Thread: Iraq/Dinar Until June 9th 1PM CST

Kuwait kicks sand on the dollar
Kuwait recently waved goodbye and stopped pegging its currency to the U.S. dollar. Here's why Kuwait pulled out and what the weakening dollar means to your wallet.
By Jim Jubak
The U.S. dollar took a big hit last week. From Kuwait. On May 20, Kuwait stopped pegging its currency, the dinar, to the U.S. dollar.
You know your currency has become a 98-pound weakling when Kuwait can kick sand on it.
Even worse, Kuwait wasn't acting out of any animus toward the United States. The tiny kingdom wedged between Iraq and Saudi Arabia remains a U.S. ally. So the country wasn't trying to make any political point. It had simply become too expensive for Kuwait to keep the dinar linked to the dollar. I expect other countries, not tomorrow but soon, to take the same action. And that will be just one more milestone in the decline of the dollar.
You should care about that in the short run because a dollar declining in both price and prestige makes everything from imported goods to home mortgages more expensive in the United States.
In the long run, Kuwait's action is just one more piece of evidence that the world is increasingly working with an ad hoc monetary system where each country attempts to extract momentary advantage from exchange rates.
A careful decision
Here are the bare-bone facts. On May 20, Sheikh Salem Abdulaziz Al-Sabah, governor of the Central Bank of Kuwait, announced that his country would end the peg that linked the Kuwaiti dinar to the U.S. dollar. Up until that point, the central bank had managed the dinar, intervening in the currency markets as required, to keep its price within 3.5% of the price of the U.S. dollar. Going forward, the bank will use a basket of currencies to set the price of the dinar. According to the bank, the U.S. dollar is likely to make up about 75% of that new currency basket. In effect, the move reduces the country's exposure to the U.S. dollar by about 25%.
Kuwait's central bank didn't make this decision lightly. A small country -- even a small, rich country such as Kuwait -- faces a daunting task if it decides to go it alone in the global currency markets. Currency speculators have access to so much capital these days that they can easily overwhelm the efforts of a central bank like that of Kuwait and run the value of a currency massively higher or lower. Actually, that can happen to not-so-small countries, too. In 1992, currency traders drove the English pound down and out of the European Exchange Rate Mechanism, creating billions in profits for traders such as George Soros, who had shorted the pound.
By linking the dinar to the dollar, Kuwait had avoided the worst of those dangers. The dollar market is so huge and so liquid that it is harder to stampede one way or another. Pegging the dinar to the dollar gave business the confidence to trade in the dinar, since businesses wouldn't see their profits decimated by a rapid change in exchange rates. And pegging the dinar to the dollar prevented a huge rise in the value of the dinar at just the time that Kuwait, like so many oil-producing countries, was trying to diversify its economy by creating export industries based on oil. A big rise in the dinar would have made those exports uncompetitive on tough global markets.
The threat of inflation
Kuwait broke the dinar-dollar peg only when it became too painfully expensive to keep it. The steady decline of the U.S. dollar, which hit a record low against the euro in April, meant that the dinar fell gradually but steadily in price, too. That left Kuwait facing rising prices for everything it imports.
Not exactly a small problem for a country that imports almost everything. For example, only 1% of Kuwait is arable, so the country imports all its food except for fish and shrimp. Kuwait even imports much of its drinking water: 75% of the drinking water used by the population is either distilled from seawater or imported.
The decline in the dollar-pegged dinar had recently driven inflation to 4% in Kuwait, about two times the historic average.

