Wednesday, November 18, 2009
Apologies for the extended delay of this reply. Thank you for your inquiry regarding the revaluation of the Iraqi Dinar. Currently we are not told what is discussed behind closed doors, but I can say that there are plenty of rumors amongst bank employees regarding a revaluation of the currency. We are not sure when this will happen, since there is a long list of procedures before this can be accomplished.
We here at the CBI are excited of the rumors at the moment. There have been many meetings here throughout the month of October and November with government officials, which can really only mean one thing, a revaluation is in the works.
I can only think of the possibilities for Iraq once the currency is worth something to the people of the world and we here in Iraq are able to travel and trade freely amongst the international markets.
This is the only information I have, sorry I could not be more specific with the information you had requested.
Wednesday, November 4, 2009
In order for a revalue to occur many careful steps have to be taken to ensure that the economy does not collapse.
IMO, there are too many outstanding oil contracts to revalue at the current time. There are so many contracts for the rebuilding of Iraq's infrastructure to revalue at the current time. The way I see it is, there is way too much dust being kicked around at the moment to go change something which will greatly impact the entire world right now.
If I were to revalue a currency, I will wait until after the election end, the oil contracts are signed and amended with the chance of a possible revalue and wait for all the infrastructural contracts to be signed with an amendment of how business would be handled after the currency revalues.
Iraq has so many natural resources to provide to the world. My question right now is, besides oil, why hasn't their borders been opened to trade freely with other nations? Why won't their currency be open for international trade? Even at the current rate, it could be a good start letting us trade it on forex...
Right now, Iraq is way to secluded. They are covered by an umbrella right now, and the people of Iraq are suffering. They definitely should be given an opportunity to experience a better way of life. Not live with high unemployment numbers and most living in poverty... not when most of their citizens have a right to their country's natural resources.
This is just my opinion. I think they should get a move on before life passes us all by.
Wednesday, September 16, 2009
Op-Ed, Financial Times
June 13, 2003
Author: Jeffrey Frankel, James W. Harpel Professor of Capital Formation and Growth
Rebuilding Iraq involves many difficult problems. It may seem that the question of the exchange rate should be one of the easier ones to solve. The choice of currency regime - particularly what to anchor the currency to -is perhaps the most widely studied topic in international monetary economics. Yet this question too turns out to be difficult; none of the traditional solutions will quite fit.
Given instability in the region and the absence of credible institutions, the Iraqi dinar requires an anchor of considerable credibility. Some have proposed a rigid peg to the dollar, as through a currency board. But this idea has significant drawbacks. That it would mean giving up the ability to set monetary policy independently is not such a big cost, as few governments have been able to use such discretionary policy well anyway. But there are other serious disadvantages.
One big drawback of a fixed exchange rate is that it means giving up the automatic depreciation that a floating currency would experience at times when the world market for the country's exports were weak. In the case of Iraq, the most important export is of course oil. Large fluctuations in the world price of oil have wrought havoc on the economies of other big oil-producing debtor nations such as Indonesia and Venezuela, often entailing a serious currency crisis before a change in the terms of trade is accommodated.
A second big drawback of fixing the dinar to the dollar would be the introduction of gratuitous volatility when the dollar fluctuates against other leading currencies. Argentina's currency board collapsed two years ago, not just because the straitjacket was so rigid but also because the rigid link was to a currency, the dollar, that had appreciated strongly against the euro and other trading partner currencies during the second half of the 1990s. That meant Argentine exports suffered a huge loss in competitiveness at a time when world market conditions were already weak.
Finally, imposing the dollar on Iraq could also feed widespread fears of US imperialism. The politics would get even trickier if, as in Argentina, the arrangement hit a crisis - for example, as a consequence of an increase in US interest rates.
An alternative would be to peg the dinar to the euro. But this idea has big drawbacks as well. The euro has been appreciating against the dollar and might continue to do so as a result of ever-widening US trade deficits. A peg to the euro would thus risk a future loss of competitiveness against non-euro trading partners. The problem is that, as Iraq's trade returns to normal, its trading partners will be so dispersed geographically that a peg to either currency alone - the dollar or the euro - would introduce unwanted volatility with respect to the other. Like other countries with geographically diverse trading partners, Iraq may thus be headed for a basket peg, with equal weight given to the dollar and euro.
But a basket peg does not solve the problem that, in the event of large future declines in the world price of oil, the currency of an oil exporter must be able to depreciate in order to accommodate the adverse shift in the terms of trade and help stabilise export earnings. Fortunately a proposal designed for small commodity-exporters, which I have called "peg the export price", addresses precisely this issue.
The proposal is for a country to peg its currency to the export commodity. It could be implemented as follows. The central bank would set the daily price of dinars in terms of dollars in direct proportion to the daily price of a barrel of oil in terms of dollars. The result would be to stabilise the price of oil in domestic terms. This approach combines the best features of both fixed and floating exchange rates. Like fixed exchange rates, it constitutes a transparent nominal anchor and also helps promote integration into world markets. And yet, at the same time, it retains a crucial advantage claimed by floating exchange rates: automatic accommodation of fluctuations in world markets for the export commodity. In short, it offers the best of both worlds.
To fix the dinar simply to oil alone may be too radical a proposal. While it would facilitate the recovery and expansion of the oil sector, it might at the same time discourage production of other internationally tradeable goods by shifting the entire burden of price uncertainty on to them. My proposal for Iraq, therefore, is to add oil to the basket of currencies to which the dinar is pegged. For simplicity, give equal weight to all three units. Or, what is almost equivalent, define the value of the dinar as one-third of a dollar plus one-third of a euro, plus one-hundredth of a barrel of oil.
Unlike other proposals for nominal anchors, this is one that Iraq could live with even if there are big swings in world exchange rates or oil prices in the future. The country faces enough challenges without worrying about the risks of a future currency crash.
For more information about this publication please contact the Belfer Center Communications Office at 617-495-9858.
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