Hand Writing On The Wall

While there are still some who speculate on the dinar, its fate could not be more certain. I came to my conclusion a few years back. I stopped following the dinar because of other things going on in my life. I devoted a lot of time to my music. I developed a brand new website and I am getting ready to release an album. I wrote all the music for this album and all the guitar parts are done only using nylon string guitars. I also wrote a book about music that will be available soon. So as you can see I have been busy.

It has been a while since I looked at the dinar. I have been out of touch for a while, but yesterday I had a little time on my hands. I began to poke around to see if there was anything new going on. I went to the CBI website and pulled the numbers. I looked at a few other things. I was not aware of everything that is going on with this currency, but the few hours I spent looking into it yesterday was enlightening to say the least.

For starters the central bank is pulling all 50 dinar notes out of circulation and declaring them invalid. Everyone has 2 months to exchange their notes. The trade in period starts on March 1st 2015 and goes until into April 30th 2015. After that time period expires the notes are invalid. These notes are only worth about 4 cents each. There are many people who got lower denominations here in the United States because they were told by the gurus that they would be more secure and more valuable than the larger notes after the RV.

Is this a prelude for what is to come? Even if all dinar dealers were to offer a way to trade in the notes that are higher in value, (which I highly doubt) what guarantees are there that they could provide this service during the allotted trade in period?  If you want to trade in all your 50 dinar notes then gather them together and head over to Iraq. You now got less than 2 months to get this done. After you accomplish this I hope you enjoy your new-found ummm……wealth?……

I hope that people now begin to see the absurdity of the revalue. I hope that through the removal of the 50 dinar notes they begin to see how hard it would be to exchange these notes. I have said this all along. Check the link for more info.

http://wkrn.membercenter.worldnow.com/story/28249986/central-bank-of-iraq-to-remove-50-dinar-banknotes-from-circulation-on-april-30-2015

In other Dinar related news Sam I am is closing up shop. He is moving on to bigger and better things. Dinar Douchebags is closing down. Sam was always a straight shooter and I am sad to see what has become probably the best dinar site on the internet close down. I understand the need to move on with life. So I wish Sam the very best in his new adventures and I want to thank him for his relentless pursuit of truth.

One of the great things about Sam’s site was not only the articles that he posted but also the people who commented on his site. There were many educated readers that also backed Sam and provided even more proof for the things he uncovered. People like Brian and JRG always had a way to cut through the bull and present a logical case. I have always had the greatest respect for the people over there.

So hats off to Dinar Douchebags and their readers and a toast to all of you for your relentless pursuit of truth!

What’s Going On?

Well with all this new found information I decided to do a little digging. The first thing I did was to get the latest numbers from the CBI. I downloaded the statistics document and gave it a quick look. It was very revealing. I am about to show you something using the CBI’s own numbers. This is what I found,

According to line 79 (the money outside of banks in circulation) there has been some drastic changes! take a look,

Oct 35,381           Nov 34,682           Dec 35,378          Jan 35,623

The numbers above are in trillions. So for October the CBI had 35 trillion 381 billion outside of the bank in circulation. This is a time period from October of 2014 to Jan of 2015. Now look at November. That is roughly a 700 billion dinar reduction. I have been following the dinar since 2010 and there is only one other time when I have seen a drastic reduction like this. And that is when Maliki tried to take over the CBI and the whole thing resulted in Shabibi leaving the CBI. That was back in 2012. What is going on over there? It gets better,

Look at these numbers from 2014. All numbers are in trillions.

Line 86 M1 money supply  Oct 71,179       Nov 70,182          Dec 72,651

Line 87 M2 money supply  Oct 88,964       Nov 88,007          Dec 91,704

It seems that there was a drastic and sudden reduction in the dinar in November of 2014. Their M1 was reduced by almost 1 trillion dinar! What would cause such an event?

Here is another piece to the puzzle. The CBI’s reserves are shrinking! Check out this IMF document for proof.

http://www.imf.org/external/np/vc/2015/011115.htm

I am going to quote from this document

“The recent collapse in world oil prices has added to the tensions caused by the ISIS insurgency and is complicating efforts to deal with it. With oil export revenues accounting for more than 90 percent of total government revenues, Iraq has always been highly vulnerable to oil price volatility. Falling oil prices are already reducing government revenues”

Here is another quote

“international reserves have fallen from over $77 billion at end-2013 to about $67 billion at end-November due to the combination of lower oil revenues and relatively high imports, particularly by the government. These figures exclude the Development Fund for Iraq (DFI) which was created in 2003 mainly to funnel Iraq’s oil revenues and serve the function of a fiscal buffer. The DFI was already down to $6.5 billion at end-2013, and declined further to about $4 billion in November.”

Analysis

The combination of falling oil prices and ISIS has hit Iraq hard. So much so that Iraq is now tapping into their currency reserves. The impact of falling oil prices and ISIS has forced Iraq’s hand. They are now spending some of the reserve money used to back their currency! Their reserves have about a 10 billion dollar reduction!