Although the U.S. dollar has been struggling against foreign currencies, there really isn't a good alternative global currency, says MSN Money's Jim Jubak. Still, some countries that want to reduce their reliance on the U.S. dollar may shift to a basket of other currencies.
That's not terribly high as inflation rates go, but as every central banker in the world knows, inflation gets out of control very easily. Expectations by consumers, workers and governments rapidly adjust so people get accustomed to rising prices and costs -- and include the assumption that prices will be even higher tomorrow in their thinking. Once these inflationary expectations take hold, they're hard to stomp out. That's why central bankers these days apply the brakes so heavily at the first sign of inflation.
Kuwait has only to look down the Persian Gulf to see what could happen. In neighboring Qatar, inflation climbed to a record 15% annualized rate in May. Soaring oil prices have left the country awash in cash, which has, in turn, led to huge increases in residential and commercial rents. With the Qatari riyal pegged to the dollar, the central bank there, like the one in Kuwait, has been handicapped in its fight against inflation.
But as long as the dinar was pegged to the U.S. dollar, there was very little Kuwait's central bank could do to fight inflation. For example, raising interest rates, a standard tool used by the U.S. Federal Reserve to fight inflation, was out because an increase in Kuwaiti interest rates would have sent the dinar soaring and broken the dinar-dollar peg. Breaking the peg put monetary control back in the hands of the Central Bank of Kuwait.
But the bank may have just traded one problem, inflation, for another -- currency speculation. In the weeks before Kuwait went off the peg, speculators had been buying dinar hand over fist in anticipation of the move. If the dinar soared in price, they'd make a huge profit on their currency holdings. In an effort to beat back those speculators and to prevent the dinar from the kind of rapid increase in price that is often followed by a wrenching plunge, the central bank on May 28 suspended sales of short-term central bank certificates of deposit. The country's banks use these CDs as a place to park short-term funds, and the suspension had the effect of driving short-term interest rates in Kuwait to 4.125% from 5.1875% a few days earlier.
Fallout in the U.S.
This all leaves the U.S. dollar in a very uncomfortable position. On the one hand, we are seeing a gradual move away from the dollar by the world's central banks in favor of baskets of currencies. This puts gradual downward pressure on the price of the dollar and leads to a gradual increase in U.S. inflation and U.S. interest rates, as well as a gradual decline in relative U.S. standards of living and U.S. financial market performance.
As in Kuwait, where such a move resulted in a 25% shift away from the U.S. dollar in favor of other currencies, I don't think the result is a stampede out of the U.S. dollar. The dollar balloon isn't about to burst. But we are witnessing the air gradually leak out of the currency.
More from MSN Money
I think this reflects global fundamentals. The U.S. economy is less dominant in the global economy today, with the rise of China, India and the European Union, than it was in, say, 1980. The size of the U.S. trade deficit also argues for a gradual depreciation of the dollar in order to bring global trade flows closer into balance.
On the other hand, it's clear that some countries in the world are quite happy to preserve as much of an unofficial dollar peg as they can. It's to the benefit of a country with an export driven economy like China, which uses what I'd call an unofficial, mostly-dollar-peg monetary policy, to keep their currencies pegged to the dollar. That way their own currency doesn't appreciate, and their exports retain a price advantage in the marketplace. Saudi Arabia, which has an official dollar peg, falls in that category because that country is trying to build up value-added, export industries to diversify its economy. Russia, a country with an aging industrial base that wasn't globally competitive to begin with, certainly doesn't want to see the ruble appreciate so that the country's exports become even less competitive.
The combination seems to be heading toward a jury-rigged global monetary system. This system doesn't rely on market mechanisms to adjust the relative value of currencies. Instead, individual countries opt in and out of those market mechanisms as they choose with their policy moves designed to maximize their own return from the rules of the market.

Although the U.S. dollar has been struggling against foreign currencies, there really isn't a good alternative global currency, says MSN Money's Jim Jubak. Still, some countries that want to reduce their reliance on the U.S. dollar may shift to a basket of other currencies.
This system as a whole relies upon a touching faith that enough countries will play by the rules of the market, so that the market will continue to function with rules that can be exploited as national self-interest dictates.

Kuwait kicks sand on the dollar - MSN Money

Originally Posted by fredgwest1999

Talabani returns home on Saturday Sulaimaniya - Voices of Iraq

Friday , 01 /06 /2007 Time 1:20:44 </B>

By Awat Ali Sulaimaniya, June 1, (VOI) – Iraqi President Jalal Talabani will return home on Saturday from the United States after a two-week recuperative trip,(NOTE: REMEMBER HE ORIGINALLY HE WAS GOING TO STAY ANOTHER WEEK) a source close to the Iraqi presidency in Sulaimaniya said on Friday.

