Sunday, April 27, 2008 7:49:48 PM
Amer Taheri The stability of the Iraqi currency..............
I thought I should correct some misapprehensions, as well as abusively ramble on, these being my core competencies, about currency valuation, Iraq and the like, perhaps secondarily the impression that I view the Iraqi dinar as an essentially “stable” currency as such.
Mr. Lounsbury confirms, however, that in a roundabout way, it is Iraq's petroleum that keeps the currency strong. Currency stability is therefore not actually an achievement of the Iraqi or American governments, and, as long as the government did not work its currency printing presses overtime, would be a feature of Iraqi currency under any regime.
Before I get into details, let me give an executive summary:
1. Presuming that a Peg is 'inherently indicative' of instability was and is factually wrong,
2. the Iraqi dinar’s exchange rate is indeed has some market basis and relationship with market forces, and the absence of a discernable black market an important indicator of the same,
3. the stability to date of the dinar is a real achievement of the Iraqi government (or rather the Central Bank), although doesn’t particularly indicate Iraq is going well or not – it is in fact an indicator that the Iraqi Central Bank is doing a good job of managing the currency and certainly is better than the central bank doing a bad job,
4. Cole’s pleasure with respect to a negative interpretation rather underlines that despite his great value, his critics (however generally irrational and nasty) have a point with respect to a certain lack of objectivity on real positives in Iraq. Although again in this context I emphasize that I don’t particularly regard the Central Bank’s success in maintaining a pretty stable currency as great indicator of general progress in Iraq or any other such thing; although on the other hand, at least it is one less negative. And Lord knows Iraq hardly needs more negatives.
Now, getting to the origin of this, Professor Cole first wrote in connexion with the dinar, in criticising Amer Taheri's judgment (and apparently something silly Taheri wrote about the Dinar being some great symbol of progress - I reiterate that I haven't read Taheri, although anyone touting the Iraqi dinar as a symbol of anything profound about Iraq going forward is playing Russian roulette with their rep), that the dinar is unstable (as he implies in his quote above) because it is managed. He also made reference to the history of the Egyptian Pound as an illustrative example of an unstable currency disguised with a peg (meaning the government, in general a central bank, sets the exchange rate against another currency - or unit of value, like gold, etc).
That's, to be blunt, complete bollocks. The former idea of peg being inherently indicative of instability, not the reference to the Egyptian Pound and policy being a mess - back when I dealt with Egypt I was in constant fear of a Pound crisis (although my paranoid tendencies are likely excessive). My problem with Cole's original comment being in the end that he incorrectly gave the sense the currency regime in some way itself refuted whatever Taheri's comments were.
There's hardly a currency out there that isn't subject to some massaging by its government, relative to its exchange value. And highly managed currencies, as in pegged (tied) currencies are not, ipso facto, unstable (or stable for that matter). As the saying goes, "it all depends." Or the devil is in the details. ( See this somewhat insufficient wiki art for orientation on exchange rate regimes)
In the case of Iraq, the Central Bank has established an undeclared - that is it hasn't issued a clear official declaration - trading range for the dinar against the US dollar (and by default against other currencies), in short what is often called a dirty peg (or a flexible peg, etc etc). The fact that it has done so is neither good nor bad (although most economists prefer floating exchange regimes), it all depends on the rate chosen versus the economic situation the country faces.
As a general matter, rates with some reference to the market - that is to supply and demand - are better than, well, rates pulled out of the ass of the government without reference to some underlying market demand. Mind you, there is emperically speaking quite a lot of evidence that exchange rates can get quite off what a theoretical value would be for a good number of years, although equally the evidence indicates they snap back in the end.
That begs the question, of course, in terms of a currency what is demand or supply, which is a hard thing to visualise in terms of money which most people are not used to thinking of in such terms. Supply generally is easier to think of, typically one thinks of printing actual physical cash, but generally I think most people understand that governments via a number of mechanisms can create “money” – print more bills physically, take other policy actions I am not going to bore you with, to increase the number of nominal currency units out in the word.
What trips up most people (and in terms of Iraq there is a beautiful representation of that if one goes to the Dinar ‘Investing’ sites, such as my financially illiterate ‘friends’ here) is the misplaced belief that a form or money or another has some intrinsic value, and if the government prints more money (in the broad sense of increasing money) supply that will increase the wealth of the citizens (if one searches the cited site, and reads through discussions particularly in the August 2005 period, one finds many instances of ‘Iraqis are poor, so the government should revalue the Dinar up to make them rich’ argument, a variation on this error). It doesn't by the way, as the long history of currency manipulation amply demonstrates - prices adjust to the new base and one ends up with the same overall wealth (although parenthentically I may add too little money and too much both impose penalties). See this quick definition of Money Illusion from Wikipedia, which is useful enough.
