Financial chat: Exlpanation of deletion of zeros ( part 2)
4. The next obvious question was how would the removal of the large bills with the three zeros work outside of Iraq, because of the number of world speculators holding IQD. He indicated, the amount of IQD held by speculators was relatively minor (less than 10%) compared to the IQD held as foreign currency reserve by the central banks of a number of major countries (US, China, England & France were the largest) with major financial interest in Iraq. He didnít have an exact estimate of speculator holdings but ventured an educated guess of 750,000 individuals worldwide with the majority in the US. Estimated value of their holdings $1.5 Trillion - $1.7 trillion IQD.
Maybe this will help, Pt 2
5. Before discussing the planned process of how currency exchange would take plan after the IQD was released as an international tradable currency, he asked if I remembered my economics 101 and what the real purpose of currency is? Yes teacher I replied, itís a medium of exchange that facilitates the orderly distribution of goods and services among individuals, companies, countryís etc. The often used example, is the use of currency allows an automobile dealer to exchange a new mustang GT (composed of many diverse parts each with its own individual market value) for the cash down payment + bank financing check of a proud new owner, and each has received equal market value at the moment of exchange.
This is an important concept because the value of a particular currency may be defined by the value of what the currency can be exchanged for, instead of the usual underlying economic indicators.
The complete discussion was rather lengthy so hereís the executive summary of how the exchange should work with IQD owned by a US speculator:
1. IQD is released internationally with an exchange rate of $1 USD = 1 IQD
2. IQD is exchanged by Mr. & Mrs. X at Bank Y. Their exchange value is credited to their designated financial account, Bank Y forwards the IQD currency to the Federal Reserve and Bank Yís account is credited at the bank private exchange rate. Yes, the banks will have a private rate and then they will add their profit spread to come up with their public rate. By law this bank spread could be as high as 8%, but it will be a competitive marketplace and the banks know investors will shop around. There is a possibility that there might even be a three rate structure (i.e. Treasury Rate - Bank Private Rate - Bank Public Rate) imposed, but he had no input on that subject.
3. The Federal Reserve adds the value of the exchanged IQD to their foreign currency reserve accounts and destroys the actual physical currency under agreement with the CBI, which serves to reduce the total IQD physical currency in circulation. This build up of the foreign currency reserve accounts serves to strengthen the USD in the marketplace, because heretofore the US has never held significant foreign currency reserves, because there wasnít any country whose currency was perceived as being equal to or stronger than the USD. The IQD with itís commodity (oil+others) base, potential for agriculture growth and aggressive private development growth, has the capability to become the most valuable currency in the world in the 10 years after itís revaluation and approval as an internationally recognized currency. Other countries have lots of oil, but they canít feed themselves, they operate under a monarchy or religious tribunal and they have no private development system in place.