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News

Iraqi Dinar Buzz Updates

Dinar Daddy: 3 Zeroes/Re-Denomination Defined
2011-04-20 23:32:13
APRIL 19TH, 2011 01:55 PM 

All,

Many have asked for my opinion about the “3 Zeroes” articles that have been making their way around… AGAIN… It appears every time Iraq needs to boot a few speculators, they circulate those articles around again.  And in this case… it is… AGAIN…

So, I’ve taken the liberty to discuss the “3 Zeroes”, Re-Denomination, LOP-talk,  Revaluation, Devaluation, and Slow-Growth.

Here’s a link to one of those articles I’m referencing about the “3 Zeroes”:


Iraq Central Bank ‘To remove 3 Zeroes from Dinar” | Iraq Business News

iraq-businessnews.com/2011/04/14/iraq-central-bank-to-remove-3-zeroes-from-dinar/


Here’s my take on all the possible directions I’ve read from others that an investment in the Iraqi Dinar can end up.  Though, I must say, in my opinion (and that’s all any of this is) there are really only a couple of options that make logical sense, or are in fact even probable/possible.  I’m leaving a LOT off the table in this post, as the purpose is nothing more than to define the differences between investors’ takes on this confusing discussion, and to create some talking points and structure around this topic.  Again, I give my opinion or take, but that’s all it is:

Scenario #1 – LOP

  • What is this? This is a term used to describe cutting off, or lopping off zeroes from a currency.  This the most extreme of situations, and is done to a currency when a devaluation is typically at play.  Zimbabwe had this happen to their currency when they too off 6 or 8 zeroes when their people were carrying around TRILLION DOLLAR NOTES!
  • What are the conditions that would typically create this? This, historically, has ONLY happened when a country has had hyper-inflation, a depressed, out-of-control economy, and typically an equally unsettled government.
  • Here’s an example: The Iraqi Dinar, which currently sits at .00086 of a single US Dollar, would have the 3 zeroes removed… AND… there would be NO VALUE GIVEN to the new bills.  In other words, a 25K note would now be a 25 Dinar note, but the 25 Dinar note WOULD NOT be worth what a 25K note is currently worth.  It would be worth what a 25 Dinar note is worth BEFORE the LOP, thereby making it a DEVALUATION of the currency, but still taking the 3 zeroes off the bills.  This would not an even swap, and with all that Iraq has worked for, the true definition of a LOP doesn’t seem possible at all.
  • What do I believe is the possibility of this happening? ZERO! This is NOT possible?  Why? It never has and never will exist in the world of economics.

Scenario #2 – LOP/RV

  • What is this? For all intents and purposes, this is the same as a LOP above.  The ONLY difference is that they would, after having DEVALUED the currency through the straight-up LOP scenario described above, they would then REVALUE it to whatever value they feel it would best fit in comparison to the other currencies of the world.
  • What are the conditions that would typically create this? Same as the LOP scenario above, only they would apparently feel it needed a greater adjusted value.
  • Here’s an example: The Iraqi Dinar, which currently sits at .00086 of a single US Dollar, would have the 3 zeroes removed… AND… there would be NO VALUE GIVEN to the new bills. In other words, a 25K note would now be a 25 Dinar note, but the 25 Dinar note WOULD NOT be worth what a 25K note is currently worth. It would be worth what a 25 Dinar note is worth BEFORE the LOP, thereby making it a DEVALUATION of the currency, but still taking the 3 zeroes off the bills. They would then increase the value of a single Dinar against the US Dollar, along with other currencies, based on the Post-LOP value, not the Pre-LOP value.
  • What do I believe is the possibility of this happening? ZERO! This is NOT possible?  Why? It never has and never will exist in the world of economics and world currencies.

Scenario #3 – RE-DENOMINATION

  • What is this? This is a term used to describe replacing the current outstanding and circulating currency with lower denomination bills, but retaining the current value of the larger bills.  This is both a re-printing of the current currency to introduce smaller denominations for ease-of-use in transactions, and ease-of-introduction into the world economy.  25K notes would be replaced by 25 Dinar notes, and they would be worth the exact same value, potentially even co-existing for a time before the larger notes were phased out.
  • What are the conditions that would typically create this? Where the country has a large amount of outstanding currency that it can’ t either support or back or afford.  The country needs more simplicity in the currency, but doesn’t wish to add to their outstanding money supply, so they shrink the bill sizes outstanding but give them the same value as the larger notes.
  • Here’s an example: The Iraqi Dinar, which currently sits at .00086 of a single US Dollar, would have the 3 zeroes removed… AND… the value of the larger denomination bills would be given to the new lower denomination bills. In other words, a NEW 25 Dinar lower denomination note would be worth the SAME as the larger denomination note Pre-Re-denomination. It would be worth what a 25K Dinar note was worth BEFORE the Re-denomination, thereby making it a replacement of currency with no gain, but still taking the 3 zeroes off the bills, and giving the country an entirely NEW CURRENCY. This WOULD be even swap, and with all that Iraq has worked for, the true definition of a Re-denomination doesn’t seem probable without an increase.
  • What do I believe is the possibility of this happening? SLIM!

