Just A Quick Note
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Comments (0) * A quick historical look back over the past 8 months
By Nick, February 16, 2012 7:20 pm
A quick historical look back over the past 8 months and we will see the CBI and the GOI have been coordinating together in implementing currency reform in Iraq.
While we often see contentious behavior or disagreements among the politicians regarding currency reform specifically “dropping of the zero’s” it is evident the CBI is convincing enough for GOI officials within parliament and the finance committee to agree.
In January 2012 we were first alerted to a phase type plan implemented by the CBI or perhaps the CBI in cohorts with the GOI. This plan indicated three phases would be needed to fulfill the currency reform plan contrived by the CBI.
The articles also provide us with a time frame for these phases in which each will last six months.
Looking back through The Currency Newshound archives I discovered two articles published in June 2011 indicating the CBI was ready to carry out the currency/monetary restructuring or dropping of the zeros.
Source:CBI: We will not retreat from the application of our instructions, even if stopped selling foreign currency
At the time nobody was aware of a six month time frame or a multi-phase process.
However six months later in January 2012 readers woke to news the Iraqi Parliament Finance committee announced the end of Phase One of the Dropping of the Zero’s project or currency reform.
Source:
The above articles indicate Phase One has been completed and included the “purchase” of equipment needed to fulfill the project. This statement is a bit vague but it could possibly mean a number of things including the purchase of printing devices, counting machines, counterfeit verification devices, currency machines needed to outfit banks throughout Iraq or could mean it contracted someone such as De La Rue to print and aid in the design of the new currency.
The CBI actually purchased ten machines from De La Rue in October 2011 for $15.9 million (LINK).
Nevertheless according to the Iraqi Finance Committee phase one is complete.
The articles also indicate a phase two and three are needed.
Iraq Finance Committee member Haitham Jubouri clearly states phase two will be the “introduction of two currencies (dinar notes) at the same time” and phase three will be “to pull the old currency”.
In other words phase two will be the introduction of the new notes into Iraqi circulation while phase three will allow six months to call in the old dinar notes (notes we currently hold in our possession).
Not much has been elaborated upon phase two and phase three other than what was discussed in the referenced articles. We are unaware exactly where we are in the phase system. Meaning we have been told phase one has ended but we have not been told when phase two began or when will it begin.
Furthermore the phasing intervals have a duration of six months but we are unaware if time will be applied between those intervals…maybe there is a limbo period between phase one and phase two.
Point is..we are not clear where we are as far as phase two. We could in fact be right in the thick of phase two or perhaps we are in a holding pattern waiting for authorization for phase two to begin.
Considering phase one appears to have started in June 2011 and completed six months later it would appear the CBI is adhering to a tight schedule and based on the current time frame May or June could bring an announcement of the end of phase two.
Please note at this point in time (Feb 2012) there is nothing to suggest new notes have been printed and placed into circulation. If the CBI plans to trickle the currency into circulation during the second phase there is no evidence this has happened.
It is possible during the six month duration of phase two the CBI will outfit each of its branches with necessary supplies and equipment in order to facilitate the circulation process at the end of phase two…again that is speculation.
The CBI has been under great pressure globally, regionally and nationally trying to maintain its economic policies. Currency reform will significantly aid in their efforts which is why the CBI has lobbied so hard for GOI officials to jump on board the plan.
It recent weeks we started hearing of politicians questioning how will the exchange rate play into currency reform as they became aware of the benefits associated with a stronger exchange rate and how it could benefit the Iraqi economy, budget, etc. (everyone collectively say…Duh!)
As a result politicians requested a study by the CBI outlining how the currency reform will be implemented. I am unsure of this study will be released or even when but it would be nice to see what exactly the CBI is planning to do with the exchange rate.
The year of 2012 is shaping up to be a reforming year for Iraq. Regardless of what political pundits say on television we see Iraq on the verge of an economic boom.
Coupled with currency reform we are reading news reports of how Iraq and Kuwait relations are bettering daily and how Chapter VII sanctions could be lifted as early as June during a scheduled UNSC meeting (not on calendar, yet). We are also seeing evidence of political cooperation and the need for finance and investor laws to be passed.
A complete lift from chapter seven sanctions would give way to economic growth and prosperity. The passage of key investor laws would open the doors for private sector growth.
Can the RV/RI occur prior to Chapter VII sanctions being absolved?
This is open to conjecture and quite frankly nobody knows. Both sides of the argument present good reasons why it would and would not RV/RI prior to Chapter VII sanctions being absolved.
The recent article regarding IMF’s Article VIII (8) is receiving much discussion here lately.
Iraq is one of only twelve countries not recognizing the agreements of Article VIII.
According to the article it would appear Iraq remains in alignment with the goal of moving out of IMF Article XIV (14) and transitioning to IMF Article VIII (8).
The referenced article below further states “Iraq’s…commitment to the agreement of the IMF Article VIII”. The article also discusses recent complications the CBI has faced with Iranian smugglers.
This article is vague and could simply mean Iraq continues to adhere to the progress of moving toward Article VIII and its recent policy regarding selling foreign currency to suspected smugglers doesn’t deviate Iraq from this course of progress.
However I also realize some have indicated this particular article demonstrates a positive sign that Iraq has made the firm steps to actually move from Article XIV to Article VIII.
I will take the position the article is somewhat vague in its meaning and needs further clarification.
Here is some IMF links discussing the Articles of Agreement VIII and XIV.
Source Article:
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