Peg against Dollar and Kuwaiti Dinar unlikely

[RogerL]

I did some research and ran some numbers.

On that theory about the Iraqi dinar pegged to the Kuwaiti dinar and achieving $3.39/dinar, that's very unlikely to happen no matter how much Kuwait helps. I did some checking and found that M0 (the total amount of currency in bills and coins) for Kuwait totals a mere 11.8 billion KD. Since Iraq has more than 3 trillion dinars outstanding, there's simply no way it can hold parity to the KD. For pegging at 1:1 to work, Iraq would have to hold over 3 trillion KD which don't exist.

As for the US dollar, the math doesn't work there either. Recent reports have said that Iraq holds hard currency reserves of $2.4 billion. If you run the math on 3.5 trillion dinars in circulation, that divides up suspiciously to a number approximating 1460, the current exchange rate. So if the Iraqis intend to strengthen the dinar appreciably beyond 1460/$1, they'll need a heck of a lot more US dollars sitting in their foreign reserves. My calculations to get to $0.31/dinar on a dollar peg would require Iraq to hold almost $1 trillion in foreign reserves. That isn't likely to happen in our lifetimes.

If they could build their hard currency reserves up to $24 billion, they could reach about $0.01/dinar.

Since neither of these seem to work, I'm guessing they have something else in the works. Perhaps, they'll peg to oil or some basket of commodities.

[Blake]

Initially floating the dinar with the surrounding countries' currencies is still the best to see immediate appreciation in the next 1-2 years & is still the most likely option. From what I understand, Iraq could still peg the dinar to the dollar later on without necessarily the specific goal that the dinar must become equal to that particular currency. "Pegging" it to any currency specifically would be more for stabilization IMO than great appreciation.

Anyway, I think (and hope) the Dinar will be floated for the initial period of 1-2 years and then subsequently pegged to a split PEP basket involving a mix of currencies(USD or Euro) and/or commodities(oil, dates, gold).