I knew that falling oil prices were having a global impact. Russia, Iran, ISIS, and Iraq were all affected. Now I am looking at the evidence. Iraq is having money problems. Their revenues have decreased due to falling oil prices. They had to cut their budget and rethink some things. I suspect that things came to head in November of 2014 and some adjustments were made.

Moving on

As I continued digging around I found that there are several rumors that Iraq is still going to go ahead with the 50,000 dinar note. I could not find any proof to verify this. This was mainly rumors that circulated in forums. We all know how reliable those are!

I also found a lot of people saying that there is a dinar shortage of sorts. It is hard to get dinar from the dealers and there is a waiting period. Once again, we all know how reliable rumors are!

So I did a quick search on eBay and I found over 9,000 auctions all from individuals selling dinar. I remember the days when there were a few hundred auctions selling dinar. Now people are trying to unload the stuff. I found one auction that was even trying to sell the 50 dinar notes. The guy wanted 69 cents for each note. This guy was going to get his RV one way or another!

Final Conclusion

If the dinar is truly hard to get from the dealers then that means that the dealers are not buying back large quantities and they don’t want to hold a large supply of dinar. They only want enough to meet current sale demands. If this is even true you got to ask yourself what do the dealers know that we don’t know? Once again this could all be just rumors

This part is fact. Right now money is tight in Iraq. They are suffering from a shortage of US dollars due to the falling oil prices. Now they are tapping into their reserves. (check the IMF link) They have a policy of covering the dinar 100 percent with U.S. reserves, but now according to some sources there seems to be a shortage of reserves by about as much as 10 billion! I am not so sure the number is that high but there is a significant reduction.

This means one of two things. First they are going to change their policy and not cover the dinar with reserves 100 percent, or second they are going to go ahead with a redenomination sometime this year. My guess would be in the middle of summer or by the end of September.

If Iraq does release a 50,000 dinar note like some of the rumors say then there won’t be a redenomination and they are going to change their policy to reflect the reduction of reserves. If I were to place a bet then my money would be on the redenomination. This course of action would help Iraq strengthen their currency which is something they desperately need at the moment. The truth is no one knows for sure what Iraq is going to do.

If Iraq does redenominate then expect a short trade in period. There may be a few dealers that will try to cash in on this, but in the end there are no guarantees! Could this be the reason dealers are not buying as much dinar back as they use to? Could this be the reason there are over 9,000 dinar auctions on eBay? No one knows

This whole dinar ride may be over soon. It may all end by the end of the year! Yes my conclusions does have a lot of speculation based on some of the rumors. Only one thing is for certain. This dinar ride has made me sick! It is time for me to go throw up now. If you have a sick feeling in the pit of your stomach don’t ignore it! There still may be time to get out.

How The Dinar Works

I spent a little over two years invested in the Iraqi dinar. When I first got into the dinar I knew nothing about how currency works. I knew nothing about finance or investing outside my 401k. The financial terms seem boring and confusing. I felt a sense of urgency to buy because soon I would miss my opportunity and I would miss out completely. I am willing to bet that I fit the profile of most first time dinar buyers.

Over the course of the two years that I was invested, I did intense study and research on the dinar and currency in general. In addition to following this investment for two years I did intense economic studies. Once you learn how currency works and once you understand the basics then you can determine for yourself when the RV will take place. You won’t need to rely on gurus any more for advice. You will understand exactly what is going on and when to cash in.

The main problem here are the things being said to cause people to buy dinar on impulse without doing research. These outright lies are told and repeated without verification. They have been the same lies repeated to first time buyers for many years now. Some of these things I already debunked in older posts but let’s revisit a few statements or myths for the purpose of where this article is going.

1. The dinar will be used to sell oil.

2. The dinar will be used to rebuild Iraq

Actually these two statements go together and one follows the other. The truth is Saddam switched from selling Iraqi oil in dollars to euros. Then right after that America made invasion plans. Once America was in Iraq a new constitution was written that included a separate central bank. They immediately switched back to selling oil using the dollar. In previous articles I wrote about the petro-dollar. These articles go into details about the petro-dollar and why Iraq will not sell oil in dinar.

Iraq oil and the Petro-Dollar

The dinar is not and will not be a means to sell oil in Iraq. Anyone who says otherwise is lying to you!

Oil is sold in dollars. Dollars are used to rebuild Iraq. Iraq is also seeking private investors as well. Iraq’s reconstruction efforts is ongoing and it is in dollars not dinar. It is an international effort.

Funds held by the United Nations Development Group are disbursed through United Nations agencies such as the World Health Organization, UNICEF and the UN Development Program. These UN agencies directly contract with equipment suppliers and construction companies. Disbursement of funds by the UN began in June 2004. Funds held by the World Bank are disbursed directly to Iraqi government agencies including the Municipality of Baghdad and national ministries. Granting of funds to Iraqi agencies began in December 2004

Rebuilding Iraq

This Wiki article goes on to point out

Funds from the US-operated IRRF are largely disbursed through contracts to private firms. Several US companies have been particularly prominent in receiving Iraq reconstruction funds. Bechtel of San Francisco, USA has been awarded over $2.4 billion for infrastructure rehabilitation through USAID contracts.

