients that firmly believe in this , it is our opinion and has been , that as Iraq rebuilds the currency will slowly appreciate .
  • Purchasing any currency is HIGH RISK . I would never personally advise anyone to purchase what they cannot afford to lose . It is imprudent to put your life savings for example into the Dinar in my opinion .
  • The Iraqis have stated various times since 2005 that they intend to redenominate (zero lop) three 0´s from the Iraqi Dinar. The Central Bank of Iraq , CBI , has now indicated that they have Parliamentary approval for this now and plan to change the old currency currently in circulation for New denominations after a zero lop in September later this year and to run the two currencies side by side for a period of 1 year whilst they do the change . In reality the initial change will have zero impact on the value of the Dinar as it is merely a change of denominations as many other countries have done after having periods of high inflation and then seeing stability in their economy . In the long run , it is my opinion that it could appreciate slowly as the outlook looks brighter in Iraq .
  • With this in mind we have discussed the issue of currency change with principal dealers we currently deal with in the Middle East and whilst we will try our best to have some process to exchange the old for the new , we cannot guarantee this as there are many complications with such a change and many steps involved with returning the currency for change as well as many risks involved . At this stage we are looking at a potential buy back of old currency plan instead of change provided certain criteria are met . These are our current plans , they can and may change over the coming months .
  • Since we commenced dealing in Iraqi money in 2003 we have faced many challenges and shipping of the currency as well as government regulations and controls of the shipping agencies we use to move the money has changed dramatically . It is largely due to this that a change of physical currency for new is complicated for us at the moment . The Iraqis are fully aware that a large percentage of their money supply is in foreign hands , so we hope they will assist also in this process since Buyers always showed immense optimism in their money . Since they have decided to change it now , they should make provisions for the large currency holdings outside their country and provide some means of exchange as well . In no way can we have predicted or be held responsible for any currency change like this . Our responsibility was purely to deliver what what was bought at the time of purchase and this is what we have done for the past 9 years without any complaints of any kind .

  • We cannot be held responsible for government controls , changes of regulations , currency changes and other factors that may occur over time . Purchasing currency always involves risk much like does any purchase of any item , and it is up to our buyers to be fully informed at the time of purchase as to what they are buying and the risks involved .
  • As stated above , we are actively looking into plans to assist with the currency change for clients we have dealt with and who might be interested in what we are able to propose . As the issue becomes clearer we will divulge further information .
  • Potential buyers and holders of current Iraqi Dinars are fully entitled to opinions they might have on the Dinar , the above is our honest opinion on things as they stand now as of today . The Iraqis may still delay the zero lop and external factors may affect it but I felt it necessary to make the above statement based on what we are aware of .


www.iraqidinars.com

Central Bank of Iraq Currency Redenomitization – Statement by Iraqidinars.com

Statement regards CBI intention to Redenomitize the Iraqi Currency commencing September 2012 – by  IraqiDinars.com

1. There has been talk for many years now (since 2005/2006) that if there was a redenomination or a dropping of the three zeros there would be a recall of all denominations of notes printed in 2003 and replaced by the New Iraqi Currency

2. We will try our best to exchange the old 2003 currency for the new one providing we are able to move the currency freely through normal logistical channels and in turn we will charge a fee for this and in addition the re shipping fee . It will be our client´s responsibility to return the old Dinars for exchange to our main dealing office in Amman , Jordan .

3. The Central Bank of Iraq indicates they will allow a period of 1 year for these notes to be changed and that during this period both old and new currencies will run side by side .

4. What do dropping three zeros(re-denominitization) mean? When governments drop zeros in currency it means several positive things, one being that the currency is restructuring and the second being that it is trying to lower the inflation rate. The 25,000 Dinar Note would become 25 Iraqi Dinar, and the 10,000 Dinar Note would become 10 Iraqi Dinar for example , but the value of all the notes would be the same. The new money would have the same value in trade as the old money , the only difference would be for accounting purposes of Iraq as a country as the money supply in Iraq currently is too large for realistic accounting purposes.
www.iraqidinars.com

Removing zeros from Iraqi dinar to start in September

20 Feb 2012

BAGHDAD – The process of removing three zeros from the Iraqi dinar and replacing current banknotes with new ones will begin in September, announced the economic committee of the Council of Representatives as part of an agreement with the Iraqi Central Bank (ICB).

The announcement, which will see the ICB re-print 30tr dinars ($26bn), was made despite government fear over the project.

Economic committee member Abdul-Hussein Abtan said: “The agreement includes granting the process of switching currency [for a] full year where [both the] old and new currencies will be dealt in the market during this stage.”

The ICB described the project as a positive move for the Iraqi economy. But particular arms of government expressed fear that the project will increase cases of money laundering and are working to convince the ICB to stop the process. The securities committee said deletion of the zeros will affect negatively financial trading in the stock market.

Abtan added however that the process “will contribute to dealing [with] inflation and facilitating economic cooperation with international banks and reducing social differences in the community.”

The ICB previously said that it will consider the requirements of the project with the Council of Ministers to determine whether or not a law needs to be implemented.