Demand (for money) is rather less obvious. Effectively one can think about a particularly currency as a product, and like any product it has near and not so near substitutes. Demand for money is essentially demand for a value place marker and store for value.
For the Iraqi dinar the obvious substitute products are of course barter, US dollars (USD) and potentially neighbouring currencies such as the Kuwait (KWD) or Jordanian dinars (JOD). Whatever Iraqi law states, one can potentially substitute for domestic (Iraqi) transactions dollars or neighbouring currencies – in the private sector one can imagine even salary payments (as an illustration). Use of USD, KWD or JOD of course depends on supplies of these, but they are substitutes, and as Lebanon – a highly dollarised economy where one can pull USD out of domestic bank ATMs – illustrates, it is very possible to see the substitution of a foreign currency for a domestic one, even in domestic transactions. Why, of course, being that trust in the currency’s ability to hold value for whatever reason has been impaired. The importance here is that the relative value of the currency. The more other forms of noting a transaction are used, rather than the Dinar (e.g.), the less there is a demand for the Dinar and the more its value will fall.
Now, this is rather simplistic (I’ve left off velocity of money, etc. etc) and for those so inclined, much nitpicking can be done. The idea was to sketch the basics, which I have hopefully done.
Returning to Iraq, the core observations are that (i) in setting up the ‘new’ Iraqi dinar the Iraqi Central Bank (CBI) was faced with the issue of “substitute products,” (ii) that the relative value of currency, like any product, depends on relative supply and demand.
The core challenge for the CBI was to set a rate that was (is) (i) practically defensible in terms of resources (effectively CBI's supply of other currencies to buy dinars to protect against a collapse in value) and (ii) economically useful and reasonable. Of course one can ask if either of these challenges were met.
The first question has already been answered in the positive, in the short term, as the history of the exhcange rate since CBI set it in 2004 has been pretty stable and CBI has not been massively pissing away reserves to defend it.
The second question is hard to answer given Iraq is descending into civil war and has little proper economic data. I had understood that the present peg had been established off of a survey by CBI of the operative black market USD-IQD rates post-invasion, however I don’t recall my sources for that understanding. This account [PDF] from the US Fed, Boston gives a somewhat different account of the process than I understood or recall (although not necessarily contradictory). Generally, I may add, the IMF Arty IV Consult Report is extremely useful and clear in terms of describing Iraq's monetary policy.
My own view on the second point, as to being economically useful and reasonable, is that while it's open to question the current peg (or trading range) was a good starting point, all things considered. Regardless of the precise facts, CBI succeeded in setting, per all available evidence, an exchange rate that was reasonable with respect to economic fundamentals (see the IMF report), as far as they could be discerned given the chaos that has prevailed since the US invasion.
I note again that the most serious problem for pegs arises when the pegged value departs seriously from supply and demand (and/or economic fundamentals) equilibrium. Pegged rates too high end up penalising domestic production in favour of imports (which seem cheap), too low is nice for exports but may feed inflation. But the key practical indicator for a truly unreasonable rate is the emergence of a black market with rates seriously different than the official one.
As I noted above, there is not a central bank in the world that doesn’t intervene to some extent to manage its currency value, and so long as a Central Bank has foreign currency reserves, of course, it can maintain any rate it wants by buying or selling where private actors will not. That being said, obviously maintaining a value far off what the market will support is expensive, and experience over the past 30-40 years suggests that rates divorced from supply and demand reality (i.e. something far over/under what a ‘free float’ or pure market rate would set: size and economic importance of the country counts of course) suggest that even when a cash flush Central Bank can defend a rate, a black market will emerge. A rough rule of thumb, no black market, the exchange rate is, at the very least, not wildly unrealistic. It may not be a good rate, or the best rate, but if there is no black market, one has nice practical evidence that the rate is not from Mars, whatever theoretical models and the like say.
As it happens, per the IMF Arty IV Consult report, the CBI is running a fairly market reasonable rate (however imperfect that market is). See IMF Art. IV report page 15 et passim. Also see the FRB article p. 23-25. Further, there appears to be no serious black market in Iraq (and this in the context of a tradition of black markets under the Sadaam regime which set a completely fictional exchange rate).
