Note Count vs. Money Supply
By Dinar Daddy (Concept Attributed to Breitling)
Breitling discovered something that has stumped the Dinar following community for years. I'm writing this to bring forward the thoughts he shared with me regarding the difference between the Money Supply we've been assuming versus the currency bank note supply, which is all that really matters in all of this. His concept made perfect sense to me, and officially brings to an end the arguments offered by so many naysayers that the Iraqi Dinar has too many bank notes in circulation to ever revalue its currency at any significant level to make a difference. Some estimates by incorrect calculators have the number standing at over 70 Trillion in currency outstanding!
After reading this, feel free to visit Breitling's blog and listen to his more in-depth explanation of the monetary supply athttp://breitlingcurrency.
Many have read my previous post on Dinar Daddy's Tidbits titled, "Dinar Daddy Gives Food for Thought: Coincidence or Signs?". In that post I talk about the note count being reduced to an eventual goal of 1 billion. I speculate in my post that the original plan bringing Iraq's currency value to the original $3.92 or thereabouts was based on a 1 billion currency note count. Anything above that count would simply be a lesser valuation than $3.92. You can read that post to get what I'm driving at in my thoughts there.
Anyway, taking that concept into account, and further coming to an understanding about what Monetary Supply means leads us to the point of this article... that note count does NOT equal Monetary Supply. Monetary Supply constitutes far more than note count only. Taking this as the basis of our argument, we can deduce that when naysayers state they don't believe in the "RV" of the IQD because of the excessive bank notes in circulation, we can assertively say they are getting confused between what is being referred to as the Money Supply thinking the articles are talking about circulated outstanding bank notes.
Money Supply Definition
Money Supply is the aggregate amount of monetary assets available in a country at a specific time. According to the Financial Times...
- Money Supply M0 and M1, also known as narrow money, includes coins and notes in circulation and other assets that are easily convertible into cash.
- Money Supply M2 includes M1 plus short-term time deposits in banks.
- Money Supply M3 includes M2 plus longer-term time deposits.
- Money Supply M4 includes M3 plus other deposits. And the term broad money is used to describe Money Supply M2,M3, and/or M4.
The ONLY definition that matters to us for purposes of the Iraqi Dinar is the M0 and M1, the narrow money. Not even all of THAT definition would impact the valuation, as even part of it includes "other assets that are easily convertible into cash", meaning the "other assets" are NOT bank notes!
So, what does all of this mean? Simple... All the articles we've been reading in the news surrounding the Money Supply of Iraq have been written without sharing the whole picture, or were written to dissuade, confuse, manipulate our thinking, or simply by someone not understanding the true meaning of Money Supply versus bank notes in circulation, and how they impact the overall valuation of Iraq's official currency, the IQD.
Our pessimistic conclusions were wrong because we didn't have the whole truth presented to us by the news outlets, and we didn't have the complete understanding to know the difference. We were reading about the M4, M3, and M2 numbers, which never specifically talked about the bank note counts themselves. No effort was made to clarify what they were actually speaking about. They probably didn't know fully themselves what they were presenting and how it impacted their currency and country.
All this bodes well for a healthy Iraqi Dinar valuation some day in the future.
Go Dinar!
Dinar Daddy
