Personal Opinion on RV/Removing Zeroes (PART 1 OF 2)
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Thread: Personal Opinion on RV/Removing Zeroes (PART 1 OF 2)

  1. #1

    Question Personal Opinion on RV/Removing Zeroes (PART 1 OF 2)

    I have long wondered how the logistics of an RV would happen in the context of the amount of Iraqi currency in circulation and how that would play out with the dropping of zeroes from the Iraqi currency. I based my information on what I have read in the Arabic news, reports in chat/forums (both credible and unsubstantiated), transcripts from Iraqi press conferences, various financial statistic sites, and my own mathematics background. I have no doubt SOMETHING will be happening. And I AM significantly invested in Dinar so this is not a "hateful" post. This is just what I have come to believe will happen based on the information I have to date. It is not what I WANT to happen; I just feel this is probably what WILL happen. This has nothing to do with any individuals, sites, or groups and whether they are more or less truthful than the next group. It's just an analytical approach to understanding the RV from the "BEFORE" side of the event. Afterwards, I hope my impressions were wrong and we are all MUCH better off than we were before.

    Here is an article I'm basing my conclusions on:
    There are several like it online and many more of them say they want to Dinar to equal the Dollar. You're welcome to debate what that actually means but in order to explain that, you need to explain how the different conclusions affect the value of our investment in the end. I will attempt to do so in the following LENGTHY post…

    I will say that this is an extremely complex issue affecting Iraq and the rest of the world. I have no background in conspiracy theories or anything like that. I simply hope to make money in this investment like most of you.

    I will attempt to explain this as simply as I can but there are a lot of mathematical concepts that need to be discussed to comprehend the whole picture. I'm not opposed to reasonable discussions on points where I may be mistaken, but I would need my central points addressed before I would accept a different alternative as a whole.

    The crux of my argument is built around the fact that I have not seen an explanation of how Iraq can "remove the zeroes" from their currency as has been recently described in news articles while preserving any large return for people that currently hold physical Dinar. I realize that some of this is based on contextual translations that don't always make sense to non-Arabic speakers. But I have seen enough "variations" on the same theme to be comfortable saying my interpretation is at least plausible if not correct. I don't really care whether you call "removing zeroes" a "LOP" or not. I'm going to simply describe many scenarios below and you can call it what you want. The name is not nearly as important as what it does to the end value of the Dinar we hold.

    In some of the examples below, I will reference the "Exchange of Dinar to Dinar" as "D2D" and the "Exchange of Dinar to Dollars" as "D2USD".

    Strengthening the Dinar against the Dollar

    Most articles about the removal of zeroes tend to say that this action will strengthen the Dinar against the Dollar. I find it difficult to understand how "removing zeroes" will strengthen the Dinar against the Dollar by doing a 1:1 swap. In other words, if 1 dinar is worth $0.00086 before removing zeroes ($1 / 1168), then consider the following:

    Zeroes are removed at a rate of 1:1

    This means that I trade "ONE" 25,000 Dinar Note for "ONE THOUSAND" 25 Dinar Notes (D2D). That gives me 25,000 total Dinar still. If that is the case, then the value of 1 Dinar is still $0.00086 (D2USD). That action in and of itself didn't strengthen the "Dinar against the Dollar".

    However, you might say that it will make transactions "in-country" easier because they don't have to use such large bills. But if that were the case, they would be using approximately the same number of bills, they just wouldn't have as many zeroes on them. Or you might say that it was more "like" the Dollar in that cheaper things would cost 25 Dinar instead of 25,000 Dinar or 10 Dinar instead of 10,000 Dinar. But how does that make the currency "strengthened" in any way? It just means it's a different way to conduct the same transaction.

    Zeroes are removed at a rate of 1000:1

    (You can argue this won't happen but this is what many of the translations referencing the exchange appear to describe for the last month or two)
    If this was accompanied by a natural RV of the Dinar with the same ratio, it would mean that instead of 1 / 1168 it would become $1 / 1.168 (D2USD). In other words, it becomes 1 Dinar = $0.86. This also assumes there is no increase in value beyond dropping the zeroes (that is a separate point for discussion). If this happens, then I trade "ONE" 25,000 Dinar Note for "ONE" 25 Dinar Note (D2D). That gives me 25 total Dinar still worth the same "VALUE" because I had (25,000 * $0.00086) before the exchange and (25 * $0.86) after the exchange. The simple action of dropping the zeroes and RV'ing by 1000:1 results in the strengthening of the "Dinar against the Dollar." However, this does not give you any more value for your dinar. Assuming you have 1,000,000 Dinar before the exchange, you had (1,000,000 * $0.00086 = $860) before the exchange is active and (1,000 * $0.86 = $860) after the exchange.