The point here not being that the rate (around 1470 IQD to 1 USD) is perfect or even a particularly well-founded long-term rate, but rather that, contra Cole’s original presumption that because there is a peg that means the IQD is equivalent to the Egyptian pound situ, at present the IQD rate appears to be fairly reasonable. Is this long term stable? I don’t know. Depends on what happens. Short term? It strikes me, yes the rate is stable (if we take stable in the context of a country in the midst of a civil war. It sure ain't Switzerland, but let's keep reasonable benchmarks in mind).
Moving along to the issue of "oil backing" the currency: Is the source of CBI's ability to fund the rate, oil revenues? Yes, but contra Cole that doesn’t say that much about CBI succeeding in executing the policy (indeed if one looks a the exchange rate history of an oil producer like Mexico or say Nigeria, one quickly realises that even in a strong income environment, a strong currency does not of necessity obtain) Further contra Cole, CBI being able to do the same is not a trivial achievement given the completely fucked up environment in Iraq, indeed as underlined by the issues cited by Cole’s follow-up correspondent.
As such, while I would not cite CBI’s success to date in maintaining the rate as a huge indicator of anything regarding the future (other than a suggestion that Iraqis in general have placed some degree of confidence in CBI, and thus some degree of confidence in the idea of central government in a fashion), I would say that it is a real achievement that is not to be poo-pooed away as the mechanical result of Iraq being an oil exporter.
In the context of all-hell breaking loose, CBI has shown some real skill and institutional capacity in what can only be described as highly adverse circumstances, and that is not without some significance (although let me hasten to add that doesn't mean I would hold up CBI as being a great lesson to fellow Arabs, etc. etc., but give credit where due.)
Ultimately, as any regular reader here knows, I think the dynamic of hard men with guns overwhelms these institutional successes, but I will say Cole’s approach to this issue speaks poorly of his analytical neutrality overall. As I told him in my personal email, I respect him for his real insights and for the wealth of information and critical view provided on Iraq: I was involved in Iraqi economic issues early on and despite my less-than-fond feelings for Cole’s politics in general, I wish there were and had been more critical commentary in the US, might have saved Iraq and the US from the stunning incompetence that was the CPA-Iraq. However, that stunning incompetence is not a reason to throw reason out in evaluating any and all achievements of Iraqi institutions like CBI. To do so suggests axe grinding.
Now with respect to Professor Cole’s correspondent:
'[The] statement that “The peg (properly a dirty peg, or trading range) is being run with reference to the market, maintained with regular Dinar and Dollar auctions.” is wrong and misleading, see below. Like many others, your correspondent has a “picture” in mind and assumes that it represents the facts. Would the currency have collapsed if there were no peg? Probably in theory, yes. But there would have been and would be under the circumstances no way to implement a “free market” for the Dinar, see below.
Well, what can I say?
Like many people commenting on things, the author has a picture in his mind and assumes it represents the facts. Even given Cole’s defective, if unintentionally so, representation of my comments, there is nothing justifying this statement (above all given a few factual errors the writer commits). However, no one is perfect, and the writer conveys some interesting information.
Let me say, however, that I could not give a $% about "theory" - it's a meaningless statement and actually factually incorrect: early pressure in 2004 was towards currency appreciation not collapse (depreciation) as many (esp. Arabs) were speculating c. 2003-2004 on a Kuwaiti style revaluation back up to Sadaam levels (based I may add on a serious lack of understanding of that exchange rate).
A completely free-float, of course, probably would have in the end gone badly wrong, but then Bremer's policies, free floats and the like have fuck all to do with my comments and seem to represent the writer and perhaps Cole's knee-jerking.
Now, moving along to the body of the comment:
There has certainly been a de facto peg, contrary to Bremer’s original intention and applicable laws he “enacted” (although they are superficial and incomplete).
I fail to see what the fuck Bremer’s original intention and sins have to do with either Cole’s rendition of my comments or an evaluation of whether the CBI rate is a success or not – or useful or anything.
That being said, let me note for the record that as an economic liberal but someone with more than a superficial experience in the MENA region, I was and am not a fan of the Bremer CPA.
One can search me old posts when I was back working on investment and Iraq in 2003 and climbing the walls.
