CBI achieves the highest reserves of hard currency in its history

CBI achieves the highest reserves of hard currency in its history

11/05/2013 - 15:35

Alsumaria News / Baghdad
A banking source revealed early on Saturday, that the size of the Iraqi Central Bank reserves of foreign currency amounted to $ 74 billion, noting that it is the highest achieved by the bank reserves in the country's history.

The source said in an interview for "Alsumaria News", "The size of the central bank's reserves of foreign currency amounted to $ 74 billion," noting that "it represents the highest rate up to the bank of this currency in the history of Iraq."

The source, who asked not to be named, said, "This reserve will cover the needs of the domestic market of the dollar," noting that "the Bank continues to develop its reserves and employed in a number of investment portfolios and central banks to diversify its resources."

Referred to as the exchange rate of the dollar against the Iraqi dinar has witnessed in recent times significant rise, after that the dollar exchange rate was between 1160 and 1180 dinars to the dollar earlier this year, the exchange rate rose in May to the current 1270 dinars per dollar.

And established the Iraqi Central Bank as a bank independent under its law issued on the sixth of March of the year 2004, as an independent body, which is responsible for maintaining price stability and the implementation of monetary policy, including exchange rate policies and being daily sessions for the sale and purchase of foreign currencies, except for public holidays on which depends by the Bank for these auctions.

[You must be registered and logged in to see this link.]

Some more great points by tlar:

Before they started the intense buying of dinars from Iraq, Iran and Syria, Saleh reported the in country dinars, meaning what was circulating in Iraq, to be 4 trillion. That was the amount of dinar physically trading in order to run the economy of Iraq. Since they have started buying and retiring Iraq, we know they have bought untold trillions of dinar, selling USD in an effort to dollarize Iraq and remove dinar from Iran and Syria. With the recent articles, salaries of civil servants paid in USD, provinces being paid in USD and banks selling USD on the street corners, it seems they are attempting to collect every dinar in circulation. Since April of 2011, the CBI has been receiving the three zero notes but not letting them out of the bank. This has aided the dollarization effort as the highest bill recirculating once these bills big became scarce is the 1000. That's like you or I trying to operate day today without a credit card and the highest bill in our pocket being a $5.00 bill. We also have been told through articles that the 250 and the 1000 notes are in such bad condition that civil servants, street vendors, not even cab drivers are wanting to take them in trade for goods or services. If you are an Iraqi, you almost have no choice but to use USD, a foreign currency, to be able to participate in the day to day economy. Again, its like us having to use the yen or the peso. Iraqi's don't like it but have little choice but to dollarize. Throw in fear that the dinar may not hold its value and you have created the perfect storm to dollarize.
Under normal circumstances countries replace their currency as it circulates. The average US dollar circulates one to two years before it is collected and destroyed. The dinars have been in circulation for 10 years plus. There is no replacement procedure in place and there is no plan to reprint the 3 zero notes. Iraq is dollarizing for two reasons. The first is that the present currency is almost totally unusable in day to day transactions. The second is obvious to me. Iraq is getting ready to make a major change.

If a company is worth 1 million in assets and there is only 1 outstanding share of stock, that 1 share is worth 1 million dollars. With two shares outstanding, each share is worth 500 thousand dollars. It works the same way with a currency. If a country has 74 billion in US foreign currency reserves and there is only 1 dinar left out there, then that dinar is worth 74 billion dollars. The fewer the dinars left in circulation, the higher the value and the easier the CBI can support the price if they are to increase it. Dinars that we hold if they end up as US foreign currency reserves after a change, are not to be confused with dinars in circulation. What sustains the value of these dinars is the economy of the issuing country. Iraq is expected to have one of the highest growing economies in the world for the foreseeable next couple of years at least. They in essence stand on their own two feet and the CBI will not have to account account for these dinars in the currency reserves. Depending on what they are allowed to compute to back the currency under the IMF rules, they could have trillions backing their currency. Currency reserves for a country is meant to describe how much money in foreign currency that a country has to back their currency and the length of time that that amount will pay a balance of payments. They cannot use the currency issued by themselves as part of this number. Only foreign currency. A country that has three times its monthly requirements to operate is considered acceptable. Recently Egypt, in 2012 had a seven month reserve but since their revolution, that reserve has dwindled down to less than a month. This equates to Egypt eating their own body fat and is the reason they are seeking funds from Iraq and elsewhere.
What currency reserves are for is to cover some percentage only of the dinars that are used in and out of Iraq on a daily basis for economic activity and to cover a period of time within which Iraq could operate based on the countries external needs. Reserve requirements as mandated by international laws at present do not say what Iraq's percentage of reserves will have to be, but reserves will vary from country to country and will depend on which group Iraq ends up in, as to what there actual reserve requirements will have to be. Until Iraq goes international and ends up in a group they will not know what the requirement will be. Most likely they will join the EU group. These requirements are complicated and detailed but reserve requirements in general mean that a country must hold foreign currency at some percentage less than 100% of the funds needed to back their own currency and their dealings with the outside world. At 74 billion, Iraq is already there and has been ever since they had attained 27 billion in their foreign currency reserves. The sum total of all dinars released according to the CBI was some 30 trillion. We know by now, the number still out has been significantly reduced because of the dollarization of Iraq, Syria and Iran. With 74 billion currently in reserves they have to be covering all outstanding currency everywhere 3-5 times over. But remember, the only currency they have to cover is the currency circulating in Iraq on a daily basis.
We may be very close to the end. At the point that there is only a trillion or less in circulation in Iraq dinars left in Iraq, Iran and Syria, there will be no question that they could remove the zeros and support the currency at a dollar. International reserve requirement are from 1.5% on up. Iraq should fall in a 10% or less as their requirement IMHO.. 74 billion means they can cover 740 billion in value even if they are stuck covering at the whole 10%. This will be the reserves necessary to cover the dinar left in Iraq We will not be privy to that number until an event happens if ever. Remember, everyday in Iraq the amount of dinars are being reduced, and conversely everyday the CBI is increasing it reserves.

Here are a couple of articles and papers pertaining to currency reserve requirements:

[You must be registered and logged in to see this link.]

I have referred to this one in the past too:

[You must be registered and logged in to see this link.]

Great stuff Shredd!!!