Why’s it so hard to determine what some people mean sometimes? Are they being ambiguous for a reason? Do they not know what they’re actually saying? Perhaps they want you to ask a question to clarify? Regardless of their reasoning, many times this leaves us with a bad taste in our mouths for what we wanted to say.
The infamous “delete the zeros” topic. There are some that would have you believe that it means to drop the zeros of the notes. For instance, a 25,000 value note would become a 25 note. Plain, simple, no frills. But is it that simple? If we look at the number of topics circulated about this, there are actually three ways you could look at it, so let me lay them out for you.
- Sure, 25,000 note becomes a 25 note. But what does that solve? In just about any circumstance, you’re replacing the notes with smaller notes, you’re reasoning is just different. The term “lopping” is used here, usually when hyperinflation has been running rampant and you want to restore some confidence in the currency. There is no hyperinflation in Iraq, in fact, their inflation rate is roughly the same as the U.S.’s. So why would you do this? From a economist’s standpoint, this would be a poor solution. Since there is no hyperinflation, there’s no confidence to be gained by hacking off zeros from your currency. It’s also confusing when you consider that you have a 250 note as well in circulation. So you’re only changing parts of the currency? Talk about confusion for citizens.
- Method 2. If you look at the value of the currency to the U.S. dollar, it’s a .00076 conversion. What if the “delete the zeros” wasn’t about the physical currency, but the exchange rate? So instead of a .00076 conversion rate, it was .76? Now, rather than 1315 to 1, you’d be at 1.31 to 1. You would have “deleted” zeros, just not off the currency. At this point, as the old notes come in, you’d implement a new currency with lower denominations in say, 1, 5, 10, 20, 50, 100, 250, and hey maybe a 500 or 1000 for good measure. Let’s not forget that the U.S. used to have 500 and 1000 denomination notes that are still valid today. They just happen to be worth more as collector items than the face value.
- Method 3. This is obviously the most radical option. Several negative Nelly’s would have you believe that the Iraqi currency was some made up number back in the day at 3.21 or more. That Saddam just declared this number and ran with it and it wasn’t really worth that amount. Well, hate to bust your bubble there Nelly, but it was worth even more and traded at that value WORLDWIDE for imports and exports. And yes, the note count was crazy! But it was still recognized as the tradable value. So the last option would be to reinstate the currency back to it’s value at the time it was sanctioned and, as the U.S. did back in the day, replace the notes with new currency as they are deposited into banks.
Now about the whole “deposited into banks” thing. Once currency is deposited, what’s it’s value? Well it’s the face value of the deposited funds correct? Here’s an interesting tidbit. The average salary in Iraq is about 1.7M a month, so BWM you’re saying that every Iraqi will be a millionaire if the value changes? Uh no, that equates to about $1300 dollars a month. Remember, inside a country, it’s all about their purchasing power. So let’s say they reinstated the value to the original rate when sanctions were placed on them at 3.22. That means that the average citizen in Iraq would now have $4,186 dollars in purchasing power. That means they went from making $15,600 a year to $50,232 a year. Decent raise, but by no means makes them millionaires in every household. Prices will obviously change, so that gallon of milk that now costs 6,083 dinar, will be completely different, but their purchasing power will increase. But can’t we do the same thing with dropping the zeros from the notes? Imagine if you will, a whole generation of retailers and citizens who’ve spent the last 20 years dealing with currency with values at 25,000 to buy a gallon of milk, a loaf of bread and a dozen eggs. Now you’re expecting them to determine the value of their spending power taking zeros off some notes, not off some, and trying to implement an entire new currency with smaller values at the same time. It’s a whole lot easier to let the value be what the face value is.