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The feasibility of deleting zeros from the Iraqi dinar?
I think this is a very important document..it clearly identifies that there is two plans. The original plan (which looks like a LOP) and the second plan (which the CBI appears to be implimenting with the new currency replacement notes) that is a gradual appreciation or float. A nice history lesson as well...
The feasibility of deleting zeros from the Iraqi dinar?
21/12/2014
The emergence of zeros and delete
Psychological factors
The cost of removing zeros
The implications of the deletion of zeros
2011 will see the deleted three zeros from the denominations of Iraqi currency, and it will equal the new Valdanar Old thousand dinars.
Some believe that this process will return to Iraq to economic period brightly and will enhance the value of the dinar at the International Monetary Fund and the international community will address the economic problems, particularly inflation. Others see in the operation of the value of the currency loss of one-third. Fbtkadirhm would be affected by the salary and wage earners because of their access to enter their purchasing power is less than the face value of the coin. They believe that the abolition of zeros will lead to a "monetary illusion".
These positions are based on shaky foundations and sometimes illogical. There is a clear confusion between the abolition of zeros and real improvement of the exchange rate, and a second mixing between the cancellation and inflation, and a third mixing between the cancellation and the devaluation of the currency.
The first situation is just wishful thinking unattainable by deleting the zeros.
And position the second mysterious as how to lead the deletion of zeros to financial loss and on what basis has identified one-third?
The deletion will not address inflation and will not contribute to the aggravation. They are not related to (or rather illusion) monetary research topic.
It seems that the central bank and some government parties tend to the first direction, after that add to the slogans of national achievement and economic reform and placement up with the Gulf Cooperation Council (GCC).
The emergence of zeros and delete
In total siege and rigorous period against Iraq for the period between 1990 and 2003 severe economic crisis strong oil exports collapse and the deterioration of industrial and agricultural production and rising unemployment, inflation and the lack of external debt repayment and a chronic deficit in the state budget emerged.
It is obvious that the exchange rate falls sharply until it reached parity value of the dollar to 3,000 dinars in 1995.
It became necessary to issue new cash categories reached the nominal value of 250 dinars but not equal in terms of real value only 25 fils coin from the seventies.
Thus three numbers appeared on the Iraqi currency. The United States occupied Iraq in 2003, rushed to cancel and replace denominations. In order to facilitate internal trade in daily life has become necessary to add other numbers.
Pat and dealing in the currency of the seven categories: 50, 250, 500 and 1,000 and 10,000 and 25,000 dinars.
Unlike the Arab countries do not exist in Iraq about 15 years ago coins.
To raise the exchange rate there is in principle a long and hard road leads to positive economic results and by another quick and easy useless in economic terms.
The first is the way of monetary and financial, trade and political indicators. It is the size of cash reserves and the weight of foreign debt and the center of the balance of trade and balance of payments, and the budget and the rate of inflation and the level of investment and the volume of agricultural and industrial production and the intervention of the monetary authorities and security conditions and exchange rates of major currencies.
When comparing the year 2008 year 1995, we find an improvement in most of these indicators, the price of a barrel of oil has risen from $ 17 in 1995 to $ 94 in 2008.
Iraq and was subject to an international embargo of 1990 to 2003. While the blockade was abolished after the occupation. And these two factors resulted in a rise in oil revenues of $ 370 million in 1995 to US $ 63,000 million in 2008. In this period, cash reserves moved from almost zero to $ 50 billion. The country has never achieve such a size even before the war against Iran.
Therefore improve the exchange rate of 3,000 dinars to the dollar in 1995 to 1204 dinars to the dollar in 2008 and to 1120 dinars to the dollar at the end of 2010. However, this improvement is not equal at all the results mentioned indicators due to the destruction of infrastructure and the lack of economic policies and rampant corruption.
The exchange rate is still very far from the aspirations of the Iraqi people. So went the other way to think of the easiest and fastest, a deletion of three zeros from the dinar.
The paper of 5000 dinars category, for example, will replace them another paper nominal value of 5 new dinars. Then move the exchange rate between overnight from 1120.00 dinars to the dollar to 1.12 dinars to the dollar.