I can tell you that is not 2.4 billion in dinar. These are international companies that won’t accept a local currency for their services. Rebuilding is an international effort requiring an international currency.

Dinar sales have become a big industry. Lies are told to increase and hype the sales. Another lie is that the rate is imposed by the IMF.

Since Iraq has few exports other than oil which is sold in dollars there is little demand for Dinars and they remain in “exotic” status. However the new currency has sparked a multi-million dollar industry in selling dinars to speculators. These so called “money service” companies will sell Dinar to speculators at an inflated price and push the idea that the dinars will “RV” or be revalued to greatly increase the exchange rate against the dollar. The Dinar is currently pegged to the dollar at a rate of 1166/1164 (sell/buy) dinars per dollar as can be seen on the Central Bank Of Iraq’s home page. The exchange rate reportedly available on the streets of Iraq is around 1200 dinars per US dollar.

There is considerable confusion (perhaps intentional on the part of Dinar sellers) around the role of the International Monetary Fund in Iraq. The IMF as part of the rebuilding of Iraq is monitoring their finances and for this purpose uses a single rate (not a sell/buy) of 1170 dinars per dollar. This “program rate” is used for calculations in the IMF monitoring program and is not a rate imposed on Iraq by the IMF.

Iraqi Dinar Sales Men

Another lie told to sell dinar is that Kuwait revalued its currency. This never happened! If you want details with proof read this article I wrote a while back

Kuwait never revalued!

How the Dinar Works

To better understand how the dinar works we need to spend a little time at the central Bank of Iraq’s website.

CBI History

According to the CBI, Iraq’s banking law became compliant with international standards.

The Banking Law was issued September 19, 2003. The law brings Iraq’s legal framework for banking in line with international standards, and seeks to promote confidence in the banking system by establishing a safe, sound, competitive and accessible banking system.

Another common lie about the Iraqi dinar is that the currency is backed by oil. We are about to see this is not the case. So what is the dinar backed by?

Fiat money is money that derives its value from government law or regulation. Typically it is declared legal tender and has no real intrinsic value. From 1944 to 1971, the Bretton Woods agreement fixed the value of 35 US. Dollars to one troy ounce of gold. Other currencies were also pegged to the U.S. dollar at fixed rates. The U.S. promised to redeem dollars in gold to other central banks. So the dollar was backed by gold. Trade imbalances were corrected by gold reserve exchanges or by loans from the International Monetary Fund. This Bretton Woods system collapsed in August 1971 when the United States government ended the convertibility of the US dollar for gold.

Today the dinar rate is pegged to the dollar. A pegged, or fixed system, is one in which the exchange rate is set and artificially maintained by the government. The rate will be pegged to the US dollar. Iraq has to work to keep their pegged rate stable. This is because if people realize that their currency isn’t worth as much as the pegged rate indicates. They could very well rush to exchange their money for other, more stable currencies.

As a result The CBI must hold large reserves of foreign currency (in this case the US dollar) to mitigate changes in supply and demand. Iraq holds the dollar as a reserve against the dinar. This is why the currency supply grows in Iraq in proportion to how much US dollars they have in reserve. As their reserves grow the amount of dinar they have in circulation also grows. That is how pegged currencies work!

Pegged Currencies

Currently as of this writing there is 31 trillion dinar outside of banks in circulation. So here is the question. How much reserve would they need to revalue their currency? If the dinar were to revalue to just one US dollar how much US reserve would they need to keep their pegged rate? By international banking law they established they would need to keep their reserve even in the event of a Revalue.

So they cannot just say the dinar is worth x amount. They need the reserve to back whatever value they place on it. Now if that is indeed the case, (and it is) then they would need to drastically reduce the money supply in order to raise the value even to 1 cent. The amount of dinar in circulation is in direct relation to the value of that dinar. The value and amount of dinar they have in circulation is in direct relation to the amount of foreign reserve they have on hand.

To find the amount of dinar outside banks go to the CBI website. Found Here Click on financial indicators and download the excel document and open it. Scroll down to line 79. It says money outside of banks. That number is in billions so that means that the numbers found in millions, thousands and hundreds are omitted and everything is rounded to the nearest billion.

So since 2003 the amount of dinar has been growing at a steady rate. As people over here buy dinar that money eventually winds up in Iraq. I have read estimates of 4 trillion dinar outside of Iraq and in the US. If that is true that means Iraq has made 4 billion US dollars off the export of their currency! People get mad because of congress giving Iraq 89 billion to help rebuild Iraq. I often wonder if these same people know that American citizens have also freely given Iraq billions as well. They did this when they purchased the dinar!