The financial committee of the Council of Representatives said on Sunday that the passing of such law would allow Iraq to address economic inflation.

The move to delete the zeros will reduce the number of bank notes in circulation and simplify Iraq’s payment system.

The ICB is responsible for maintaining price stability, implementing monetary policy and regulating the banking sector.
© AK News 2012

Iraq has more than $60 billion in foreign reserves

Iraq business
07 Feb 2012

Iraq now has over $60 million in foreign currency reserves as a result of the country’s oil sales, according to a report from Azzaman.

Mudher Saleh, a consultant with Iraq’s Central Bank, said the reserves are the highest in the country’s history, and are more than enough to cover the total volume of national currency currently in circulation.

Saleh made the remarks following a surge in demand for the US dollar, fueled mainly by sanctions on neighboring Syria and Iran, saying the Central Bank was determined to meet demand for dollars. The bank had no problems selling dollars in return for dinars, he added, and this has boosted confidence in the local currency.

External trade with the dinar as the currency of choice was on the increase. Trade flow between Iraq and Iran and Syria has skyrocketed recently, according to Azzaman, with Iraq supplying the demand for sanctioned goods.

http://www.noozz.com/Iraq/Articles/ViewArticle/501097

Central Bank of Iraq raises the value of Iraqi Dinar

Saturday, January 21, 2012 13:44 GMT

Central Bank of Iraq announced, on Thursday, that it revaluated Iraqi Dinar 3.4% in exchange with Dollar. This decision will affect the exchange rate of Iraqi Dinar against US dollar in Iraqi markets, Central Bank stressed.

“During his daily auction of foreign currencies’ exchange, Central Bank raised the value of Iraqi dinar against the dollar with a percentage of 3.4% which counts 4 Dinars,” deputy governor of Iraqi Central Bank Mazhar Mohammad Saleh told Alsumarianews noting that after the current change each 1166 Iraqi Dinars equal 1 Dollar. “Nominal rate of Dinar doesn’t coincide with its purchasing power or with its real exchange rate against the Dollar,” Saleh revealed.

“The current account of Iraq payments has a surplus of 5 to 8% in comparison with the GDP,” Saleh advanced stressing that this surplus is a strength indicator and points that Central Bank has major reserves.

“Central Bank of Iraq’s decision will affect Dollar exchange rates which slightly increased lately in Iraqi markets,” Saleh declared adding that Iraqi Dinar will become a riveter in Iraqi markets.

Central Bank of Iraq had announced, on Thursday, exchanging Dollar categories for 1166 Dinars per Dollar after it used to sell 1170 Dinars per Dollar. Auctions of the Central Bank are taking place, daily, with the participation of 23 different banks.

At the end of this week’s sessions, Central Bank of Iraq scored a slight decrease of about 1 million Dollars reaching therefore more than 199 million Dollars in comparison with the 200 million Dollars scored on Wednesday.

Deputy Governor of Iraqi Central Bank Mazhar Mohammad Saleh revealed, on December 14, that Central Bank is willing to create 3 money categories following the deletion of 3 zeros from Iraqi Dinar. The currency exchange requires about two years, Saleh pointed out.

Reserves of foreign currencies in Central Bank of Iraq increased, for the first time in Iraqi history, to 60 billion Dollars, Saleh announced on December 6 explaining that Central Bank can curb inflation if it reached two decimal ranks. Current levels don’t raise concern though, he assured.

STATEMENT on so called “RV” Speculation in Iraq

January 3rd 2012

I have been trading the Iraqi Dinar since March 2003 and am one of the oldest Dinar Dealers in the world . We have never written nor followed any bulletin board nor other posts on so called overnight , magical “RV” – Revaluation of the Iraqi Dinar . We do believe in long term appreciation of the Dinar against traditional currencies such as the Euro and US Dollar which we have steadily seen over the past 9 years but urge caution in believing in dramatic overnight currency increases . With this in mind , BEFORE investing in Iraqi currency , please consider this :-

1. Investing in any currency is a HIGH RISK investment – only invest what you can afford to lose .
2. Be fully informed of the political and economic situation of the currency you are buying.
3. Bear in mind that the Iraqi Government has CLEARLY stated VARIOUS times over the past year that they intend deleting 3 zeros from the current Iraqi money . ie. a zero lop in order to ease financial transactions as written about previously in my blog .

If this was to become a reality we will make every effort to exchange the old currency for the new ones for our clients provided we have a sufficient time window and it is carried out in and orderly and patient manner and provided the appropriate authorities allow us to move the old and new currencies freely . We are not responsible in any way for sudden chnages in government policies towards movement of currencies nor any change of currency overnight .

We strive to serve our customers needs but there are limitations to which we can act at times and this needs to be borne clearly in mind .

For this reason we have clients whom we have recommended in the past purchase Call Optiosn through us as well as hold cash within the Iraqi banking system , but equally like any investment , this too comes with risks .

We still belive the long term potential for Iraq is good and over the long term the currency has good potential for appreciation , but all the above mentioned factors must be taken into account before making any decision to purchase the currency . Certainly not on rumours spread over social media and bulletin boards .


