Will the dinar come out at 1 to 1?  I think not!  And here's why...

 

By Muhammad Ali

The question on everyone's mind is will the dinar come out at 1 to 1? 

Based on my opinion and the following evidences, i think not!

 

Let's talk about what a 1 to 1 in country rate really means.

 

There is a misunderstanding about what this means, even among the Intel.

 

At first sight, you will think it is 1 Dinar = $ 1 USD.

 

Firstly, if you think logically, an in country rate makes no sense at all.  How do you have an in country rate?  There is no such thing. 

 

So this is the first thing I need to clarify.

 

I'll use the Malaysia Ringgit as my example.  Mainly because, I live in Malaysia, but what I am about to explain pertains to everyone regardless of what country they are in.

 

If I walk into the bank with an RM50 note and ask the bank teller to change it for me.

 

The teller will give me, 2 x 20 + 1 x 10 =RM50 or another possibility,

5 x 10 = RM50 or

1 x 20 + 3 x 10 =RM50

 

There are all kinds of combinations that the bank teller can give me.  But the key point I want you to realize here is the teller will only give me up to RM50...that is the meaning of 1 to 1. 

 

I gave the teller RM50; the teller must give me back the equivalent to RM50.  This is 1 to 1.

 

If I gave the teller an RM50 note and they gave me RM100 back, then that is not 1 to 1.  More like 1 to 2.

 

If I bought a drink for RM5 and gave the cashier an RM20 note, they will give me back RM15 in change.  This is 1 to 1.

 

So the 1 to 1 just means...1 dinar = 1 dinar.

 

Secondly, if we look at the bigger picture, we must remember that there are 2 processes taking place.  What will happen in the country of Iraq and what will happen outside of Iraq?

 

For the Iraqi citizen, they will take their 25,000 dinar note to the bank and the bank will change it to 25 Dinar note.  This will be 1 to 1.  However, the new 25 Dinar note will be at an increased purchased power.  Once their RI (re-instatement) happens, all the prices of goods and services will be re-adjusted.  For example, if a loaf of bread cost now at 1000 Dinars then after the RI it will be 1 Dinar.

 

If a car was 1,000,000 Dinars, then after the RI, it will be 1,000 Dinars.

 

In Malaysia, if you go to the store to buy a loaf of bread and the price tag says RM3.00; would you take out your calculator and start calculating the rate of exchange???  Of course you would not.  You take the bread to the cashier and give them an RM 5 note and they give you back RM2 in change.  There is no rate of exchange and no calculating.    That is 1 to 1.

 

So for the local Malaysian citizen, he will never phantom the concept of an exchange rate, his whole life will be around the Malaysian Ringgit and the Ringgit only.

 

So this goes for the local Iraqi citizens.

 

So please use your own country as an example to understand what I am saying.

 

Now, outside of Iraq, the 25,000 Dinar note will remain as 25,000.  No zeros will be deleted. 

 

So this brings us to the question of will Iraq LOP (Loss of Profit) the Dinar?

 

In the past, countries who suffered from hyper-inflation did cut zeros from their notes. 

 

Iran and Iraq have inflation but they are not suffering from hyper-inflation.  This is why they can still retain the full value of their notes.

 

The highest denomination in Iraq is a 50,000 Dinar note and in Iran is the 100,000 Rial note.

 

Turkey, for example, in 2005 cut zeros from their notes.  They did a LOP, because they had hyper-inflation.  Turkey had up to 10,000,000 million Lira denomination bank notes.

 

And once again, Iran and Iraq does not have hyper-inflation.  These are two of the world’s wealthiest countries.

 

To understand why there must be two processes an in-country process and an out-country process, let’s look at it from a different perspective.

 

Remember, outside of Iraq 5% of the world is holding Iraqi dinars... 95% of the world is not... That means 5% will become millionaires.

 

However, inside Iraq, 100% of the citizens are holding Iraqi dinars.  If 100% of the citizens become millionaires the entire country will stop working.  It would basically shut down to a halt. 

 

Who wants to work when you're a millionaire??? 