It is noted that the process of deleting the zeros are known in several countries. Sudan delete the zeros from its currency in 2007. Bolivia canceled three zeros from its currency in 2008. Romania and removed four zeros from its currency in 2005. Turkey has to write off six zeros from its currency in 2005.
Psychological factors
The reasons for the deletion of zeros almost exclusively psychological aspect of the desire of a high exchange rate of the currency. This rise enters joy to the heart of Iraq. The joy of the return of the dinar to a prosperous past.
But this joy does not hide his conviction that the deletion of zeros process will not address the economic crisis experienced by a private falling standard of living, unemployment and deteriorating security and health and education services and energy services.
Indeed, the economic situation will not change when the dinar exchange rate of US $ 0.8 (deleting three zeros) will not change even if the Iraqi dinar has become the equivalent of $ 8. Because these parity values did not result from the economic data as was the case with the seventies, but just for a formal decision.
It should be noted that the central bank abandoned the practice for the fixed exchange regime to adopt flotation.
Bank intervenes in foreign exchange rates, which became subject to the market is no longer, so it does not stick to draw wisdom from the dinar per one dollar or any other price.
Must work to convince Iraqis that the currency's strength comes from the strength of the economy is not the number of units of foreign cash equivalents. In Japan there are banknotes of ten thousand yen category or about one hundred dollars. The Japanese do not find useful to delete the zeros from their currency until the yen up to $.
The cost of removing zeros
Until 1990, the Iraqi dinar was printed in Britain. In the period between the middle of the siege in 1990 and the first third of 2003, the dinar printed inside Iraq by the House of Mesopotamia Print established in 1979 and the Central Bank of Iraq. After the occupation returned to print again to Britain handled Dallarro company.
No official data on the cost of the Iraqi banknotes there. But it is known that the overall rate for the cost of the banknote in Britain 7 US cents. Enough to know the number of securities traded permission to give an idea of the total cost.
We did not find an official source in this regard, but a statement made by an official at the Central Bank of Iraq, which he said that this number is more than four trillion paper.
Our appreciation wrong in this statement or to move the event. It seems that the correct number is four billion paper. And thus the cost of becoming a printed $ 289 million. This amount is useless compared to the financial situation of millions of Iraqis and is importing more than 300 thousand tons of rice.
It may be appropriate to hold a referendum popular to see whether the Iraqis prefer to spend this amount for deleting three zeros from the dinar or monitoring to improve the ration. For this referendum political importance as well, because it will appear at the same time the approval or rejection of the Iraqi Kurdish language to enter their currency.
Add to that amount last Stamping metal pieces not to mention the money needed to address the consequences of the deletion of zeros replacing postal and financial stamps.
As the economic return, to replace the dinar is close to zero process becomes heavy financial loss, especially now that the state budget deficit.
In the case of insisting on this replacement for one reason or another have to take into consideration the following observations:
Local printing development: The process of removing zeros loss not only financial but also because of the economic currency printed outside of Iraq, which does not contribute to this process in the operation of the Iraqis, nor lead to an increase in value-added manufacturing. On this basis, it is necessary to rehabilitate rivers for printing house, which suffered after the occupation machinery for the theft and burning of documents.
This institution is currently printed bank checks, passports and cards Civil Status. And her experience in Edition No. 13 of the Iraqi dinar during the siege. It must be supported to carry out monetary functions.
It should be noted that Arab countries such as Morocco and Egypt are printed currencies according to high standards.
Awareness: Encourage the use of bank checks and provide media guidelines need to maintain the integrity of the banknotes and the introduction of electronic devices operating credit card to withdraw and deposit.
Feasibility Study: Photos of wasting public money printing or minting cash categories then seen as non-current, which requires withdrawn from the market. This is what actually happened in 2004, when it launched metal parts worth 25, 50 and 100 dinars and then withdrew in 2008.
The implications of the deletion of zeros
The money supply: lead deleted three zeros to reduce the money supply to reduce (narrow sense) of 24.2 trillion dinars to 24.2 billion dinars. This will be reflected directly on the nominal values of salaries and stock and bond prices.
