Thread: Zubaidi's reference to "deleted 3 zeros"

Here is a related article.

June 25, 2006 03:28 PM ET
Iraq says oil production at highest since invasion: Page expired - MSN Money

Update: I can't find a link for this article but apprently the Iraqi Central Bank has denied that it has any intention at this point in time to change the currency.

The Central Bank of Iraq Denies Dinar Change Early Next Year

Safed Alsamuk-Baghdad

The Iraqi Central Bank denied that the change of the local currency within the current Iraqi actions he intends to begin work so as to meet the economic inflation in Iraq with the beginning of the year 2007. The official spokesman said yesterday that there is no intention to change the Iraqi dinar at the moment.He refused to disclose whether there were any similar intention in the near future, after the Financial experts recommended deleting three zeroes from the Iraqi dinar after the American dollar to her and about a thousand dinars.

The spokesman noted that the launching of the issuance of new categories of the Iraqi currency into circulation depends on the requirements of the Iraqi economy to meet the expenses of the state in the coming stage, especially local supervision of the banking activity by the central bank and means of reform, The Central Bank supervises the banking activity level by the activities of banks towards the enhancement of their role in the implementation of monetary policy in particular through channeling the savings to the various aspects of investment, so as to achieve economic growth.

He continued to say The Central Bank has granted banking licenses of many Arab and foreign banks, whether licensing NTSB open a branch in Iraq or the establishment of a banking entity, It was also the opening of representation offices. He pointed out that this step is the beginning of cooperation and openness to the world towards the revitalization of the economy in Iraq. The Central Bank of Iraq still continue to sell the dollar against the Iraqi dinar through auction, which will be mounted when the daily, adding that this auction is a tool to achieve stability in the value of the Iraqi dinar by defending the exchange rate stable for a long time. This, in turn, will affect the general level of prices.

For his part, Minister of Finance, the Iraqi statement Jabr said the decision to increase the salaries of the staff work will start with the beginning of the year 2007. at a time when observers are worried economists Iraqis of the dangers of increasing inflation by successive increases for staff salaries to cope with price rises of living without MySQL economic problems, He pointed out that he would start in the top five of the (10 - 5) and that at the beginning of next year will get the owners of these degrees on the increase of 50-70%.

Here is another related article. Note that it is over a year old. It also demonstrates that there has been considerable progress made in Iraq in the course of the last year.

-Ken




Repercussions of the Iraqi Dinar/US Dollar Parity

Ali Mahmoud al-Fakiki Al-Hayat - 11/07/06


Today, the US dollar corresponds to 5.7 Egyptian pounds and 116 Japanese yen. Can we say that the Egyptian pound is stronger than the Japanese yen, and that the Egyptian economy is stronger than the Japanese economy since the number of Egyptian monetary units required for purchasing one dollar is less than the required number of Japanese units?


Successive Iraqi governments have adopted the slogan of 'Improving the Iraqi dinar exchange rate', as if they were promising Iraqis the key to 'Ali Baba's Cave'. This slogan was the 'promise' given by the governments of Dr. Iyad Allawi and Ibrahim Jaafari, among the priorities of their economic agendas. Today, Nouri al-Malki's government is doing the same thing. Saddam Hussein and his son, Odai, had also previously made such promises.
According to the statements of Bayan Jabr Al-Zubeidi, the Iraqi Minister of Finance on June 26, 2006, to 'Al-Sabah' newspaper, published in Baghdad, the government intends to remove three zeroes of the dinar to make it equivalent to the dollar. Thus, we may conclude that the planned process will be nothing but currency exchange, which neither revaluates nor devaluates the dinar.

It is estimated that the ratio of replacement will be 1500 of the current dinar for one new dinar. Accordingly, if an employee currently earns 150 thousand dinars, he will be paid 100 new dinars (unless the salary brackets are changed). This will be equivalent to 100 dollars. Thus, the exchange rate of one dinar is equal to one dollar. For example, the current price of one kilo of mutton, which is 8000 dinars, will accordingly be around 5.33 new dinars.