Moving along again:
The IMF in its recent report acknowledged the fact. The permitted “trading range” has been 1475-1483, with the target 1475. On Sunday, as a greeting to the new government, for the first time in months, the Central Bank bought a significant amount of Dinars to achieve the target rate of 1475 for one day. The exchange rate has been held firm at 1477 since then.
Right, and if one reads said IMF report (which I directed Professor Cole to by the way), one gets a reasonably clear picture of the rate regime being run – a dirty peg.
Which renders rather queer the correspondent’s opening comments about meself and pictures – although perhaps he got a wrong impression from Cole’s rendering of my comments (although again let me note that this was an honest miscommunication probably due to my defective communication, as much as I am irritated by it). I might quibble I note about the trading range given observed values, but that's trivia.
Each day, between 15 and 22 banks participate in the Central Bank auctions. At least fifteen of them are state-owned and one, Rashid, when I last saw figures (six or so months ago) held more than 90% of all bank deposits in Iraq. Needless to say, the Embassy is beavering “fanatically” to privatize the banking system, but there is a long way to go even if the new Government were to decide that it should be privatized, which I doubt that they will.
This, however, is complete bollocks, unless I misunderstand the comment.
First, the statement that “[a]t least fifteen” of the banks are state-owned is factually incorrect. The Iraqi banking sector has at my last count 2 state owned commercial banks (Rafidian and Rashid), four specialist banks and 20 odd private commercial banks, the last having been set up in the mid to late 90s when our dear Sadaam had to loosen up a bit. (See this account as well as the PDFs cited supra, as well as what should be this current list). Frankly if someone is going to talk about “pictures” accuracy and the like to me, they should get underlying facts right.
Now, as I personally know the owners of several of the Iraqi banks, have worked on valuation of the same banks for certain private purposes (i.e nothing to do with CPA, UK Treas., USG, or other governmental whanking), I can’t say that the private commercial banks are anything brilliant nor that the ownership is terribly independent from the old ‘Saadamite’ (to use a term that amuses me at the moment) power structure, but they are privately owned.
The writer is correct that USG has been trying to set up the circumstances where Rashid and Rafidian would / could be privatised – the sector banks I understand to be complete basket cases I may add.
In my opinion, having looked at banking books, and given my experience in the region, there’s nothing wrong per se with the US backing privatisation of the State banks – which have functioned historically to piss away money on behalf of the government – although as I said back at the time the CPA was relevant, the approach Bremer’s band of stunning incompetents was all wrong.
As in most things, CPA pissed away the real opportunities and poisoned the well for well-founded liberalisation. Honestly why should the Iraqis follow US advice given the massive incompetence shown. However, that’s neither here nor there on the actual issue at hand.
I should add that the commentator, as far as I knew from the reporting I reviewed as well as public data, is perfectly right in noting in terms of deposit taking the State banks dominate the system – indeed the private banks activities don’t match what one would expect a standard commercial bank to be engaged in. They were and remain to an extent captive banks of the big trading families or speculative ventures little involved in actual deposit taking. Of course the writer should realise that deposit taking really isn't the ideal benchmark here, but rather what capital the bank has free to engage in market transactions. Given other sources of financing than deposits.
The peg system can be (and is) maintained because its principal function is to convert the accounts of the Government’s Ministries from Dollars to Dinars. The Government receives 90% or more of its revenues from oil exports, priced and paid for in Dollars. The Central Bank accounts and the transition accounts in the Ministry of Finance are maintained in Dollars. The Ministries, for salaries and much else, make expenditures in Dinars. While I cannot prove it with a documentary citation, my belief and assumption (based upon a knowledgeable reading of the text of the KPMG audit reports) is that Dollar deposits are made on a Ministry-by-Ministry basis in the commercial banks and the banks then buy Dinars for the US Dollars deposited on a daily basis (plus or minus $50 million) to provide the Dinars for next day’s government expenditures. The “purchased” Dinars are used to fund the Ministries’ expenses. If the daily amounts are totaled, the annual total is on the order of the size of the Government’s budget, which you and I have been estimating (recall our earlier exchanges on that subject; at his last press conference, Prime Minister Jafari said that, at the end, his budget was $14 billion). As you can see, it is a closed system (although the banks probably also convert some non-government Dollars). They could maintain the peg, within limits, at any level they liked. The banks cooperate because most of them are state-owned.
Emphasis added.
Well, first, the emphasised comment is factually incorrect unless of course I have been subject to fraudulent information. I would trust the commentator a bit more if this were not the case (although yes, the state institutions are important actors).