The feeling of poverty: the deletion of zeros leads to a sense of one's poverty, it had a ten million dinars Pat has only ten thousand of them. This feeling may lead to reduced consumption, which is reflected negatively on the macroeconomic situation of the country. But should not be overstated in this effect, the Iraqis were used mainly to delete three zeros in their daily dealings. The feeling of poverty, if any, is limited to a short period of time.
Inflation: the experiences of countries indicate that the removal of zeros from the currency does not lead to a deal with inflation, in Zimbabwe has been deleted three zeros from the Zimbabwe dollar (local currency name) in 2006. He was not falling inflation index, but now prices are rising by 250% per hour (more than two million percent per year) until the price of a loaf of bread million dollars. Note that this increase has nothing to do delete the zeros, but economic data of related supply and demand.
Vkthert prices rose again zeros currency amounted to a nominal value of banknotes trillions. In 2008, the authorities proceeded to delete ten zeros from the Zimbabwe dollar.
Not up to this point in Iraq by oil revenues, but the nature of one problem, which is that the deletion of zeros does not address inflation because it is not a cause but a consequence. Even if we assume that the deletion of zeros dampens inflation is no longer useful for this deletion, because the Iraqi Central Bank data indicate that the rate of inflation has become only 3%.
If the deletion of zeros does not address inflation, it does not contribute to the rise. The removal of three zeros assume dividing the nominal value of new money 1000 at the same time is divided on this figure salaries, wages and other entry and nominal values of stocks and bonds, as well as the prices of goods and services. Some of the goods or services prices rise when the transition to the new currency, Witold popular feeling that the currency led to it. When should search in supply and demand to explain this rise in.
Real estate prices did not rise in Europe due to the euro, but because of the increasing demand for real estate in the period in which the euro afternoon.
Monetary illusion: He is known in economic theory since the thirties of the last century. It affects individuals who feel better financial condition just high salaries or wages if this increase access by 10% thus increasing their consumption. But they discover that the rise in incomes was only nominally, as the inflation rate (12%, for example) have led to a decline in real incomes. Then Siklson consumption to reconfigure their savings.
A few months ago there was much talk in Iraq for the emergence of monetary illusion in the case of the deletion of zeros from the dinar. Indeed, it is not relevant for monetary sense just above remove zeros, because it requires high salaries by less than the rate of inflation. When there is no relationship between nominal income and inflation is not correct to talk about monetary illusion.
The deletion of zeros may lead to the contrary in accordance with the feeling of poverty factor. Any consumption to decline in the first phase and then to return to normal consumption in the next stage, and status. In all cases, psychological factors remain high and limited short period of time does not apply to all individuals in the same sharpness.
The introduction of the Kurdish language: Replace the Iraqi currency a chance to enter the Kurdish language alongside Arabic and English. Iraqi dinar will be the only Arab Entries currency in three languages. And will be based on the second paragraph of Article IV of the Constitution, which states that the principle of equality requires the introduction of the Kurdish language to banknotes, passports and stamps.
This text Moved literally Article IX of the State Administration Act of 2004. There is no similar provision in all his previous Iraqi constitutions.
Is the principle of equality on the banknotes without metal pieces is limited or that the Constitution was unsuccessful in selecting the appropriate term.
If the principle of equality requires Kurdish entry into banknotes, why not also imperative Turkish, Persian and Syriac intercalation and Mandaean and Yazidi and retina.
Why do not Christians objected to the name of the currency as stipulated South Sudan movement in terms of the peace agreement signed with the government to switch the dinar name pounds, and this is what was actually in 2007. Iraq is an Arab Muslim country is not likely this mess. The Kurdish language is deployed on a global and Arab levels, but it is understood by more than 85% of the Iraqi people.
In front of the inevitability of the Kurdish language to introduce the first version of the coin after the entry into force of the new constitution is necessary to benefit from the experiences of other currencies. For example, the euro currency for many folks in Europe, but not in it, but any language symbols, numbers, and pictures that are only there.
The conclusion that the deletion of zeros is not much different from the modified banknotes size or change colors or add a new draw her a picture or remove them.
All of these operations do not lead to the deterioration of the economic situation or to improve.
Valastbdul of cash and paper category of 1,000 dinars another paper from one dinar category Kalastbdul of candy tray weighing 1000 grams another box of the same candy weighing one kilogram.