The monthly salary of 150 thousand dinars currently buys 18.75 kilograms of mutton in Baghdad. When the dollar exchange rate is equal to the dinar, according to the new process, the monthly salary of 100 new dinars (equivalent to 150 thousand of the current dinar) will also buy 18.75 kilograms of mutton. This means that the salary will have the same purchasing power of the current salary of 150 thousand dinars.


Hence, the proposed or planned process is simply an illusion, just like changing daylight saving time. It is all the same, whether the clock was moved an hour ahead or the formal working hours were increased. Thus, the proposed process of equating the US and Iraqi exchange rate should not be celebrated. Many third world countries, like Turkey in the 1980s, applied this policy.


It is well known that the Iraqi dinar is a local, not a global, currency. It will remain the same both in the foreseeable and distant future. The country's import capacity, the consumption levels, and the welfare of the Iraqi individual, all depend on the circumstances of oil exports and the policies and methods of handling them. It is also known that about 99% of foreign exchange revenues in Iraq are petro-dollar revenues, since oil prices are paid in dollars and have nothing to do with dinars.


If the Iraqi economy and currency were like the Japanese economy and currency, for example, the foreign exchange rate would have a significance that would render it a source of a serious commercial intensification. This happened between the US and Japan, and later between the US and Germany, throughout the 1970s and the first half of the 1980s. The Japanese yen went down against the US dollar, becoming a protective measure for the Japanese industry. The move hindered the flow of American products to the Japanese market, weakening their competitiveness. It facilitated the flow of Japanese products to the American market and strengthened the competitiveness of Japanese companies in that market.


The exchange rate against the dollar in the 1970s and the first half of the 1980s was 230-250 yen. However, the continued pressures of US President Ronald Reagan on Japan and Germany in the annual conferences of the Big Seven (it did not yet include Russia), and in other conferences, led Japan to almost double the value of the yen through monitory procedures. The value of the yen was raised from the level of 230-250 yen against the dollar to the level of 120-110 yen from the second half of the 1990s.


In brief, the value of the dinar against the dollar differs in several aspects from its value against global currencies. This is just a formal issue of no use, and that is not to be celebrated. Today Iraqis are looking forward to more important issues, including the following:

First: Macroeconomics


1 - Lowering the unemployment rate to 2-3% along with an effective system of unemployment compensation and insurance. The unemployment rate today is 18%, while pseudo-labor is about 31%, according to the Ministry of Planning.


2 - Lowering the inflation rate to 2-3%, compared to the current 20-30%, most of which is due to inflation resulting from high prices.



3 - Continuous improvement on the standard of living by 20-30% annually, with a significant rise in the living standards of the marginalized populations.



4 - A spending policy which compensates for poor territories and geographical areas that have been suffering inequity and deprivation during 80 years of feudal, nationalist and Baathist rules.


Second: Microeconomics


1 - Handling the accumulated deficit in the housing sector. There is a need to build 300-320 thousand housing units per year over the next ten years. The annual rate of achievement for the year 2004 and 2005 was around 15% of this figure. It is not expected that the rate of achievement for this year will exceed the rates of both years. There is an economic slogan that goes: 'Success of construction guarantees overall success'.



2 - Handling the accumulated deficit in the road sector. The density of roads in Iraq is expressed by the total length of the roads, divided by the area of the country. It is among the lowest densities in the world (only 0.09). The rate in Thailand is 0.14, in Brazil 0.24, in Korea 0.85, and in Japan 2.04 or approximately 34 times the rate of Iraq. There is a need to establish main and secondary roads amounting to 8-10 thousand kilometers per year, over ten years. Moreover, there is a need to repair and rehabilitate the current debilitating road network. The current rate of achievement is about 10% of the required rate.


If the state meets these important demands among others, we should not be concerned about the rise of the exchange rate of the dinar to be the equivalent of the dollar or leaving it at its current state.

*Mr. Ali Mahmoud al-Fakiki is an Iraqi economic expert

Dar Al Hayat