Financial chat: Exlpanation of deletion of zeros ( part 4)
6. The transaction is completed with the Federal Reserve exchanging foreign reserve credits which are equal to 10,000 IQD (which had a net acquisition cost of $6,500 USD) for 200 barrels of oil (which has a net cost to produce of $130 USD.
Simply put, it cost Iraq $130 USD from their foreign currency reserve accounts to redeem the value of 10,000 IQD, which goes into their operating accounts. At the same time the US got $10,000 worth of oil for a net cost of $6,500. Thatís how it was originally planned for Iraq to RV at 1 IQD = 1 USD, with the variable being the political element (i.e. UN Sanctions, GOI actions, IMF actions, World Bank actions etc.)
Now letís really stir the pot by:
a) Having the DFI ($280+ Billion USD) plus other frozen assets (estimated at $100 billion) turned back to Iraq and added to their foreign currency reserve, bringing it up to $430+ billion USD.
Then change the current fractional IQD reserve requirements of 100% to 15%. That just raised the total potential money supply value to $2.8 Trillion (430 billion/ 15), while at the same time the total physical IQD in circulation is being reduced by removing the large bills with the 3 zeros.
c) Also execute the plan Iraq announced to increase oil production from 2+ million barrels/day to 10 million barrels/day with the resulting revenues flowing directly to the Iraq treasury.
d) To add a little more intrigue have the CBI continue to use itís sales window to market oil futures and Forex contracts. They have shown they can generate significant cash flow in the private market, think of their impact in public markets.
We leave it to your analytical ability to determine how high of an RV exchange rate IRAQ can really support. There is strong political pressure to set the initial rate at $3.22 USD = 1 IQD, so it can be proclaimed that IRAQ has moved back into the International community of nations and has re-established itís currency at the internationally traded rate in effect before Saddam invaded Kuwait in 1990.
$3.21+ as I remember, which is suggested is the same exchange rates cabinet ministers reportedly used to project the 2010 budget.