Economic Researcher
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I think this is a very important document..it clearly identifies that there is two plans. The original plan (which looks like a LOP) and the second plan (which the CBI appears to be implimenting with the new currency replacement notes) that is a gradual appreciation or float. A nice history lesson as well...
The feasibility of deleting zeros from the Iraqi dinar?
21/12/2014
The emergence of zeros and delete
Psychological factors
The cost of removing zeros
The implications of the deletion of zeros
2011 will see the deleted three zeros from the denominations of Iraqi currency, and it will equal the new Valdanar Old thousand dinars.
Some believe that this process will return to Iraq to economic period brightly and will enhance the value of the dinar at the International Monetary Fund and the international community will address the economic problems, particularly inflation. Others see in the operation of the value of the currency loss of one-third. Fbtkadirhm would be affected by the salary and wage earners because of their access to enter their purchasing power is less than the face value of the coin. They believe that the abolition of zeros will lead to a "monetary illusion".
These positions are based on shaky foundations and sometimes illogical. There is a clear confusion between the abolition of zeros and real improvement of the exchange rate, and a second mixing between the cancellation and inflation, and a third mixing between the cancellation and the devaluation of the currency.
The first situation is just wishful thinking unattainable by deleting the zeros.
And position the second mysterious as how to lead the deletion of zeros to financial loss and on what basis has identified one-third?
The deletion will not address inflation and will not contribute to the aggravation. They are not related to (or rather illusion) monetary research topic.
It seems that the central bank and some government parties tend to the first direction, after that add to the slogans of national achievement and economic reform and placement up with the Gulf Cooperation Council (GCC).
The emergence of zeros and delete
In total siege and rigorous period against Iraq for the period between 1990 and 2003 severe economic crisis strong oil exports collapse and the deterioration of industrial and agricultural production and rising unemployment, inflation and the lack of external debt repayment and a chronic deficit in the state budget emerged.
It is obvious that the exchange rate falls sharply until it reached parity value of the dollar to 3,000 dinars in 1995.
It became necessary to issue new cash categories reached the nominal value of 250 dinars but not equal in terms of real value only 25 fils coin from the seventies.
Thus three numbers appeared on the Iraqi currency. The United States occupied Iraq in 2003, rushed to cancel and replace denominations. In order to facilitate internal trade in daily life has become necessary to add other numbers.
Pat and dealing in the currency of the seven categories: 50, 250, 500 and 1,000 and 10,000 and 25,000 dinars.
Unlike the Arab countries do not exist in Iraq about 15 years ago coins.
To raise the exchange rate there is in principle a long and hard road leads to positive economic results and by another quick and easy useless in economic terms.
The first is the way of monetary and financial, trade and political indicators. It is the size of cash reserves and the weight of foreign debt and the center of the balance of trade and balance of payments, and the budget and the rate of inflation and the level of investment and the volume of agricultural and industrial production and the intervention of the monetary authorities and security conditions and exchange rates of major currencies.
When comparing the year 2008 year 1995, we find an improvement in most of these indicators, the price of a barrel of oil has risen from $ 17 in 1995 to $ 94 in 2008.
Iraq and was subject to an international embargo of 1990 to 2003. While the blockade was abolished after the occupation. And these two factors resulted in a rise in oil revenues of $ 370 million in 1995 to US $ 63,000 million in 2008. In this period, cash reserves moved from almost zero to $ 50 billion. The country has never achieve such a size even before the war against Iran.
Therefore improve the exchange rate of 3,000 dinars to the dollar in 1995 to 1204 dinars to the dollar in 2008 and to 1120 dinars to the dollar at the end of 2010. However, this improvement is not equal at all the results mentioned indicators due to the destruction of infrastructure and the lack of economic policies and rampant corruption.
The exchange rate is still very far from the aspirations of the Iraqi people. So went the other way to think of the easiest and fastest, a deletion of three zeros from the dinar.
The paper of 5000 dinars category, for example, will replace them another paper nominal value of 5 new dinars. Then move the exchange rate between overnight from 1120.00 dinars to the dollar to 1.12 dinars to the dollar.
