"Real Values of Currencies" by TJ - 4/30/19

by **RamblerNash** Tue Apr 30, 2019 10:57 pm

I have been doing some homework.

I found out that the 2 main considerations in determining the true value of a nation's currency are:

1) First, do the sovereign nations have hard assets to back their currency? This is similar to securing a loan from your bank using your assets as collateral, and is fast becoming a non-issue for sovereign nations as assets owned by those nations are being confirmed. This sets the maximum possible amount of gold/asset-backed currency a sovereign nation could ever issue.

2) Second, the perceived value of all the currency a sovereign nation has in circulation is directly related to it's current GDP and anticipated future GDP. Similar to the price of shares being determined by a company's current earnings and anticipated future earnings. If a company wishes to increase the value of its shares or issue more shares, it must increase its business. If a nation wants to increase the value of its currency or issue more currency, it must increase its GDP.

The traditional historic safe price / earnings ratio (P/E) for companies is 10. A red-hot company today might have a P/E of 100, but at this level it is a mix of greed, hopium and musical chairs.

Paying less than a P/E of 10 for shares is generally considered a good investment, all other things being equal, paying more than this is speculation. If this tried-and-true number also holds true at the national level, the total safe value of all a nation's currency would be ten times their GDP.

Using Iraq as an example, their record GDP is 235 billion dollars. Their GDP last year was 170 billion dollars. For the sake of this discussion, let's assume a GDP number of 200 billion dollars for 2019.

It is hard to get a good number for the amount of Iraqi dinars in circulation, but it seems to be around 35 trillion dinars today.

Therefore the healthy value of an Iraqi dinar would be ten x (200 billion / 35 trillion), or 5.7 cents / dinar. This is less than it used to be because there are many more dinars in circulation today and Iraq's GDP is less than it was.

If Iraq is considered a red-hot nation, their dinar may become valued at 100 x (200 billion / 35 trillion), or 57 cents, and they do have the assets to back this.

5.7 cents does not upset me as most of us would be very happy to receive this exchange rate. 57 cents would be truly wonderful. After all, isn't this what we were hoping for when we bought some exotic currency years ago?

The only way the exchange rate could be greater than this range today is if it is being subsidised. This is where the ZIM comes in.

The ZIM plan is to issue lots of money supported by Zimbabwe's assets, and then use some of that money to increase the exchange rate for the dinar (and other currencies).

The first problem with the ZIM plan is that if quintillions of Zimbabwe dollars were introduced into the world, the value per Zimbabwe dollar would be effectively zero today as their GDP is very small. The hyperinflation Zimbabwe saw before would be nothing compared to what would then happen to them. Even if the ZIMs were introduced on behalf of all of Africa, their value would still be effectively zero as the GDP of all of Africa is still nowhere near sufficient, and all of Africa would then suffer hyperinflation and collapse economically.

If those Zimbabwe dollars were bought by other nations at even $3 million per 100T note, those nations might be able to absorb the loss, but there would be no money to support any over-inflated currency anywhere. If nations paid much more than this, the same hyperinflation fate would happen to those nations too. A world-wide economic collapse would quickly follow.

The outrageous ZIM plan is fast becoming another casualty of the world waking up. Our original exotic currency plans were just right for us.

TJ