Enorrste

There are a few things that we must remember before we go off the track…

1) The first is that the official policy of the CBI and the IMF is to move to a floating dinar.

2) Second is the fact that both the CBI and the IMF expect the value of the dinar to rise, not fall, when it moves to a float.

3) The third fact is that Saleh stated unequivocally that the recent change in the exchange rate from 1166 to 1182 (or 1190) is NOT a devaluation of the dinar but IS an ADJUSTMENT in preparation for something else.

4) The fourth is the fact that there is a liquidity crisis in Iraq caused by the hoarding of up to 70% of all of the dinars in mattresses.

5) Now, finally, this fifth element is coming into play. This adjustment will, in my opinion, cause the locals to unload their paper dinars, most likely for dollars. This is a short term move, in my view, done specifically to draw out the dinars so that they can be destroyed.

Once the dinars start to come out of the mattresses the CBI will destroy them, thus reducing the money supply. Some will be exchanged for the new 50k notes, but the vast majority will be destroyed. With the destruction of money there will be upward pressure on the value of the dinar itself and this short term “issue” will have served its purpose (getting the money out of the mattresses).

This is why Saleh has called it an “adjustment” instead of a “devaluation.” It is a short term ameliorative to draw out the paper so that it can be destroyed.

Bottom line: everything is still on tract as planned by the IMF/CBI.

Therefore, this is not the change in monetary strategy. It is only an adjustment. The change in monetary strategy will come when the CBI announces a move from a fixed rate dinar to a floating dinar. I won’t be surprised if we see this within the next 60 days.