It is noted that the process of deleting the zeros are known in several countries. Sudan delete the zeros from its currency in 2007. Bolivia canceled three zeros from its currency in 2008. Romania and removed four zeros from its currency in 2005. Turkey has to write off six zeros from its currency in 2005.
Psychological factors
The reasons for the deletion of zeros almost exclusively psychological aspect of the desire of a high exchange rate of the currency. This rise enters joy to the heart of Iraq. The joy of the return of the dinar to a prosperous past.
But this joy does not hide his conviction that the deletion of zeros process will not address the economic crisis experienced by a private falling standard of living, unemployment and deteriorating security and health and education services and energy services.
Indeed, the economic situation will not change when the dinar exchange rate of US $ 0.8 (deleting three zeros) will not change even if the Iraqi dinar has become the equivalent of $ 8. Because these parity values did not result from the economic data as was the case with the seventies, but just for a formal decision.
It should be noted that the central bank abandoned the practice for the fixed exchange regime to adopt flotation.
Bank intervenes in foreign exchange rates, which became subject to the market is no longer, so it does not stick to draw wisdom from the dinar per one dollar or any other price.
Must work to convince Iraqis that the currency's strength comes from the strength of the economy is not the number of units of foreign cash equivalents. In Japan there are banknotes of ten thousand yen category or about one hundred dollars. The Japanese do not find useful to delete the zeros from their currency until the yen up to $.
The cost of removing zeros
Until 1990, the Iraqi dinar was printed in Britain. In the period between the middle of the siege in 1990 and the first third of 2003, the dinar printed inside Iraq by the House of Mesopotamia Print established in 1979 and the Central Bank of Iraq. After the occupation returned to print again to Britain handled Dallarro company.
No official data on the cost of the Iraqi banknotes there. But it is known that the overall rate for the cost of the banknote in Britain 7 US cents. Enough to know the number of securities traded permission to give an idea of the total cost.
We did not find an official source in this regard, but a statement made by an official at the Central Bank of Iraq, which he said that this number is more than four trillion paper.
Our appreciation wrong in this statement or to move the event. It seems that the correct number is four billion paper. And thus the cost of becoming a printed $ 289 million. This amount is useless compared to the financial situation of millions of Iraqis and is importing more than 300 thousand tons of rice.
It may be appropriate to hold a referendum popular to see whether the Iraqis prefer to spend this amount for deleting three zeros from the dinar or monitoring to improve the ration. For this referendum political importance as well, because it will appear at the same time the approval or rejection of the Iraqi Kurdish language to enter their currency.
Add to that amount last Stamping metal pieces not to mention the money needed to address the consequences of the deletion of zeros replacing postal and financial stamps.
As the economic return, to replace the dinar is close to zero process becomes heavy financial loss, especially now that the state budget deficit.
In the case of insisting on this replacement for one reason or another have to take into consideration the following observations:
Local printing development: The process of removing zeros loss not only financial but also because of the economic currency printed outside of Iraq, which does not contribute to this process in the operation of the Iraqis, nor lead to an increase in value-added manufacturing. On this basis, it is necessary to rehabilitate rivers for printing house, which suffered after the occupation machinery for the theft and burning of documents.
This institution is currently printed bank checks, passports and cards Civil Status. And her experience in Edition No. 13 of the Iraqi dinar during the siege. It must be supported to carry out monetary functions.
It should be noted that Arab countries such as Morocco and Egypt are printed currencies according to high standards.
Awareness: Encourage the use of bank checks and provide media guidelines need to maintain the integrity of the banknotes and the introduction of electronic devices operating credit card to withdraw and deposit.
Feasibility Study: Photos of wasting public money printing or minting cash categories then seen as non-current, which requires withdrawn from the market. This is what actually happened in 2004, when it launched metal parts worth 25, 50 and 100 dinars and then withdrew in 2008.
The implications of the deletion of zeros
The money supply: lead deleted three zeros to reduce the money supply to reduce (narrow sense) of 24.2 trillion dinars to 24.2 billion dinars. This will be reflected directly on the nominal values of salaries and stock and bond prices.
The feeling of poverty: the deletion of zeros leads to a sense of one's poverty, it had a ten million dinars Pat has only ten thousand of them. This feeling may lead to reduced consumption, which is reflected negatively on the macroeconomic situation of the country. But should not be overstated in this effect, the Iraqis were used mainly to delete three zeros in their daily dealings. The feeling of poverty, if any, is limited to a short period of time.