 

So Iraq must have a different process for their citizens.

 

Remember also, that the Central Bank of Iraq is speaking to its citizens.   They are educating their citizens.  The CBI does not care about you or me; they are not talking to us.  They will not tell you there are two processes.  That will only just confuse the citizens.

 

This is why dinar land is confused.  Because they do not realize the fact that the CBI is not talking to you (us) but to their citizens.  The CBI is only telling the process that is of concern to their citizens.

 

So remember this when you read news from the CBI or from Intel.  The CBI is not talking to you (us).

 

Now, another reason why I believe this concept of a 1 Dinar = $1 USD rate is wrong, the CBI is about to re-instate the Dinar. 

 

Think about what that means? Re-instate. 

 

If we look up the meaning of the word re-instate in the dictionary.  It says:  restore (someone or something) to their former position or state.

 

So let me give you some evidence to this fact.

 

Here is an article linked directly to the United Nations website.

 

http://www.un.org/en/ga/search/view_doc.asp?symbol=S/PRST/2014/20

 

The date of the Article is 19 September, 2014.

 

The relevant part is on the second page and the second last paragraph.

 

It states:

…”and further recognizes the importance of Iraq achieving international standing equal to that which it held prior to the adoption of Resolution 661 (1990).”

 

United Nations has said officially stated that they recognize the importance of Iraq achieving international standings equal to that which it held prior to 1990.   

 

And what was their rate before 1990?

 

It was 1 Dinar = $3.22USD or 1 Dinar = RM13.50, or 1 Dinar = $4.50 SGD or 1 Dinar = $4.30 Canadian or 1 Dinar = $4.50 Brunei Dollar...and so on.

 

There are 2 points that I am making here:

 

First, the dinar will be connected to every currency in the world.

 

Second, the United Nations has already said that it is important for Iraq to go back to their pre-1990 rate.  So how can it be 1 Dinar to $1 USD?

 

It is the same thing, as if you were to take your Malaysian Ringgit to any money changer and you ask them to convert it to any currency in the world.    The money changer will state the buy and sell rate.  There is no base calculating rate.   There is no in-country base rate in Malaysia.

 

The rates are based on a central bank in one country and a central bank in another country and what they agreed upon.

 

For example, the Central Bank of Iraq and Bank Negara Malaysia.  Bank Negara Malaysia will instruct the Central Bank of Iraq that if anyone wants to change Iraqi dinars either buying or selling using Malaysia Ringgit this is what our rate will be.

 

Just understand that the central banks work together to give their rates.

 

So when you exchange your currency it will be between RM and IQD or if you are in Singapore, SGD and IQD or if you are in Canada, CDN and IQD or if you are in the USA, USD and IQD, etc…etc.

 

The rates will be fixed by the central banks of each country.  Neither by the United States of America nor their Treasury department will have any involvement in the rates.

 

Now let’s just take this a little further and talk about the $3.22 USD to 1 Dinar rate.  The pre-1990 rate.

 

Many years back, it was stated that the IMF would add 20-30% for Inflation to the Re-Instated rate, from the 20+ years of U.N. sanctions on Iraq.

 

So this would bring the rate between $3.86 USD to $4.19 USD.  So this is what I believe will be the range of the RI rate for the Iraqi Dinar.

 

Once Iraq completes their RI, the Dinar is already international and we may begin our exchanges.

 

Once the Dinar is on the international open market, the rate will be pushed up and this is what I refer to as the RV stage.

 

Some say RD/RV/RI and some say RD/RI/RV, it doesn’t matter and it is not really relevant to debate this issue as it depends upon ones understanding and interpretation of the entire process.

 

Once Iraq RI’s or RV’s the Dinar, the important thing is… we are done!

 

So I hope my article helps you to understand the 1 to 1 from my logical perspective.

I am the creator of the Currency Exchange Planner, an excel spread sheet, which is the most advanced and affordable planning tool for the Dinar Community.

Muhammad Ali

www.CurrencyExchangePlanner.com

The No. 1 Planning Tool for the Dinar community.

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