"President Talabani was scheduled to return on June 8 but the date was changed after he finished all necessary checkups in the United States," the source told the independent news agency Voices of Iraq (VOI) by telephone.
The source denied that Talabani's visit to the United States was "just for losing weight," adding "the visit was to have his general health examined."
Talabani met with U.S. President George W. Bush in Washington on Thursday to discuss with him developments in national reconciliation in Iraq and planned amendments to the law on debaathification.
Talabani left Sulaimaniya on May 20 for the United States for a checkup in Mayo Clinic in Rochester, Minnesota.
Iraqi and foreign mass media had said Talabani might stay in the United States for nearly three months to lose some weight and avoid work pressure for a while.
The Iraqi president was admitted into al-Hussein Medical City in the Jordanian capital Amman on February 25 after suffering from an indisposition.
AE/TP

TIE THIS IN WITH THE PRESIDENT'S ANNOUNCEMENT

Bush said he was sending the White House national security council's top hand for Iraq and Afghanistan, Meghan O'Sullivan, to Baghdad to help US Ambassador Ryan Crocker work with Iraqi leaders on making political progress.
"She's going back to serve with Ambassador Crocker to help the Iraqis and to help the embassy help the Iraqis meet the benchmarks that the Congress and the president expect to get passed," said Bush.

JUST A THOUGHT:

MAYBE SOME CRITICAL VOTES COMING UP OR LAWS TO BE SIGNED AFTER THE NEXT PARLIAMENT SESSION: 5 June 2007?
AND/OR MS O'SULLIVAN (A White House Lead Person on IRAQ and answering only to Mr. Bush) is gonna be kickin some behinds next week because Bush is going to take a personal hand in getting these benchmarks done. AND/OR BOTH.

and/or to be there for a revalue of the currency announcement...

Originally Posted by mewannapeg

Well this makes 2 back home, Tally and Hakim!!!

Abdul Aziz al-Hakim is now resting in his home in Najaf, returning Friday from Tehran after a week-long hospital stay. "He is in his headquarters in Najaf and will be there for a long time, after he finished his initial period of treatment in Tehran," said Muayyad al-Hakim, secretary of the politician's son Ammar.
Hakim "returned home on Friday noon from Tehran, where he was told that his health condition was stable," a source told the independent news agency Voices of Iraq (VOI).
Two weeks ago, Hakim, 57, flew to the United States for medical tests before traveling on to Tehran for treatment.
Abdul Aziz al-Hakim was released from a Tehran hospital on Sunday after a week-long stay for treatment of what many have reported to be lung cancer.
"His sickness was diagnosed as controllable and the primary steps have been taken by his doctors," said the Islamic Supreme Council in Iraq's secretary in Tehran, Majed Ghamaz.
According to a report by Hakim’s medical team sent to the Mehr News Agency, “The endoscopic, radiological and clinical examinations followed by the examination of his cough and chest pain resulting from a short-term cold in the past, have indicated that he is suffering edema and thrombus in his lung."
Despite this account of Hakim's health, a SIIC representative reported last week that Hakim is suffering from a malignant lung tumor.
"The medical check ups carried out in a Houston medical institute in the U.S. for Sayyed al-Hakim showed that he has lung cancer with grade D, not A. Doctors affirmed that it does not pose a threat to al-Hakim's health. The case is curable but it needs more time," Sheikh Hamid Maala, media official at SIIC, told the independent news agency Voices of Iraq (VOI).



IraqSlogger: Hakim Returns Home From Tehran

interesting...

Originally Posted by darock0116

Constitutional Amendments to be Approved by Parliament Soon

Maliki discuss with the President the issue of Kurdistan and Kirkuk constitutional amendments

Irbil / long

After arriving in Arbil on Thursday Prime Minister Nuri al-Maliki with a full head of the Kurdistan Massoud Barzani constitutional amendments to be approved by parliament soon. Al-Maliki said in a joint press conference with Barzani, "that the talks between us and the leadership of the Kurdistan continues, Iraq needs to be more talks and consultations at the political level to find appropriate solutions to the problems facing the country.