Scenario #4 – RE-DENOMINATION/RV

  • What is this? For all intents and purposes, this is the same as a RE-DENOMINATION described above.  The ONLY difference is that they would, after introducing a new lower denomination currency through a straight-up pass through value Re-Denomination scenario described above, they would then REVALUE it to whatever value they feel it would best fit in comparison to the other currencies of the world (i.e. 3x, 5x, etc.).
  • What are the conditions that would typically create this? Iraq’s situation does fit this scenario, and this could be a possibility if the world’s governing bodies didn’t need the economic boost.
  • Here’s an example: The example would be the same as above describing the RE-DENOMINATION.  So, a 25K Note would now be worth $25, but represented as a 25 Dinar note instead.  Then, a revaluation of let’s say $4 would then make the value of the 25 Dinar note be worth $100.  In essence, this would be an investment scenario where investors would receive 4 times their money (in this example anyway).
  • What do I believe is the possibility of this happening? It’s a legitimate possibility that everyone should at least be prepared to consider regardless of how convicted they are with other rumors, intel, or info.

Scenario #5 – STRAIGHT-UP REVALUATION (INSTANT RV)

  • What is this? This is a term used to describe increasing the value of a nation’s currency against those of other nations.  Thereby, increasing the purchasing power of that currency when compared to other nations.  In the case of the Iraqi Dinar, it means the IQD will rise in value significantly and immediately when compared to that of other currencies.  This is what MANY are hoping will happen with the Iraqi Dinar, and what the rumors are all talking about.
  • What are the conditions that would typically create this? The country has a very low valued currency, has the economy, projected economic growth, natural resources, and a stable government to back such a drastic move.
  • Here’s an example: The Iraqi Dinar, which currently sits at .00086 of a single US Dollar, would literally change overnight.  It would go from being worth .00086 worth of a single US Dollar to being worth .50, or $1, or $2, or $3+ a single dollar.  What does this mean for an investor who holds 1 Million Dinars (approx worth $1000 USD)?  It would mean that person, who invested approx. $1,000, would have a new-found wealth of $500,000, or $1,000,000, or $2,000,000, or $3,000,000.
  • What do I believe is the possibility of this happening? This has always been the accepted reason so many have invested in the Iraqi Dinar. News reports would have us believe this is not possible.  I myself (logically speaking) feel the probability of this scenario is small due to the massive influx of currency throughout the world.  However, I am torn, as the information I’ve always received about this has ONLY stated this would occur, and NOT any of the other scenarios.  So, I remain a believer in this as a possibility just as I am open to other scenarios happening. I’ve been told things that are too complicated to explain in a post that make sense as to how this can happen.  One of those was what I put together with Breitling in a post titled, Making Sense of the Numbers.  

Scenario #6 – STRAIGHT-UP REVALUATION (GRADUAL GROWTH RV)

  • What is this? This is a term used to describe increasing the value of a nation’s currency against those of other nations. Thereby, increasing the purchasing power of that currency when compared to other nations. In the case of the Iraqi Dinar, it means the IQD will rise in value over a period of time when compared to that of other currencies. This is what MANY have suggested will happen with the Iraqi Dinar, but is NOT what the rumors talk about, which all speak to a more instant and larger revaluation value.
  • What are the conditions that would typically create this? The country has a very low valued currency, has the economy, projected economic growth, natural resources, and a stable government to back a definite increase, but time is needed to both remove the larger denominations from circulation, and to destroy such notes (take the money out of circulation) to prevent inflation and other problems that will rise when increasing a nation’s currency consistently over time.  This would be the more careful approach to what is being suggested above with a significant and instantaneous increase.
  • Here’s an example: The Iraqi Dinar, which currently sits at .00086 of a single US Dollar, would literally change overnight. It would go from being worth .00086 worth of a single US Dollar to being worth  500 Dinars to 1 USD, then maybe 250 Dinars to 1 USD, then 100 Dinars to 1 USD (penny), then 10 Dinars to 1 USD (dime), then .50 cents and so on. What does this mean for an investor who holds 1 Million Dinars (approx worth $1000 USD)? It would mean that person, who invested approx. $1,000, would have a new-found wealth of $2,000, or $4,000, or $10,000, or $100,000, or $500,000 (based on the scenarios above).
  • What do I believe is the possibility of this happening? This has been a legitimately discussed way they will increase the value of their currency for the entire time I’ve been in it.  I’m open to this being a gradual growth process.  I guess we’ll just have to wait and see.

In the end, there has been way too much false information flying around what can happen with the Dinar. In the real world of currencies, a devaluation, revaluation, re-denomination, or re-denomination followed by a revaluation are all that have ever existed.  As such, it’s good to know all the differences, and to know what is real and what isn’t.  We really won’t know what will really happen until it does.  In the meantime, keep your expectations low, your hopes high, and your rent money in your pocket (don’t invest more than you can afford to lose or do without for any extended period of time).

A change definitely seems to be coming, and I hope the ride will be over soon enough. Hang on, it appears it is only going to get more crazy and confusing!

Go Dinar!