Wednesday, December 2, 2009

Is Iraq Dissing the Dollar and Buying Gold?

Marla Singer over at ZeroHedge has found some interesting data items published by the Central Bank of Iraq:
Perhaps you might not expect to find much interesting in data published by the Central Bank of Iraq. In fact, it is a treasure trove of interesting mysteries right smack in the middle of the nexus between international economic relations and nation building. For example: Between October 22nd and October 29th of this year Iraq's central bank appears to have acquired IQD 1.874 trillion ($1.6 billion) in "Gold and SDRs," adding to their existing stash of IQD 726 billion (or about $620.5 million). This wouldn't normally be unusual. SDR's are often the unit of choice for countries accepting loans from the IMF, for example. But after just a little bit of digging, one thing seems pretty apparent: they ain't SDRs. Around this time gold peaked at $1061 an ounce. If it was, in fact, gold that Iraq bought, that's around 1.5 million ounces (or more depending on the actual clearing price).

On the face of it, it is possible that this isn't actually gold bullion, given the "SDR" line. But, in the same period the Central Bank of Iraq saw a spike in "Foreign Liabilities" of IQD 2.1 trillion, specifically in the "Foreign sector foreign currency current account." A corresponding entry in the "Domestic currency deposits of MOF" account (MOF is the Ministry of Finance) made us wonder if the central bank didn't just convert a large cash deposit from the MOF to gold or SDRs.

Supporting the gold theory, certainly, this wouldn't be the first time Iraq has sought to distance itself from the Dollar. As it does for several central banks, the New York Fed holds tens of billions of dollars of reserves for Iraq in U.S. Dollars. Last year, Iraq sought to switch the reserves into, for example, Euro (for reasons that should by now be quite obvious to everyone) a move that was quickly vetoed by the U.S. Treasury...
Read the full column here.

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