Formula to determine a currency's value NOT consistantly applied to the dinar.
Foreign Currency and Gold Reserves divided by the amount of currency in circulation equals the value of one currency unit.
Not entirerly so with Iraq's currency though. In Febuary Iraq's reserves where worth 50.2 Billion USD with the exchange rate at 1170 per 1 USD. Later thier reserves dropped to 44 Billion yet the exchange rate remained at 1170.
The fact that Iraq is using a set Program Rate, means no matter what the ratio of Reserves vs Currency is, the Exchange Rate will be held at 1170!
In Iraq's letter we find the phrase, "appropriate management of the exchange rate."
Well that opens the door to a few of possibilities doesn't it?
One of them being reducing the currency in circulation to a point where by conventional standards the value of the dinar would increase...after they released it from the Program Rate.
From the 2010 Letter of Intent to the IMF.
http://www.imf.org/external/np/loi/2010/irq/020810.pdf
Page 5 paragraph 6
With headline and core inflation low, the exchange rate has been stable since the beginning of 2009. The policy interest rate has been reduced gradually to 7 percent. Net international reserves increased to $50.2 billion at end-2008, but have fallen to $44 billion at end-2009, reflecting the drawdown of the government’s deposits with the CBI.
Page 6
We have adopted a budget for 2010 that aims to further reduce non-priority current outlays and align the investment budget with our national priorities and implementation capacity. We seek to reduce the government’s budget deficits during 2010 and 2011, with a view to returning to a budget surplus in 2012. In addition, we aim to maintain a financial buffer in our accounts equivalent to three months of government wages. Appropriate management of the exchange rate and an interest rate policy aimed at keeping the policy interest rate positive in real terms will continue to be the main instruments to keeping inflation under control. We will also continue to advance our structural reform agenda, with a particular emphasis on
public financial management and financial sector reforms.
Page 17
II. DEFINITIONS
For purposes of monitoring under the program, a program exchange rate will be used.
This program exchange rate will be set at ID 1,170 per U.S. dollar.
The program exchange rate will be used to convert into Iraqi dinars the U.S. dollar value of all CBI foreign assets and liabilities denominated in U.S. dollars, as required.
For CBI assets and liabilities denominated in SDRs and in foreign currencies other than the U.S. dollar, they will be converted in U.S. dollars at their respective SDR-exchange rates prevailing as of December 31, 2009, as published on the IMF’s website
Foreign Currency and Gold Reserves divided by the amount of currency in circulation equals the value of one currency unit.
Not entirerly so with Iraq's currency though. In Febuary Iraq's reserves where worth 50.2 Billion USD with the exchange rate at 1170 per 1 USD. Later thier reserves dropped to 44 Billion yet the exchange rate remained at 1170.
The fact that Iraq is using a set Program Rate, means no matter what the ratio of Reserves vs Currency is, the Exchange Rate will be held at 1170!
In Iraq's letter we find the phrase, "appropriate management of the exchange rate."
Well that opens the door to a few of possibilities doesn't it?
One of them being reducing the currency in circulation to a point where by conventional standards the value of the dinar would increase...after they released it from the Program Rate.
From the 2010 Letter of Intent to the IMF.
http://www.imf.org/external/np/loi/2010/irq/020810.pdf
Page 5 paragraph 6
With headline and core inflation low, the exchange rate has been stable since the beginning of 2009. The policy interest rate has been reduced gradually to 7 percent. Net international reserves increased to $50.2 billion at end-2008, but have fallen to $44 billion at end-2009, reflecting the drawdown of the government’s deposits with the CBI.
Page 6
We have adopted a budget for 2010 that aims to further reduce non-priority current outlays and align the investment budget with our national priorities and implementation capacity. We seek to reduce the government’s budget deficits during 2010 and 2011, with a view to returning to a budget surplus in 2012. In addition, we aim to maintain a financial buffer in our accounts equivalent to three months of government wages. Appropriate management of the exchange rate and an interest rate policy aimed at keeping the policy interest rate positive in real terms will continue to be the main instruments to keeping inflation under control. We will also continue to advance our structural reform agenda, with a particular emphasis on
public financial management and financial sector reforms.
Page 17
II. DEFINITIONS
For purposes of monitoring under the program, a program exchange rate will be used.
This program exchange rate will be set at ID 1,170 per U.S. dollar.
The program exchange rate will be used to convert into Iraqi dinars the U.S. dollar value of all CBI foreign assets and liabilities denominated in U.S. dollars, as required.
For CBI assets and liabilities denominated in SDRs and in foreign currencies other than the U.S. dollar, they will be converted in U.S. dollars at their respective SDR-exchange rates prevailing as of December 31, 2009, as published on the IMF’s website