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Iraqi Dinar Buzz Updates

The bank’s move is overdue
2011-01-01 10:21:32
Economic analyst Hilal al-Tahhan was quoted as saying, “The bank’s move is overdue.” He said he expects the currency change to go smoothly because of the decision to allow both the current and new banknotes to coexist during an extended exchange period, leading to less turbulence in the economy.

What does all this mean? Overall, this news appears to be very positive and possibly points to some significant changes in the value of the Iraqi Dinar. It has long been the opinion of many Iraqi Dinar investors that the Iraqi Government must introduce new lower denominations into their economy before the value of their currency increases. If the value (buying power) of the dinar increases significantly or rapidly, the larger denominations currently in circulation would be impractical for use during everyday transactions in the Iraqi economy. If the Iraqi Dinar increased in value to 10 cents (.1 USD), the smallest banknote in Iraqi would have a value of $5 USD. There would no practical way to purchase everyday items in the economy and no way to make change–the currency would be impractical and unusable. If a soda in Iraq has a value of 50 cents now, it will still have a value of 50 cents if the value of the Dinar increases, and there has to be a denomination in the Iraq economy to pay for it. The current problem is that Iraq doesn’t have any currency in circulation to pay for normal day-to-day products if the Dinar rises significantly in value, so Iraq must have smaller denominations moving forward.

Also from the recent news, it appears as though all denominations (current and soon to be issued) will be in circulation at the same time and no immediate exchange will be necessary. Hopefully, the Iraqi Dinar will be on the world exchange market soon to allow for even easier exchange in the near future. Expectations are that Iraq is moving as fast as they can to rebuild their economy and wealth, and join the international economic community.

There have also been rumors about the future exchangeable value of some current Iraqi banknote denominations, and limited time periods for exchange of current Iraqi banknotes. It has been falsely rumored that perhaps the 25,000 Dinar banknote will be exchanged at a different exchange rate than current smaller Iraqi banknotes. Another false rumor suggests there will be a very short period (days or weeks) of exchange for the current Iraqi banknotes after a significant change of value and introduction of lower denominations.

To address these rumors, let’s look at currency from a basic level: Countries issue their own currency. They issue their currency with a responsibility to honor it and redeem it. The currency must be accounted for. When a country issues currency (the US as an example), they borrow against the currency and issue debt to support it. The U.S. recently printed a significant amount of currency in order to finance stimulus funding. In order to do this, the U.S. government had to borrow the money with an obligation to pay it back.

One of the main functions of the U.S. Treasury Department is to manage the U.S. national debt (the amount of money which the federal government owes to its creditors). China owns much of our debt as do U.S. citizens and other countries–we must honor our issued currency and our debt. If a country doesn’t honor its debt, creditors (other countries and investors) lose faith in the defaulting country to a country will end up in financial ruins. Iraq, as a responsible member of the world economic community with a goal of getting their currency online with the rest of the world currencies, has issued currency with an obligation to honor it—-all of it–not just certain denominations. Throughout modern history, there has not been one instance where a country honored some denominations, but not others. If certain denominations were not valued, people and other countries would lose faith in that country’s responsibility to respect their debt and honor their issued currency. If a nation only valued certain denominations, who would trade with them, exchange with them, or conduct business with them? To limit the time period for currency exchange in order to force the de-valuation of currency in circulation in order to reduce debt doesn’t happen and wouldn’t be tolerated by the world financial community. Countries have to be accountable for all of their currency and they can’t play games with exchange timelines to try and prevent people for exchanging. Remember, in addition to individual investors, large governments and banks outside of Iraq hold Iraqi currency. Money from all over the world has flowed into Iraq through the purchase of Iraqi Dinar. The Iraqi Government will honor that investment in their economy, or there will never be faith in their economy and they will never be accepted by the world financial community.