(SWFloridaGuy): MIG 8/13/12

SWFloridaGuy] Here is another possible explanation of how a large currency appreciation or “appreciation shock,” can help reduce global imbalances. This establishes four key apspects can prove useful in the ongoing debate about the role of exchange rate adjustment for global rebalancing. I’m not referring to a reset where 70 countries RV or anything like some of the rumors we’ve heard.

I do however believe that just as the IQD didn’t get to their current value alone (UN imposed), they can’t recover alone either. I believe this is all part of a well-orchestrated plan and while the IQD will not be the world’s savior by any means, it does present a unique opportunity to rebalance the system allowing the Central Banks to use this currency as an adjustment tool or stimulus during this global financial crisis. In this respect a significant revaluation somewhere on par with the USD gains a bit more tenability.
[SWFloridaGuy] There are many powerful governments, corporations and organizations that are all heavily invested into Iraq and looking to profit from this wealthy country as well. I do believe eventually Iraq’s currency will recover. The only questions we have are the recovery duration and by what mechanism they will achieve this. If all the reports out of the CBI lately are true, we don’t have that long to wait. One way or another Iraq will be added to the history books in 2012 and my money is on this being a historic appreciation shock. Here are some interesting reports on currency revaluations in addition to a Harvard study on possible solutions for Iraq’s Currency. 1.  http://www.econbrowser.com/archives/2011/03/the_macroeconom.html2.  http://www.oecd.org/countries/iraq/45174154.pdf

3.  http://www.nber.org/chapters/c5376.pdf

4.  http://www.ecb.int/events/pdf/conferences/fgi/Devereux-Genberg.pdf

5.  http://www.hks.harvard.edu/fs/jfrankel/What_to_do_with_Iraqs_Currency.pdf

[gunny] SWFloridaGuy TY; I agree. Use the IQD as the “cornerstone” to rebalance the system, so to speak.

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