Inflation: the experiences of countries indicate that the removal of zeros from the currency does not lead to a deal with inflation, in Zimbabwe has been deleted three zeros from the Zimbabwe dollar (local currency name) in 2006. He was not falling inflation index, but now prices are rising by 250% per hour (more than two million percent per year) until the price of a loaf of bread million dollars. Note that this increase has nothing to do delete the zeros, but economic data of related supply and demand.
Vkthert prices rose again zeros currency amounted to a nominal value of banknotes trillions. In 2008, the authorities proceeded to delete ten zeros from the Zimbabwe dollar.
Not up to this point in Iraq by oil revenues, but the nature of one problem, which is that the deletion of zeros does not address inflation because it is not a cause but a consequence. Even if we assume that the deletion of zeros dampens inflation is no longer useful for this deletion, because the Iraqi Central Bank data indicate that the rate of inflation has become only 3%.
If the deletion of zeros does not address inflation, it does not contribute to the rise. The removal of three zeros assume dividing the nominal value of new money 1000 at the same time is divided on this figure salaries, wages and other entry and nominal values of stocks and bonds, as well as the prices of goods and services. Some of the goods or services prices rise when the transition to the new currency, Witold popular feeling that the currency led to it. When should search in supply and demand to explain this rise in.
Real estate prices did not rise in Europe due to the euro, but because of the increasing demand for real estate in the period in which the euro afternoon.
Monetary illusion: He is known in economic theory since the thirties of the last century. It affects individuals who feel better financial condition just high salaries or wages if this increase access by 10% thus increasing their consumption. But they discover that the rise in incomes was only nominally, as the inflation rate (12%, for example) have led to a decline in real incomes. Then Siklson consumption to reconfigure their savings.
A few months ago there was much talk in Iraq for the emergence of monetary illusion in the case of the deletion of zeros from the dinar. Indeed, it is not relevant for monetary sense just above remove zeros, because it requires high salaries by less than the rate of inflation. When there is no relationship between nominal income and inflation is not correct to talk about monetary illusion.
The deletion of zeros may lead to the contrary in accordance with the feeling of poverty factor. Any consumption to decline in the first phase and then to return to normal consumption in the next stage, and status. In all cases, psychological factors remain high and limited short period of time does not apply to all individuals in the same sharpness.
The introduction of the Kurdish language: Replace the Iraqi currency a chance to enter the Kurdish language alongside Arabic and English. Iraqi dinar will be the only Arab Entries currency in three languages. And will be based on the second paragraph of Article IV of the Constitution, which states that the principle of equality requires the introduction of the Kurdish language to banknotes, passports and stamps.
This text Moved literally Article IX of the State Administration Act of 2004. There is no similar provision in all his previous Iraqi constitutions.
Is the principle of equality on the banknotes without metal pieces is limited or that the Constitution was unsuccessful in selecting the appropriate term.
If the principle of equality requires Kurdish entry into banknotes, why not also imperative Turkish, Persian and Syriac intercalation and Mandaean and Yazidi and retina.
Why do not Christians objected to the name of the currency as stipulated South Sudan movement in terms of the peace agreement signed with the government to switch the dinar name pounds, and this is what was actually in 2007. Iraq is an Arab Muslim country is not likely this mess. The Kurdish language is deployed on a global and Arab levels, but it is understood by more than 85% of the Iraqi people.
In front of the inevitability of the Kurdish language to introduce the first version of the coin after the entry into force of the new constitution is necessary to benefit from the experiences of other currencies. For example, the euro currency for many folks in Europe, but not in it, but any language symbols, numbers, and pictures that are only there.
The conclusion that the deletion of zeros is not much different from the modified banknotes size or change colors or add a new draw her a picture or remove them.
All of these operations do not lead to the deterioration of the economic situation or to improve.
Valastbdul of cash and paper category of 1,000 dinars another paper from one dinar category Kalastbdul of candy tray weighing 1000 grams another box of the same candy weighing one kilogram.
Economic Researcher
[You must be registered and logged in to see this link.]
