PREDICTION: The Dinar's Final Value

I was driving home today and thought of how the dinar might wind up. Feel free to post your own predictions as a response or challenge my assumptions.

What we know:

A lop would cause the Central Bank of Iraq to bring in all of the existing dinars, print new dinars, and then distribute the new currency. All of this would be expensive and time-consuming. Iraq has basically had to do this twice over the last 20 years and likely wouldn't desire to do it again.

If Iraq chose to grow the dinar, a RV of 1/1 would cause massive inflation and could cause the collapse of the Iraqi economy. An immediate shift could be detrimental to the already fragile economy.

Iraq's new currency is well-made. It is made of complex fibers and all have a watermark. The 25k note has security thread and color-shifting material. The putative value of this note currently is about $20. However, the high quality of the note is more like one worth about $100.

The dinar is pegged to the US dollar.

Knowing these things:

Iraq will likely continue to slow grow the dinar. With the rapid growth of the economy (even with lower oil prices), inflation is likely to pick up. If this happens, then the interest rates will likely be raised by the CBI. When this happens, the dinar increases in value.

If inflation causes a pickup in interest rates and the tightening of the money supply, then the overall M2 will decrease. Even a decrease of 10%, coupled with economic growth of 10% could have the effect of an over 20% pickup in the value of the dinar.

It is likely that the 25k dinar note would remain the largest bill. In this fashion, it could happen that this would be tied to the largest American bill in circulation, the $100 bill. In this case, if the 25k dinar note is roughly around $100, then the value of the dinar could range between one quarter and one half of a cent.

In this scenario, if the dinar was worth a half a cent, then the 50 dinar note would be worth a quarter, or enough to buy a gallon of gas in Iraq. This would become a practical small bill, similar to our $1 bill.

The slow grow of the dinar, coupled with the growth of the economy would likely cause the Iraqi economy and government to have increased spending power, which could further aid an economic revival. This could happen without the extra costs of a lop or the high risk of hyperinflation (which would be counterproductive) of an RV.

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