7-26-13 Tlar: [Q. is it your opinion that we will see Iraq move to article VIII sometime in next 30 days?]
A. I think Turki will have to do something very positive to the currency in order to keep these banks from straying from this plan. Let’s assume for a second that this plan that is targeting reducing the street rate is successful in a week.
Turki must do two things to insure that the banks sacrificial effort is first rewarded, then no longer necessary. Without a reward, the banks won’t hold to this plan.
Without an at least some semblance of a termination of this sacrifice, the banks won’t hold.
In other words the banks can not continue to sell the dollar at 1179 because there is not only no profit in it for them, but they actually incur cost. The lines of people that have been waiting to be served everyday require bank employees that cost salaries.
These bank employees become instantly a burden because they make no money while they work all day. They are unproductive. It is the hope of the CBI that these lines will diminish as the rate stabilizes.
We have heard that there is less demand for the dollar but that is not born out by the sale of cash dollars at the auctions as of yet.
So while the thought is basically sound in this plan, if the plan starts to disintegrate because it either takes to long or the banks begin to believe that they will not see the carrot anytime soon, the plan again won’t hold.
As to your question on IMF Article VIII. I think there is ample proof that these banks are not unilaterally making this sacrifice. In other words there most likely is a reward for their “selfless act” on the table but just not public announced.
If we look at what the bank could possibly bate these independent banks with that might make it worth their while to eat their own body fat, the list is short.
I see RV and IMF Article VIII happening at the same time followed by either a free float or a managed float. Most importantly though, there must be a change in the currency because these banks would never make this kind of a sacrifice just to watch the currency start to creep up.
That’s a formula for disaster in my opinion because again, the banks can’t do this for long. If they break the plan no matter why at any point, the CBI will have to regroup and start all over again.
Changing the value significantly, changes the conditions on the field. One it should immediately stop dollarization in its tracts and actually reverse the trend making the sales of dollars a very small part of the banks profits.
I think it was stated in an article or someone on here said, “there is a complete shift in policy going on.” I too see that but I see more important that this plan is the vehicle to get there quickly.
Bringing the rates together is but one step of this plan. Step to is the reward and it the first part works, Turki better provide the second.
Once the reward is instituted the massive amount of dollarization will disappear and actually reverse.
That’s why I believe Turki will delete the zeros, institute Article VIII, and immediately reverse the course they have been on. He must do it in a tolerable period of time for these independent banks or their sacrifice will have been in vain..