The Banks “cooperate” because they are (or were last I knew) making decent money off of the present arrangements, and from FX business, have an important revenue stream. CBI’s position makes bets against it a losing proposition. As the incentives are aligned with the present XR, the private banks are playing ball, indeed everyone is playing ball, because CBI is playing a smart FX game (despite playing in a no data situ).
That being said, the above discussion re the manner in which dollar income is being distributed by I-Gov to Ministries sounds plausible. I’ve never looked at governmental accounts so I can’t say. I can only speak to private sector banks.
In administering the peg, “market conditions” may be taken into account, but the data collection and analysis systems are still far from complete.
Yeah, indeed.
Makes CBI’s work so far all the more impressive.
In any event, “market conditions” are only “taken into account” in respect of the insignificant variations within 1475-1483, which has been the range for nearly three years, during which a lot has happened. Is there a black market? I do not know. If it were substantial, one would have thought that at least one reporter would have noted the fact.
Well, let me tell you then, Dear Correspondent w Prof Cole, there is no significant black market. Yet.
Indeed, of course, a lot has happened in 3 years, not much positive. However, that merely underlines that despite a tradition of black market dealing, despite instability, CBI has managed to achieve a relative stability.
CBI deserves props for doing so, rather than pissing and moaning from critics whose real problem is with USG and UK policy that really has fuck-all to do with the exchange rate or CBI monetary policy as such.
Of course, everyone is driving blind in Iraq and any “market conditions” (as so snottily put) are… well rather fucked up in Iraq. Nevertheless, fucked up war market conditions are still market conditions.
Now, for the comprehension impaired, I would like to emphasize that such conditions are, well, nothing resembling anything that a proper liberal market would require for proper operation – you know price clearing etc – but regardless, war markets do transmit information, and the ability of a Central Bank to maintain currency value does transmit some real information. I would suggest that it says that enough of the population still have confidence in central institutions to have some degree of trust in the currency (recall one can start opting for other currencies as Lebanese did).
Is that a great indicator for Iraq and the Central Gov? Not particularly, although I would say that my take away is that there is some reservoir of support in the population for the attempt at a unified state. And that at least one central institution is functional, despite an entirely fucked up situation. Again, something that has some positive value – although more about limiting the downside than a statement that, wow, Iraq is taking off.
This is, in itself a useful if limited data point
Regarding other indicators:
The inflation rate provides an indication as to what the level of a “freely-floating Dinar” might be, although care must be taken because there are surely supply problems in parts of Iraq, including Baghdad, resulting from the security conditions. The most recent report (yesterday; reported in VOI) from the Ministry of Planning shows inflation at 48% (down from 53%), but the data are probably not complete and conditions presumably vary among different parts of Iraq.
This is correct, and certainly double digit inflation rates would suggest, all things being equal, that the currency should be depreciating.
However, even freely floating currencies depart from Purchasing Power Parity, which is the implicit value benchmark in this case, even significantly by double digits (the USD being a prime example, but history hardly lacks for others).
This being said, the Commentator’s point I agree with, medium-term pressure is probably towards depreciation – although the point re local supply problems being that immediate shortages may be driving major price fluctuations, that may not be systematic.
The system is “good” (stable) because the money supply is calibrated in effect to oil exports, ie. Gross Domestic “Production” (not “Consumption”). The aggregate money supply is firm, because the Central Bank can count (an audit by Ernst & Young is overdue) the physical Dinars it has issued. There are none of the sophisticated money market equivalents that we and most other advanced nations have. The entire system is “primitive.”
Few instruments, not none , but that is a quibble. Re physical dinars and having a count on them, this is a strange way to put it, but let’s agree that largely speaking CBI has a pretty good grasp on M1 – physical money and very close equivalents- and not much to worry about after that except counterfeiting or IQD losing its place to KWD or JOD or USD or whatever.
The main point is that, so long as the preponderance of aggregate national macroeconomic income is from oil exports, and so long as the oil industry is state-owned (which it will be for some time longer than the four-year term of the current Government), the system in place is the only and best thing that can be done, which is why the IMF has “endorsed it.”
I am not sure what the scare quotes at the end, but yes, the Arty IV pretty much states flat out the system is the best one can do in a situ where everything is fucked into a cocked hat, and CBI can’t even collect the most basic of economic survey data on a regular basis.
