IRAQ EXCHANGE RATE MECHANISM - By Adam Montana @ Dinar Speculation

We’re hearing a lot of buzz on the ERM, or Exchange Rate Mechanism for Iraq. I talked about it in chat this morning but wanted to take a moment and point you in the right direction if you wanted to research Iraqi Exchange Rate Mechanism and what it means for the Reval of the Iraqi currency.

(Here’s the link to the chat: http://dinarvets.com/forums/showthread.php?t=5945)

I also posted another article that does a great job of explaining some history on currencies, and ties it to Iraqi Dinar. See that one here: http://dinarvets.com/forums/showthread.php?t=5950

ERM, or Exchange Rate Mechanism, generally refers to the EU before they went to a common currency: the Euro. This Exchange Rate Mechanism was an agreement to keep the values of the currencies of the members of the European Economic Community tightly grouped, within +/- 2.25%. If any of the currencies went outside of that range, financial institutions were designed to step in and take action to bring the currency back into range.

Definition of ERM on business dictionary: http://www.businessdictionary.com/definition/exchange-rate-mechanism-ERM.html

Let’s play a little “Connect The Dots”… we already know that there is talk of a Common Middle Eastern Currency, known as the Gulf Dinar.The Iraqi Dinar Exchange Rate Mechanism, if implemented, could be the start of stabilizing the Exchange Rate of the Iraqi Dinar prior to bringing it into the GCC, where a union of countries will support each other financially to ensure a value within a small fluctuation rate. This is known as “semi-pegging”.

So, if Iraq is looking at an ERM, and the goal of an ERM is to keep the currencies in the group (or coalition, as it is in this case) on a level par with each other, what is the likely course for the Dinar at this point in time?

Quite simply, it has to be closer to the value of the other currencies in the “basket” in order to be withing a +/- 2.5% range. If this is the plan, I wouldn’t be surprised to see either an RV very soon, OR a rapid rise in value to get it up to the rate it needs to be at in order to match the other GCC member’s currencies.

Possible speculation and proposals on the Gulf Dinar put it about 2-3 years out. If Iraq does not RV overnight, they need time to grow the currency and avoid a huge shock to their economy, so things need to start happening soon.

One thing we know for sure is that we have not seen any movement on the Dinar in over a year, and at the same time we’re hearing about stuff like an Iraqi Dinar ERM. I can only imagine that means one thing: Something is in the works.