    That doesn't sound so bad. You may think you'd take that deal in a heartbeat. You may be more than happy to trade your Old Dinar notes at a rate of $0.86 per dinar. The only problem is that your Old Dinar can co-exist with the New Dinar but you can't exchange them at the same rate into another country's currency at the same rate. The "New Dinar" will become Iraq's Internationally Traded Currency and the International Exchange rate will be based on that currency's exchange rate. That means that if you see a rate of $0.86, you will be able to trade New Dinar for that rate, but not Old Dinar. In order to get USD out of your Old Dinar, you'd have to first trade your Old Dinar for New Dinar at the D2D rate of 1000:1 and THEN trade your New Dinar for some other International Currency (presumably USD).

    "In-Country Exchange Rate Will Be Different"

    You might counter that the "1000:1" only applies "in-country" and not for us. I do agree that any RV will have minimal impact for in-country transactions (on the street, etc). I believe it have more of an affect on the overall price of goods internationally rather than things produced in-country. The "different rate in-country" sounds like a nice theory but let's examine a few thoughts on that that from a practical sense for a minute:
    • Only people in-country have to trade at a 1000:1 ratio. If this were true, what would prevent an Iraqi from taking their money to another country and essentially exchanging it for 1,000 times its value? If I were an Iraqi, I would certainly hop on the next plane to America and do an exchange at 1:1 instead of 1000:1.
    • You might say that it doesn't matter because Iraqis can't leave the country to exchange in another country because the "border is closed to currency." That again sounds like a reasonable solution but if the large notes will be exchanged over a period of 1-2 years or longer, how can you "lock a border" for that long? If the purpose of this action is to increase foreign investment and activity within Iraq, how can you "freeze currency" for a period of years?
    • And what are you going to do about the Iraqis that happened to already be out of the country when the RV happens? They wouldn't be prevented from converting their Dinar at the out-of-country rate of 1:1 instead of 1000:1. That just doesn't make sense to treat people in and out of country different in regards to the conversion of their old to new currency (D2D).
    • And last but not least, one of the arguments FOR the RV in the first place is to increase the quality of life of the Iraqi people. Can you imagine the state of revolt or unrest that would take place once it got out that Iraqis got a ratio of 1:1 and Americans and other Infidels got an exchange rate that was 1,000 times better than theirs? I can't see any scenario where the people of Iraq are treated with less reward than non-citizens.

    Currency In Circulation

    Back at the end of December of 2011, I wrote a comparison of the amount of "currency in circulation" of several countries. I didn't really tell anyone it was available but I will refer to it now. It's a pretty exhaustive study so you will need to read it while free of other distractions to understand. The basic premise is that Iraq has so much currency in circulation right now that a straight RV of $0.00086 to $3.50 or something similar would give them a completely unreasonable value of currency in circulation compared to the US and any other country in the world.

    See the following to get a better background on what I mean by the amount of currency in Circulation: and

    Last edited by 8th1der; 03-06-2012 at 12:19 AM.

  2. #2
    the one main issue that you did not take into account with your analysis is the fact that Iraq is sitting on either the 2nd largest (some say it may be the largest once all the surveys and estimates are done) oil reserves in the world. Whenever you analyze something financial, you have to add the assets into the final analysis and therefore your 8 points are null and void without adding the assets. I guess you could say that it's like valuing a car without adding in what is under the hood.

  3. #3
    You're correct. That is another point I didn't address in the article. However, I don't think it's entirely relevant because the assets of the country may help determine the backing of the currency but it still has to make sense in a math sense. You can't say that they have the 2nd largest this or the 3rd largest that and then have them end up with currency that's 800 times larger than the rest of the world. The scale doesn't make sense. And even though there could be other combinations of RV and Removing Zeroes, I think my general premise of one of those basic scenarios happening is still true.

    If you took the assets into consideration as you suggest, how does that affect the price of the currency in the global marketplace and which of the scenarios do you think will be most likely?

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