A couple of months ago I discussed the role of Maliki in the RV. It’s a perspective you’re not likely to hear in any dinar conference calls or read about on dinar forums because essentially I think there’s no big RV coming for Maliki to hold up. What he and other Members of Parliament are holding up is the “Delete the Zeros” project which is a redenomination, not a revaluation.
Shabibi is an economist. As such, he’s focused on what would be the most beneficial to the financial and business communities. He sees the redenomination as a good idea because it will help Iraq to dedollarize and simplify cash transactions.
Why would Maliki and members of the GOI oppose that? Well, they’re politicians so first of all there’s the issue of corruption. Many Members of Parliament no doubt have dipped into the cookie jar a time or two and a currency conversion might expose their transgressions. Also, they’re responsible for maintaining order and stability within the country. If they don’t feel that the people are adequately educated about the process they might be a bit skittish about asking people to hand over 1000 old dinar for 1 new one. It was different in 2004 because it was a one to one exchange. 25K of the Saddam dinar for 25K of the IQD. No problem, right? But now you have to convince 30 million people to hand over 25K of the old for 25 of the new, 10K of the old for 10 of the new …. etc. They better damn well know that everybody’s cool with this and that they understand that it’s an even exchange.
Think about it. The US is one of the most educated countries on earth, and yet we have people here who think that our government was behind 9/11, that they blew up the Murrah Building in Oklahoma City, that they intentionally burned down the Branch Davidian compound in Waco, Texas ….. etc. We have people right here who are stockpiling weapons and food waiting for a battle with the government. How much more distrusting would uneducated Iraqis be after living through decades of tyranny under Saddam? All it would take is a few radicals stirring people up to believe that their government is stealing their money (or even worse that the Americans are stealing their money through the puppets running Iraq) and they’ve got a riot on their hands.
Sure, they’ve been educating the Iraqis for a couple of years now but is that long enough? We have people in the dinar community who have heard about the lop for years and still don’t understand it. Hell, we even have gurus who don’t understand it. I hear them get it wrong constantly. So shouldn’t it be a very real concern on the part of the GOI to wait until they are assured that the country is ready for the changeover?
And third, many Members of Parliament are concerned about triggering iflation again. Redenominations are usually followed by a period of currency depreciation. Sometimes it’s bad and sometimes not so bad. It’s an unnecessary risk in the minds of many at this early point in Iraq’s recovery.
If you read through the articles about the opposition to the “Delete the Zeros” project you’ll see that their concerns are the need to further develop the banking industry and further stabilize the country. Maliki’s not some cruel, greedy, power hungry bastard holding up the RV because he doesn’t care about his people. He’s the leader of a nation of 30 million people who sees the pitfalls of making a mistake by rolling out the new currency too early.
I don’t know how many times I’ve heard the claim that Shabibi said “give me a fully seated government and I’ll revalue the currency”. What rubbish! This is pure guru fact twisting. Shabibi can revalue the currency anytime he deems necessary and has. The last RV was in January when the value went up 4 pips. Again, that’s what a revaluation is – a small adjustment.
Shabibi knows that the consent of parliament is necessary for the redenomination to occur, so he was simply stating that the currency reform was awaiting the approval of parliament. He said nothing about any revaluation which is an increase in the official value of the existing currency. For those of you who don’t know the difference between revaluation and redenomination I’d suggest you look up the terms and read up on them before forming any conclusions about how this investment will unfold.
With Maliki wanting to hold off on the currency reform and with Shabibi wanting to maintain a stable exchange rate I have concluded that we’re not likely to see any significant change in the dinar any time soon. Possibly not for a year or two. That’s one of the reasons I’m stepping away from blogging. I just don’t care to keep on researching and posting for another year or two like I have for the past eleven months. If I’m wrong and they redenominate Jan. 1 the blog won’t be necessary anyway.
It’s possible that the introduction of the new currency is a trial balloon to get the reaction of the people to determine if they’re ready for the change. We’ll have to wait and see. I could be wrong about this but my sense is that they’ll reconsider and delay the reform for awhile. If that’s the case I look for the M2 figure to spike a few trillion to 75 trillion or so in the coming months to reflect the new figure of $67 billion in their foreign currency reserves.
Whatever happens you can rest assured, this “Shabibi’s the good guy because he wants to RV and Maliki’s the bad guy because he’s holding it up” rhetoric is utter nonsense from babbling gurus who need yet another excuse for why we haven’t seen “The RV”. They’re just two leaders doing their respective jobs to the best of their abilities with different viewpoints and objectives, just like in any other political process.