Tlar;s Saturday Questions and Answers

mystic137    hi Tlar  I was wondering what you think about the whole issue of IMF compliance and getting into Article VIII.....having the street rate and bank rate 2% or less

I know this is a big issue for Kap and others and they think that for the IQD to be internationally trade-able they have to get down to that 2%  (and go from Article IV to VIII)     thanks!

mystic137    I was just wondering about the importance of  needing to move to Article VIII for the IQD changing value....

I am not a proponent of the float theory and I have thought for a while that the CBI could become IMF compliant right away if necessary.....that it is ready to go and things are being stalled  (and that the whole argument they are not in compliance with the 2% is really a moot point)
~~~

Tlar :      mystic, my view is different from ****  for a number of reasons.  First the CBI has just stated that once the government is together and settled, they will delete the zeros around the middle of this year. 

Since there is no way to tell if the rate will be at 2% between the program and street rate, they are saying they are going to do it at that time anyway, only stipulating the government situation must be settled. 

I think that while it is a requirement for countries to try to keep their rates at 2% or less, it may not be necessary for Iraq to actually be at 2% to change the value of the currency and then declare they are going to article VIII.  Once in article VIII everything changes anyway as far as monetary policy.  

The playing field changes and so do the rules.   The IMF will continue to put pressure on them to keep the rate at 2% as before but this is an extraordinary and unique situation.

Never before has a leader of a country allow what has gone on in this country.  Maliki has tacitly allowed Iran to counterfeit the dinar and sell it inside the country and has never made one arrest that is tied back to Iran.  Remember Maliki is in Iran's debt for them virtually securing his role as PM in the 2010 elections. 

In my eyes he is complicit in Iran's counterfeiting the dinar..  Everybody knows Iran has been dumping bogus counterfeit dinars on Iraq now for years and taking good USD back home.

 Maliki has let this fester to a point that is serious and kit was taking a toll on Iraq's economy.  You just can't bleed a country the size of Iraq year after year of billions in hard currency and not have some kind of economic effect..

Shabibi, when he was the governor, once told the press that it is not the bank responsibility to ferret out the counterfeiters.  That is a government responsibility because the government has security and police forces.  He said this to the press in 2010.  Still Maliki let it go on doing nothing. 

The US warned the Maliki government as far back as end of 2009 that Iran was starting to counterfeit the currency and set up bogus companies and distribution systems to sell it in Iraq.

 Maliki still did nothing.  The shear fact that the only counterfeiters that have ever  been caught in Iraq were Iraqi's consisting of one and two man operations operating inside of Iraq, while I'm sure with very little investigative work they could have found the hundreds of connections to organizations connected to Iran.  I feel sure Maliki made sure those investigations were never followed up on which in my book makes him complicit.

After they remove the old currency completely that issue should become a normal situation and State Sponsored counterfeiting should largely cease to exist.  The IMF are not fools. 

They know the CBI is already taking the preventative measures to get this done.  They also understand this is a battle the CBI has had to fight on its own getting no support from the Maliki government. 

By and large it is what had created the split between the rates in the first place with all the pressure buying and selling on the streets by Iran operatives.  Remember Iran was under heavy sanctions, their currency had all but collapsed and they were cash starved for hard currency.

When it comes to the split, I believe the IMF will be supportive of this and today I believe the CBI will do this even if the rate is a little over 2% with the IMF's blessing.

The new smalls when released should put an end to counterfeiting on the level that the CBI has had to endure..  I have said all along I don't think this is a stopper for an RV and also the laws that Kap feels must be done before there can be a movement in the currency, I also disagree with him.

While these laws are important to Iraq for economic growth, I believe they are not absolutely as necessary as he thinks they are to see a change in value.

 We need only to look at the history of this event to date.  When Shabibi tried unsuccessfully to delete the zeros at least 3 times, these laws were not on the books. 

Shabibi did not let that stop his attempts to delete the zeros.  Turki with virtually no history of running a central bank has done a marvelous job IMO.  How come? 

It is my belief that Turki and Shabibi have stayed in close touch since Turki came to realize what a crook Maliki was and turned agaigst him.  IMO Shabibi has been a silent advisor of Turki's. 

After all Shabibi's legacy is in part on trial here.  I believe he has a vested interest in seeing this project (his baby) come to fruition.  tlar

So as far as the 2% requirement is concerned, I believe the IMF will allow the CBI to declare Article VIII, change the value of their currency and then they will keep very close tabs on this event, and help the CBI in any way they can to maintain that 2%. 

The IMF will be tolerant if the CBI is ready to go. The IMF has stated on many occasions in the past that they are ready to help in any way in Iraq's project to delete the zeros.  I don't think that philosophy has changed.  Remember as you read this, it is speculation on my part.  tlar

BeastMaster   Do you expect a run on the banks now with the CBI announcement like the run in Jan?

Tlar    That's a really good question and it is an enigma to me.  Why in the world would Turki make a statement like he did that he will delete the zeros by the middle of the year? 

Remember he also said he was ready to do it immediately if the government is settled so it may not be the middle of the year. 

It seems to me he is inviting a run unless he plans to do it much sooner than July 1st or mid year.  I wish I had a definitive thought on this but honestly I can't put my finger on it unless the people who pulled their currency out of the banks in Jan have not put it back in. 

If that's the case he may think it makes no difference.  I have said over and over that we would get no heads up from the CBI and here we are.  We just got a heads up.  It came out of left field for me. So who knows?  tlar

mystic137    Thanks Tlar for your explanation.... I greatly appreciate the time you take to write such a thorough post....  always so much to learn

jackt      Thanks for your observations tlar. Much appreciated.

Phillyman           Appreciate your thoughts on this Tlar,  I just read our buddy **** is saying that  "those who keep posting the dinar will RV/RI or go up in value, today, tomorrow or even within 60 days are nuts." 

He is looking at terrorism, non compliance with the IMF, laws that need to be passed, conditions from Article 4 consultation not met, all drawing him to the conclusion late 2014 at best.

Not sure if this is a statement made out of frustration of things not happening as he thought they would before but I still think most will be humbled including myself on how and when this goes down.  (Except **** who covers every day on the calendar) 

It would never make sense to me that we would even be able to figure out a window of when this will happen.