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Iraq’s Central Bank Considers New Currency

Iraq’s Central Bank Considers New Currency

Posted on 18 July 2011. Tags: , , , , ,

Iraq’s Central Bank says the country is in need of a new currency in which the current zeros are removed to facilitate commercial transactions, according to Azzaman.

The bank’s Governor, Sinan al-Shabibi, said he was in talks with the prime minister, Nouri al-Maliki, on how to go ahead with the bid to issue currency with a lower denomination and higher value.

Shabibi said Iraqis were now relying a lot on the U.S. dollar, particularly in settling cash transactions that required a lot of money.

The use of credit cards is still limited in Iraq and cash is still the main source in trade and commerce.

Allocations even for small projects and to carry out simple commercial deals are in millions or billions of dinars.

Three bundles of $10,000 require carrying or paying about 40 million dinars.

The new arrangement, once implemented, will make transactions simpler and easier, the Central Bank governor said.

Calculating and paying with the current currency makes trade deals rather “awkward and difficult” for a small country like Iraq, Shabibi said.

Other countries, like Turkey and Brazil, successfully dealt with the same problem by removing zeros from their currency.

In Turkey, people dealt with millions of liras for simple purchases and transactions. Today a dollar is worth about 1.6 new liras.

Shabibi said there was a lot for Iraq to learn from Turkey.

(Source: Azzaman)

Posted in Banking & Finance7 Comments

New Dinars for Old

New Dinars for Old

Posted on 05 July 2011. Tags: , ,

At the end of last month, a spokesman for the Central Bank of Iraq (CBI) told reporters that a plan to redenominate the Iraqi dinar will be presented to the Council of Ministers in the near future. (See here and here.) The Council is then expected to submit the relevant legislation to Parliament for a vote. If the lawmakers approve the project, all existing banknotes will be replaced with new currency at the rate of 1,000 old dinar for one new over some unspecified period of time.

Given Parliament’s current backlog, this change can hardly be imminent. Still, you might think they could get around to voting on the CBI’s proposal some time before the end of this year. In that case, the redenomination could presumably be completed by the end of 2012.

The process will necessarily involve both the exchange of new banknotes for old and the restatement of contractual obligations in terms of the new currency. Among other things, three zeros will have to be eliminated from the share capital of the ISX listed companies as well as from the number of shares each has outstanding. (This will keep the par value at one dinar.)

I’m told this should be a relatively straightforward change for the depository center to make. Trading should not have to be suspended for more than a few days and it may be possible to proceed in phases of a few names at a time so that the entire market does not have to shut down during the transition period.

Similarly, it seems reasonable to expect the CBI to exchange new dinars for US dollars at one thousandth the rate for old dinars. In other words, if the original rate were IQD 1170 = US$ 1, post-redenomination this would become IQD 1.170 = US$ 1.

All of this seems reasonably straightforward for anyone holding assets such as currency or shares inside the country. For those holding dinar cash outside Iraq, however, things may not be so simple. How and on what terms their old dinars will be convertible into the new currency remains an open question.

Posted in Investment, Mark DeWeaver on Investments and Finance15 Comments

Iraq Prepares to Redenominate its Currency

Iraq Prepares to Redenominate its Currency

Posted on 27 June 2011. Tags: , , ,

According to a report from Al Sumaria News, Iraq’s Central Bank announced on Thursday that it is planning to delete the zeros from its currency, the Iraqi dinar.

This step is one of the bank’s strategic missions, the Central Bank said adding that the new currency will include the Kurdish language in addition to the Arabic language.

“The zeros that were added to the Iraqi currency previously constituted a large money supply up to 28.500 trillion Iraqi Dinar and 5 trillion banknotes”, the adviser of Iraqi Central Bank governor Mothahhar Mohammed Saleh [Mudher Mohammed Saleh] told the agency.

“The Central Bank has prepared all requirements needed to delete the zeros from the Iraqi Currency”, Saleh said.

“This step is one of the Iraqi central bank’s strategic missions. The monetary policy of the bank aims to structure and reduce the currency in a country moving towards an economic phase”, he added.

“The project of deleting zeroes is complete. It will be submitted to the central bank’s administration in the next session. Then, it will be passed to the ministerial council before presenting it to the Parliament for vote. The mechanisms of changing the currency will be gradual. It will be preceded by awareness campaigns for citizens”, the adviser of Iraqi Central Bank governor said.

“The new currency will be printed after deleting the zeros and will include the Kurdish language in addition to the Arabic language. It will also bear photos of Iraq’s civilization in addition to symbols of Iraqi intellectuals and figures”, Saleh noted.

Sanan Al Shebeibi [Sinan Al-Shabibi], Governor of Iraq’s Central Bank, affirmed during the meeting of independent commissions on June 19 with Prime Minister Nuri Al Maliki that the bank is preparing all requirements needed to replace the Iraqi Currency.

Iraq’s Central Bank has four branches including Basra, Sulaimaniah, Erbil and Mosul. It was founded as an Iraqi independent bank by virtue of Iraq’s Central Bank Law issued on March 6, 2004.