Iraqidinars.com
3rd January 2012

U.S. military marks end to nearly nine bloody years in Iraq

U.S. military marks end to nearly nine bloody years in Iraq

By Missy Ryan and Patrick Markey | Reuters – 1 hr 24 mins ago

BAGHDAD (Reuters) – The U.S. military officially ended its war in Iraq on Thursday, rolling up its flag at a low-key ceremony with Defense Secretary Leon Panetta nearly nine bloody years after the invasion that ousted dictator Saddam Hussein.

“After a lot of blood spilled by Iraqis and Americans, the mission of an Iraq that could govern and secure itself has become real,” Panetta said at the ceremony outside Baghdad’s still heavily-fortified airport.

Almost 4,500 U.S. soldiers and tens of thousands of Iraqis lost their lives in the war that began with a “Shock and Awe” campaign of missiles pounding Baghdad, but descended into sectarian strifeand a surge in U.S. troop numbers.

U.S. soldiers rolled up the flag of American forces in Iraq and slipped it into a camouflage-colored sleeve in a brief, symbolically ending the most unpopular U.S. military venture since the Vietnam War of the 1960s and 70s.

The remaining 4,000 American troops will withdraw by the end of the year, leaving behind a country still tackling a weakened but stubborn Islamist insurgency, sectarian tensions and political uncertainty.

“Iraq will be tested in the days ahead, by terrorism, by those who would seek to divide, by economic and social issues,” Panetta told the rows of assembled U.S. soldiers and embassy officials at the ceremony. “Challenges remain, but the United States will be there to stand by the Iraqi people.”

Saddam is dead, executed in 2006, while an uneasy politics is at work and the violence has ebbed. But Iraq still struggles with insurgents, a fragile power-sharing government and an oil-reliant economy plagued by power shortages and corruption.

In Falluja, the former heartland of an al Qaeda insurgency and scene of some of the worst fighting in the war, several thousand Iraqis celebrated the withdrawal on Wednesday, some burning U.S. flags and waving pictures of dead relatives.

Iraq’s neighbors will watch how Baghdad tackles its problems without the U.S. military, while a crisis in neighboring Syria threatens to upset the region’s sectarian and ethnic balance.

U.S. President Barack Obama, who made an election promise to bring troops home, told Iraqi Prime Minister Nuri al-Maliki that Washington will remain a loyal partner after the last troops roll across the Kuwaiti border.

“WE NEED TO BE SAFE”

Iraq’s Shi’ite leadership presents the withdrawal as a new start for the country’s sovereignty, but many Iraqis question which direction the nation will take without U.S. troops.

“I am happy they are leaving. This is my country and they should leave,” said Samer Saad, a soccer coach. “But I am worried because we need to be safe. We are worried because all the militias will start to come back.”

Some like Saad fear more sectarian strife or an al Qaeda return to the cities. A squabble between Kurds in their northern semi-autonomous enclave and the Iraqi Arab central government over disputed territories and oil is another flashpoint.

Violence has ebbed since the bloodier days of sectarian slaughter when suicide bombers and hit squads claimed hundreds of victims a day at times as the country descended into tit-for-tat killings between the Sunni and Shi’ite communities.

In 2006 alone, 17,800 Iraqi military and civilians were killed in violence.

Iraqi security forces are generally seen as capable of containing the remaining Sunni Islamist insurgency and the rival Shi’ite militias that U.S. officials say are backed by Iran.

But attacks now target local government offices and security forces in an attempt show the authorities are not in control.

Saddam’s fall opened the way for the Shi’ite majority community to take positions of power after decades of oppression under his Sunni-run Baath party.

Even the power-sharing in Maliki’s Shi’ite-led government is hamstrung, with coalition parties split along sectarian lines, squabbling over laws and government posts.

Sunnis fear they will be marginalized or even face creeping Shi’ite-led authoritarian rule under Maliki. A recent crackdown on former members of the Baath party has fueled those fears.

Iraq’s Shi’ite leadership frets the crisis in neighboring Syria could eventually bring a hardline Sunni leadership to power in Damascus, worsening Iraq’s own sectarian tensions.

“WAS IT WORTH IT?”

U.S. troops were supposed to stay on as part of a deal to train the Iraqi armed forces but talks over immunity from prosecution for American soldiers fell apart.

Memories of U.S. abuses, arrests and killings still haunt many Iraqis and the question of legal protection from prosecution looked too sensitive to push through parliament.

At the height of the war, 170,000 American soldiers occupied more than 500 bases across the country.

Only around 150 U.S. soldiers will remain after December 31 attached to the huge U.S. Embassy near the Tigris River. Civilian contractors will take on the task of training Iraqi forces on U.S. military hardware.

Every day hundreds of trunks and troops trundle in convoys across the Kuwaiti border as U.S. troops end their mission.

“Was it worth it? I am sure it was. When we first came in here, the Iraqi people seemed like they were happy to see us,” said Sgt 1st Class Lon Bennish, packing up recently at a U.S. base and finishing the last of three deployments in Iraq.

“I hope we are leaving behind a country that says ‘Hey, we are better off now than we were before.'”

(Editing by David Stamp)