The Strongest Currency in the Region (12/16/11)

Often we hear the gurus reminding us that Iraq has stated that they intend to have the most valuable currency in the region.  But is that really what they have said?  Let’s look at this recent article from Al Arabiya.

The dawn of the Iraqi Central Bank economic surprise announcement that the Deputy Governor Reserve Bank’s foreign currency amounted to about sixty billion dollars, the highest on Iraq.

This announcement was commonly denied or that the common problems in Iraq permanently, but encompassed the other surprise is that any currency dinar has become one of the strongest currencies in the region including the Gulf currency, according to contexts of monetary policy.

Notice here that they said that the “dinar has become one of the strongest currencies in the region”.  Well of course they’re not one of the most valuable at $.00086, so what do they mean when they say that they have already become one of the strongest currencies? I think the answer is in the first paragraph. They have $60 billion USD in their reserves, which is two to three times the value of their currency, depending on whose money supply figures you go by.  Compare that to their neighbors in Saudi Arabia who have a money supply of $1.18 trillion and reserves of about $450 billion, or to Kuwait with a money supply of more than $90 billion but reserves of only $22 billion.  To the Iraqis it appears that “strongest” refers to the ability to back their currency with foreign reserves, rather than having the highest value from their exchange rate.  

So the next time you hear some guru throwing out nonsense about Iraq RV’ing at or near the value of the Kuwaiti dinar, just remind them of this.  Iraq can claim the strongest currency in the region right now, “according to contexts of monetary policy“.  They don’t need to RV at all to accomplish that.