Author Topic: how this all works and some clarification  (Read 195 times)

Offline michigander0131

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how this all works and some clarification
« on: January 18, 2015, 08:23:33 PM »
In the case of Iraq, they now have, according to this article, 150% coverage in reserves to back their currency.  This means that they have $60 billion in dollars, euros, and gold sitting in the central bank.  That is 150% of the money supply of about 40 trillion dinars, worth $40 billion, give or take.  Therefore, having 100% backing their currency, or more, in this case, does not reduce the money in circulation.  The two things are different:  the money in circulation is in dinars, while the reserves are in other currencies (dollars, euros, gold) which is "backing" up the strength of the money in circulation. 

There is no evidence that an initial start rate will be higher than that in terms of value.  The CBI would be foolish, quite frankly, to try to impose an artificial higher rate.  They have no incentive to do so and would run a great risk if they tried to do so and failed.  For instance, if the "start" rate were to be set to $1 per dinar, then the money supply value would instantly change to $40 trillion, larger than most of the money supplies in the world put together.  That simply doesn't make sense, and won't happen.  The plan is to reduce the money supply gradually as the value rises, so that by the time the dinar gets to $1 the total money supply will be 40 billion dinars, worth the same $40 billion that it is now.  There will just be less money in the system and, by then, all of the large three zero notes will have been sucked into banks, then to the CBI, where they will be destroyed (effectively lowering the money supply in terms of dinars, not in terms of overall value).
 as the value of the dinar rises and the money supply falls, the total value of the money supply remains relatively constant (as I just noted).  This means that at a dinar worth $1 the Iraqi currency would STILL be the strongest in the world, since it would still be backed 150% by the reserves ($60 billion in reserves to back 40 billion in dinars, the new lower money supply, but still worth $40 billion).