He added that the objective of our visit is to find solutions to issues related to running the country and the political process, which built a democratic, federal and united Iraq, pointing out that Iraq is passing through a difficult phase and facing great difficulties which need to unify positions at the level of political leadership. "

For his part, the head of the Kurdistan out that the main issues discussed during the meeting of the political leadership in the region is the situation in general in addition to all points of the Constitution.
Barzani added : "We have returned President of the government of the Kurdistan from Baghdad after it was able to address the majority of issues and obstacles, but there are a number of them are likely to be dealt with during this visit."
The Maliki arrived in Irbil last Thursday on a high-ranking delegation including a number of ministers and parliamentarians.

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good news!!

Originally Posted by inquisitive1

Wont it be great for the Iraqi people to have some $$$$ to invest in the ISX before they open the flood gates....

wasnt that the original reason for them delaying the foreign investment opening anyway??

Originally Posted by inquisitive1

Of possible interest to many, and may connect dots or may not, however it is news. I watch the Minister of Finance, VN, a couple of times daily. In reference to the monthly rates, May was never updated at all until today.

The link only said, "April Exchange Rate", prior to today.

This morning, EST, it was updated. May and June, 2007 links. Only errors were attached, however, around noon the link worked to a page form that shows all of the world currency values. That is a normal page form that was always updated until missing in May.

The fun, odd or interesting part of this factual news is: all other currency info is listed as normal and the VN Dong/US rate is blank...yes blank.

I just re-checked before posting this and it is still blank.

Google Vietnam Minister of Finance...when you get in site, the link to left is monthly exchange rate..click that..or just believe me..

thanks inquisitive1, looks like our dong might be goin up this weekend, among other things???

Originally Posted by shotgunsusie

wasnt that the original reason for them delaying the foreign investment opening anyway??

That is the current consensus....let's hope that it is right...

Originally Posted by inquisitive1

I had the feeling that she would return to Iraq with President Talabani. She requested to have that post in April so I am sure she had time to prepare to leave. Only, common sense tells me that she should accompany President Talabani. Maybe, she did not want to miss the big day, just guessing.

I'd love some other more seasoned people here to comment on the throwing the sand at the dollar article above. I for one am getting very discouraged by the fact that our dollar is going downhill. Are we in for a tremendous spike in inflation across the board here in the US or what??? Is a million dollars gonna mean ANYTHING HERE ANYMORE? HEHE THE WAY THINGS LOOK with the dang dollar who knows.

Originally Posted by Hkp

Research extinguish or debt cancellation with Bulgaria, Poland, Greece, Russia, Saudi Arabia, China

Baghdad-haven Secretary
Finance Minister emphasized that the follow-up committee emanating from the Sharm El-Sheikh conference of the International with Iraq will reduce and cancel the debt of Iraq with the governments of Bulgaria, Poland and Greece soon and the same thing will discuss with the government of Russia.

Baqer Zubaidi said Minister of Finance said that the follow-up committee formed of the Deputy Secretary-General of the United Nations and Deputy Prime Minister Barham Salih and Minister of Finance and Planning and National Security Advisor will work towards the implementation of the decisions of the Sharm el-Sheikh Awalgaa reduction of Iraq's debt and will discuss with the governments of the three states of the European Union that have not been reduced Iraq's debt to Bulgaria, Poland and Greece in order to activate the decisions of the Conference ... He added that the committee will hold talks later with the Russian side in the same direction.
Zubaidi said that Saudi Arabia has expressed its willingness to discuss Iraqi debt reduction with China expects to visit President Jalal Talabani of the signing of the debt reduction toward Iraq and by 100% -80% and Finance Minister emphasized that the process of extinguishing or reducing the debt of Iraq will contribute to the support and development of the Iraqi economy and the Stharrh large sums were his estate, which is in dire need of funds to recover and start a new phase of development and construction. It is noteworthy that the total debt of Iraq amounts to 140 billion dollars was extinguished 120 billion dollars and is expected to be extinguished all the leave positive effects on the Iraqi economy and increasing pressure on Iraq by creditor nations.

Translated version of http://www.alsabaah.com/