The bank is responsible for the prices stability and the implementation of monetary policy including exchange rates, the management of foreign reserves, the issuance of currencies and the organization of the banking sector.

It’s six years since neighbouring Turkey redenominated its currency, making one ‘new Turkish lira’ equal one million ‘old Turkish lira’.

(Source: Al Sumaria)

Posted in Banking & Finance32 Comments

Redenomination and the <i>Spinal Tap</i> fallacy

Redenomination and the Spinal Tap fallacy

Posted on 20 April 2011. Tags: , ,

Fans of the “rockumentary” This is Spinal Tap will recall the scene where the band’s guitarist explains that his amplifiers are louder because their volume knobs “go to eleven.” When asked why this is different from having ten as the highest setting, he simply repeats “these go to eleven.”

Most of us have no trouble understanding that changing the units used to measure something does not change the character of the thing being measured. A day doesn’t get longer if you keep track of time in minutes instead of hours, four quarts isn’t more than one gallon, and paying for something in pennies instead of dollars doesn’t make it more expensive.

Yet somehow people continue to claim that a redenomination of the Iraqi currency will have important economic effects. (See this story.) Replacing all the dinars currently in circulation with new ones at a rate of 1,000 to one, thereby “knocking off three zeros,” is supposed to reduce the money supply, for example. Instead of the commercial banks holding 27 trillion dinars as central bank reserves, they will “only” have 27 billion. People won’t have to carry as much money once all the thousand dinar bills have been replaced by one dinar bills. And so on.

It would obviously be ridiculous to insist that an amp that “only” goes to ten would be softer than one that “goes to eleven.” Isn’t the claim that it matters how many zeros there are on a bank note an example of the same fallacy?

Posted in Investment, Mark DeWeaver on Investments and Finance77 Comments

Iraqi Dinar Revaluation Enthusiasts are Unaware of Bernie Madoff’s Fame

Iraqi Dinar Revaluation Enthusiasts are Unaware of Bernie Madoff’s Fame

Posted on 29 March 2011. Tags: , , ,

By Tom Cleveland, market analyst for Forex Traders, exclusively for Iraq Business News. Forex Traders is an online resource for the foreign exchange market.

“Buy on the rumor, sell on the news” is a time-honored investment phrase that is oftentimes more confusing than the wisdom it attempts to impart. The meaning relates primarily to company securities that appreciate in expectation of a big news announcement. Early speculation drives ups the price, such that when the real announcement is made, most investors sell on the news to take their profits, often driving the price down, rather than up. “Pump and Dump” stock frauds also follow a similar scenario, but in this case, criminals benefit and investors lose.

A similar situation has been building for years, some say as many as eight years, surrounding the potential “revaluation” of the Iraqi Dinar. As the rumor would have it, the Iraqi economy has stabilized, and the potential for enormous foreign currency reserves from increased oil exports will drive the value of the Dinar to unconscious levels versus the U.S Dollar. The government authorities will be forced to revalue the currency from 1,175 to 3 per Dollar, resulting in an outrageous windfall for anyone owning stockpiles of the currency. Does something here sound a little too good to be true?

In actuality, the Iraqi Dinar, or “IQD”, is a “controlled” currency. The central bank of Iraq determines the exchange rate and must support that rate by maintaining adequate foreign currency reserves to handle capital flows across its borders. The IMF permits countries with a transitional economy to implement currency controls in order to stabilize their economy during its redevelopment phase. Presently, international banks will not accept the Dinar, and it is not traded on any forex exchange. Actual purchases can be made through currency dealers that have been authorized to buy and sell banknotes that are already in circulation.

Posted in Banking & Finance118 Comments

The Future for the Iraqi Dinar

The Future for the Iraqi Dinar

Posted on 21 October 2010. Tags: , , , , , ,

We get many enquiries at Iraq Business News relating to the future of the Iraqi dinar (IQD), for example:

  • Will the Iraqi dinar increase in value?
  • Will the currency be re-denominated, dropping the ‘three zeros’?
  • Is it wise to buy Iraqi dinar?

Firstly, Iraq Business News is not in a position to give investment advice. Our mission is to provide our readers with the highest quality information on the business and economy of Iraq. We hope that this information will be useful to decision-makers at all levels.

Regarding the dinar, we do not have a crystal ball, but in the past the ramping up of petroleum production has often caused currencies to rise, and it is certainly the plan over the coming years to greatly expand Iraq’s oil and gas output.

Experts debate  whether re-denominating the currency (dropping the zeros) would help the economy or change the underlying valuation of the currency, and we present all sides of that debate. Read more …

Posted in Banking & Finance, Blog6 Comments

Removing Zeros From Iraq’s Currency Requires ‘Consultation’

Removing Zeros From Iraq’s Currency Requires ‘Consultation’

Posted on 20 October 2010. Tags: , ,

According to media reports, Iraq’s Central Bank said on Tuesday that the decision to remove the three zeros from the Iraqi currency would require consultation with the next government.

Quoting a consultant refered to as Mohammed Saleh, the report says that deleting three zeros from the currency would negatively affect Iraqi citizens, but would facilitate foreign exchange transactions and bank deposit and withdrawal.