View Full Version : Mystery of the Iraqi Gold Purchase

12-06-2009, 08:48 PM
Like Sands Through the Hourglass, So Are the Days of Our Lives: Today's Episode - Mystery of the Iraqi Gold Purchase

by Marla Singer and Geoffrey Batt

Perhaps you might not expect to find much interesting in data published by the Central Bank of Iraq (http://www.cbi.iq/key_financial_indicators.html). 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. Want to guess why?

Iraqi officials say that, last year, they wanted to diversify their holdings out of the dollar, as it depreciated, into other assets, such as the euro, more likely to hold their value. This was vetoed by the US Treasury because American officials feared it would show lack of confidence in the dollar. 1 (http://www.zerohedge.com/article/sands-through-hourglass-so-are-days-our-lives-todays-episode-mystery-iraqi-gold#footnote1_fe32d7e)

No way, seriously?

Still, it seemed possible that these transactions were related to a "stand-by" loan agreement Iraq had long sought with the IMF. That arrangement was to provide $5.5 billion in a five year loan to Iraq in tranches of $1.2 billion worth of SDRs each. Interestingly, however, there are no press releases from the IMF on the subject, or iraq generally, since late 2008 (https://www.imf.org/external/news/default.aspx?gType=News&DType=Select+Type&selCountry=Iraq&selSubject=Select+Subject&selMonth=Month&selDay=Day&selYear=Year&selMonth1=Month&selDay1=Day&selYear1=Year). In fact, the last press release from the IMF's website dealing with Iraq at all was in December of 2008- indicating that the arrangement "...is being treated as precautionary by the authorities (see Press Release No. 07/301), and no disbursements are planned."

A bit more digging reveals this October 6, 2009 article from Dow Jones:

ISTANBUL (Zawya Dow Jones)--Iraq has been granted $5 billion by the International Monetary Fund to support the government's budget, Iraqi Finance Minister Baker al-Zubaidy said Tuesday.

"We reached an agreement on an IMF loan for about $5 billion," he told reporters in Istanbul, speaking on the sidelines of the IMF's annual meeting.

The funds will be disbursed between 2010 and 2011, he said.
As recently as last month, however, the IMF's Caroline Atkinson was tight lipped on the topic:

QUESTIONER: Can you give us any update on loan talks with Jamaica and with Iraq, please?

MS. ATKINSON: Thank you. On Jamaica, there is a mission in the field now. We expect they’ll be wrapping up in some days’ time and we will give you an update then.

In Iraq, I’m sorry. I’ll have to come back to you on that one. 2 (http://www.zerohedge.com/article/sands-through-hourglass-so-are-days-our-lives-todays-episode-mystery-iraqi-gold#footnote2_8xht2lx)

Seeking clarification, Zero Hedge contacted the IMF directly today. IMF representatives told Zero Hedge that, in fact, and contrary to the Dow Jones release, the IMF is no where near agreement with Iraq on any stand-by arrangement. The representative further commented that it was "highly unlikely," that Iraq had purchased or otherwise acquired any SDRs.

If the entries in question aren't IMF SDRs, one wonders exactly what is actually going on over there in the sandbox. Is Iraq flexing a bit of independent monetary muscle, to the chagrin of the United States? If even Iraq wouldn't touch the dollar with someone else's Federal Reserve Bank, what does that say about the dollar? (Or the Federal Reserve Bank?)

1. (http://www.zerohedge.com/article/sands-through-hourglass-so-are-days-our-lives-todays-episode-mystery-iraqi-gold#footnoteref1_fe32d7e) Patrick Cockburn, " US issues threat to Iraq's $50bn foreign reserves in military deal (http://www.independent.co.uk/news/world/middle-east/us-issues-threat-to-iraqs-50bn-foreign-reserves-in-military-deal-841407.html)," The Independent, June 6, 2008.
2. (http://www.zerohedge.com/article/sands-through-hourglass-so-are-days-our-lives-todays-episode-mystery-iraqi-gold#footnoteref2_8xht2lx) " Transcript of a Press Briefing by Caroline Atkinson, Director of External Relations (http://www.imf.org/external/np/tr/2009/tr110509.htm)," IMF Website, November 5, 2009.

12-07-2009, 03:51 AM
thanks guardian good read

12-07-2009, 08:49 AM
Every time I see a post from you I know I am about to learn something intersting - very well explained

Thank you