Appreciate The Risk Or Get Out Of The Oven
Abunch of inquiries about Iraq’s increasing in value of their currency and dropping off the zeros in their Dinar has been haunting several dinar investors for over 7 years. More curious about the newly introduced redenomination and its effect to the value of Dinar and the country’s economy.
As what AmericanContractor stated,
“There has been a lot of discussion in regards to the deleting of the zero’s or what most people in Baghdad consider as changing the Iraqi dinar currency.” What will be the outcome with this peril of the zeros?
A rumor even broke out that the Iraq Finance Minister himself has released a statement asserting that the government has prepared a plan to increase the value of the country’s currency against the current value of the USD. It is believed that fiscal policies imposed in the country have significantly contributed to the increase of Iraqi Dinar’s value against the USD.
Some individuals are not totally convinced on the issue springing forth that there will be re-denomination in the country’s currency because of the existing debate on the planned implementation of the Erbil agreement but the low demand for the US dollar in the local Iraqi currency exchange markets has caught the majority’s attention more than the concern of the 19 Terms Paper.
Mudhhir Muhammad Salih, the Central Bank advisory panel, released a statement telling that new banknotes will be introduced while the current banknotes will be removed from the circulation of Iraq’s economy. The denomination would be tender in Iraq until the current banknotes will be completely replaced by the new ones although the date as to when the new banknotes be released is not yet specified.
With all the breaking rumors and news, what do they imply? As a whole, news points to significant alterations in the country’s currency value. Lots of Dinar vets are hoping that the Iraqi government will introduce new lower denominations into the economy of Iraq.
It is already expected that when the purchasing power of the dinar increases rapidly, the larger denominations would become impractical for use during the daily transactions in the country.
So, if there would be an increase of value to ten cents (which would make 0.1 US dollar), the smallest banknote of the country would make up for 5 USD. It would then be impractical to buy daily necessary items in the market and there would be no way to make for change – this would make the country’s currency impractical and unusable. There has to be a denomination in the country’s economy to address the need. Not a devaluation which is a totally different reason for a re-denomination.
Also from the recent released news, it appears that all denominations will be in circulation right at the same time without immediate exchange. It is believed (hopefully) that Iraqi Dinar will be among the currencies engaging on the world exchange market. This will definitely open a door to an easier exchange in the future. There are high expectations on Iraq becoming fast as the country continually rebuilds their wealth, economy and promoting international relations.
Some of the rumors spread are the issue about the future exchangeable value of few of the present Iraqi bank note denominations and the rumor about the time-bounded periods for exchange of current Iraqi banknotes. And to the numerous rumors being spread, it won’t be impossible to get false rumors.
One of the false rumors getting into the ear of the people concern is the issue about the 25,000 dinar banknote to be exchanged at a different exchange rate than the present smaller banknotes. Another false rumor suggests that there will be an expected short period of exchange for the present banknotes after a significant alteration of value and the release of lower denominations.
Well, to clarify all these rumors, we may try to look at currency from a basic perspective. Countries issue their own chosen currency. They issue their currency with an obligation to honor and redeem it. When a certain country issues currency (we’ll make use of US as anexample), they borrow against that currency and issue debt to support it. The US just printed a huge amount of currency for stimulus funding. And order to implement this, the government of US had to borrow the money bearing the responsibility to pay it back.
US Treasury Department, the function of this department is to manage effectively the national debt of the country– the huge amount of money which the federal government owes to its investors and creditors. As believed, China owns much of our debt as do US people living within the premises of the country and othercountries. And as concerned citizens, we should honor our issued currency and our debt because a country that refuses to honor its debt will lose creditors and investors.
When creditors lose their faith in the defaulting country, the country will expectedly experience financial ruins. And Iraq as part of the world economic community carrying a goal of getting their currency online with the rest of the known world currencies, has successfully issued currency with an obligation to honor it all and not just on certain denominations.
All countries have to take full responsibility (and that certainly includes Iraq) for all of their currency issued and they are not allowed to exchange time lines to try and even eradicate people for exchanging. And money from all over the corners of the globe has already flowed into Iraq through the purchase of its famous Dinar.
Government of Iraq will honor that opportunity in their present economy otherwise; They will never be accepted by the world financial community. Besides, there has never been a country among the world economic community that refused to honor its debt -the world financial community would never accept such.
So, what will be the outcome? Will ‘knocking off the zeros’ contribute for a greater change? Well, we may think of the positive possibilities and positive results. This can mean, not having to carry a heavy bunch of papers while doing transactions or purchasing daily needs for the Iraq citizens. Give the Iraqi’s what they want, and we may possibly get what we want. Iraqis want a currency they can carry that doesn’t have all the zeros that a ‘devalued’ China currency has. Where 1 dinar means something, now, before a revaluation. A dinar actually has some skin in the game.
Besides, if they are not going to make a move to re-denominate the Dinar, how would they increase the value without reducing the number of Iraqi Dinar in circulation first? Although there is no certainty that re-denomination would make the value of Iraqi Dinar closer tothe current value of the US dollar still, such a re-denomination would certainly help simplify Iraqi transactions and the record keeping.
A new look and feel for the physical banknotes of Iraq may open new doors for the development of the growing country; While keeping the old banknotes proportional in value to the new. Kind of like what a US $10,000 banknote is worth. A US $10K banknote has not been in print since some time in the 60’s but such note is still worth $10,000 today legal tender value.
Written by Darren Chabluk for http://DrDinar.com/blog
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