'Our aim is to establish a forward market in Iraqi dinars in the near future

[dbcooper]

'Our aim is to establish a forward market in Iraqi dinars in the near future,' say finance officials

Iraq plans to establish an interbank foreign exchange market and dinar forward market and to step up its treasury bill activity in 2010 to help plug continuing budget deficits and foster treasury and foreign exchange markets, the Central Bank and Finance Ministry said in a submission to the IMF. Iraq aims to develop foreign exchange markets outside the framework of dollar auctions currently conducted by the Central Bank, a letter of intent submitted to the IMF for a US$3.6 billion standby arrangement said. Iraq said it would not return to a budget surplus until 2012.

"As our financing needs in 2010 will still be substantial, we will step up our efforts to mobilize domestic financing through the Treasury bill market," Iraq's Central Bank head and finance minister wrote.

"To that end, we will conduct regular auctions, and refrain from cancellations, while allowing interest rates to be determined by the market. This will have additional benefits by determining a benchmark interest rate, while the development of a secondary market for treasury bills will allow banks to improve their liquidity management."

"They are going to shift to building a local market, they have ample cash, loan-deposit ratios are very low and they will benefit from oil,"Turker Hamzaoglu, emerging market economist at BoA-Merrill Lynch, told Reuters.

"They have to develop a domestic bond market but it's still baby steps, it's still too early, it's not even a frontier market," he said, adding that Gulf Arab and Lebanese investors could be interested in Iraqi domestic paper.

Central Bank Governor Sinan al-Shibibi and Finance Minister Bayan Jabor said in the letter to the IMF that the country planned to introduce a sales tax, as a precursor to a Value Added Tax, "in the coming years".

Iraq's gross domestic product expanded by 4% in 2009 compared with almost 10% the year before, their submission reported. GDP growth would rise to almost 7% this year and 7.5%-8% in 2011 and 2012, they said. That improvement would be rooted in an increase in Iraqi oil output to 3.1 million barrels per day by 2012, from around 2.5 million bpd now, and exports of 2.5 million bpd, compared to just over 2 million bpd now. That outlook might be conservative following the signing of 10 multibillion-dollar deals with global oil firms to develop Iraq's vast reserves. If all the deals work out, Iraqi oil capacity could soar to 12 million bpd in six to seven years.

"The CBI will continue to be independent in the pursuit of its policy objectives. The CBI’s monetary and exchange rate policies will continue to be aimed at keeping inflation under control and safeguarding international reserves," the submission said. The banking sector is in urgent need of reform to foster financial intermediation and enable banks to contribute to the development of a strong private sector. With the help of the World Bank and other international agencies, Iraq has developed a banking sector reform strategy, it added.

"Iraq is committed to strengthening the management of international reserves by moving ahead with the implementation of new reserves management guidelines that were adopted in early August 2008. Iraq will follow the guidelines to diversify currency composition and establish appropriate duration and credit risk, build capacity for risk analysis, and work towards establishing a dealing room".

The IMF submission said Iraq's Central Bank planned to create a foreign exchange market outside the framework of regular dollar auctions now conducted by the bank. The bank uses the auctions to set the exchange rate, which has been held at 1,170 dinars per dollar for many months.

"To improve the functioning of foreign exchange auctions, we plan to develop organized exchange markets outside the central bank, including an interbank foreign exchange market," it said.

"Our aim is to establish a forward market in Iraqi dinars in the near future."

http://www.bi-me.com/main.php?id=450...cg=4&mset=1011

[usc73man]

Thanks for the post DB - Blessings,

RON

[enorrste]

This article is very important and needs to be understood in connection with Shabibi's statement about how "we are now adopting a managed float" and "the new currency is supported, reasonable, and stable". These statements were made on March 10 and I have discussed them here.

However, the article just above, while published on March 12, is actually based on Shabibi's "Letter of Intent" given to the IMF on February 8, over a month ago. So we need to look at these two statements "backwards", if you will.

"Iraq plans to establish an interbank foreign exchange market and dinar forward market".


When it is known that this statement was made on February 8, then later statement from March 10 makes more sense:

“ ‘The CBI is [now] adopting a managed floating policy of exchange rate, through which a reasonable exchange rate is fixed,’ Sinan Al-Shabibi told Aswat al-Iraq news agency."

Therefore the announcement of the "managed float policy" refers to the "interbank foreign exchange market and dinar forward market" from the prior statement. In other words, Shabibi is stating that he is taking the IQD into the world foreign exchange market and that he will used the "managed float" system of the ERM (Exchange Rate Mechanism) in order to support a gradual increase in the value of the IQD until it reaches equilibrium. The term "foreign exchange market" means the FOREX. Therefore, he is stating without confusion that the IQD is going to enter into the "internationally recognized currency" field. This is very important and indicates that our ride is nearly over. Once in FOREX, the IQD will be exposed to "real" traders and the value will rise to equilibrium in short order.

The next statement from the article above is this:


"Our aim is to establish a forward market in Iraqi dinars in the near future."

Remember, this statement was made on February 8, over a month ago. Then just 3 days ago this statement was made:

“’The new [current] exchange rate is reasonable and stable and can be defended by our vast foreign reserves, totaling $43 billion U.S. dollars at the moment,’ Shabibi explained.”

By placing these two sentences in their proper temporal order, we see that the decision was made last month to bring the IQD into the world "forward market", also known as the "futures market" and the FOREX. In addition, however, based on the more recent statement, the entry into the FOREX will be with a "new" exchange rate that is supported by the vast reserves of the CBI.

To sum up: when taken in context and aligned temporally, we see that Shabibi has announced to the world his intention to RV the IQD, "in the near future", and that he said that a month ago!

Therefore, we may reasonably expect the announcement at any time, including tonight.

Steve

[IcemanSC]

Thanks for the post.

[dbcooper]

Thanks for your comment, enorrste...We are hoping!

[decalking]

This is the kind of a post that we all need to hear thanks guys.