The Central Bank cannot “print money” arbitrarily, because the money supply is calibrated to oil export revenues. That eliminates one source of a currency’s collapse. The system is “artificial” (“conservative”) to an extent, because oil export revenues, and the money supply derived there-from, do not represent all productive economic activity.
Bollocks, utter bollocks.
It is a policy choice, CBI can certainly opt to do things differently. Saying “cannot” mischaracterizes the situ. If CBI wanted to, they can start printing money. Of course that means abandoning the exchange rate peg, but choices are choices.
Now, I frankly find terms such as artificial fundamentally unhelpful and abusive, but beyond that I find the characterisation "calibrated" to be .... overdone . But nitpicking over phrasing is not terribly useful.
Pax to your correspondent, the system has little (or nothing) to do with currency market supply and demand.
Also complete bollocks.
Supply and demand, as very imperfectly and sloppily conveyed by the auctions (which contra the oddly unfactual pretension do have private participation and are not mere shuffling between parts of the government), and lack of any significant black markets or extensive substitution of other currencies in internal domestic transactions, has rather clearly fed into both the initial rate and subsequent variation (variation in who’s coming to market, participation, etc.).
Now, it certainly ain’t your picture perfect currency market – quite the contrary, it is a mess, doubtless subject to manipulation, speculation and lots of very fucked-up fucking around – but the rate has enough of a relationship with supply and demand to be reasonable and defensible.
However, I rather suspect the Correspondent is thinking he’s responding to someone who thinks the IQD is operating in some nice little academic situation.
I should, thought return to my starting point re critiquing Cole, which was simply that his sour commentary connecting a peg ipso facto to an unstable currency was wrong (and I say this from the opinion that pegs are not generally speaking a good idea).
I do not know what determines the insignificant variations within the “trading range.”
Ah, great, in short the writer has no sense of the market and simply wants to hand wave it away to fit his conclusions.
Maybe I should introduce said author to some market participants. In the private commercial banks that don’t exist.
I have attempted to rationalize specific movements, but they make no theoretical sense.
Spoken like a true governmental economist, which I have to suspect the correspondant is.
Theoretical sense be fucked, it’s what traders are doing (plus, yes, the manipulators etc).
It could be a game played by the handful of people who participate in the Central Bank auctions. (As a footnote, at the time the peg target was established, I recommended that they pick a low number so that the situation in Japan with trillions would be avoided. They did not do that, we the 000,000 will abound for a long time.)
(emphasis added)
Well, yes.
It’s speculation, demand variation, and manipulation all rolled into one.
As for the Commentator’s recommendation – well I am glad they didn’t listen as frankly it’s a dumb rec., the Iraqis would have run into serious transition problems due to the population not understanding the rebasing. CBI was smart, in basing the rate off of observed black market rates and thus minimising transition issues, population confusion and various kinds of speculation from poorly informed observers who would not have understood the "zero lopping."
While a “currency board peg” is expressly disallowed by the Central Bank Law, the Bank has been holding substantial amounts in US Dollars, $8 billion the last report I saw, which was months ago. See process above which involves receiving Dollars for oil, selling Dinars to the Ministries for Dollars and then holding the Dollars. The amount should be substantially more than that by now and it is being recommended to some that Dollars in excess of the amounts required to maintain the peg (relatively small, given the closed system) be used for major infrastructure projects such as refineries and electric power plants. It would seem to be a better use for Iraq’s “national savings.” We shall see.
I would be happy if the reserve accumulation is not used to repeg at a higher IQD value to subsidize current import consumption or something of the like.
There you have it.
The actual point of disagreement here I would suggest is limited and while I am sure it arose in part from miscommunication, the errors induced by the Commentator rather rub me the wrong way.
Posted by The Lounsbury
Filed Under: Economic Policy , Iraq War , Op-Ed
I thought I should correct some misapprehensions, as well as abusively ramble on, these being my core competencies, about currency valuation, Iraq and the like, perhaps secondarily the impression that I view the Iraqi dinar as an essentially “stable” currency as such.
Mr. Lounsbury confirms, however, that in a roundabout way, it is Iraq's petroleum that keeps the currency strong. Currency stability is therefore not actually an achievement of the Iraqi or American governments, and, as long as the government did not work its currency printing presses overtime, would be a feature of Iraqi currency under any regime.
Before I get into details, let me give an executive summary:
1. Presuming that a Peg is 'inherently indicative' of instability was and is factually wrong,
2. the Iraqi dinar’s exchange rate is indeed has some market basis and relationship with market forces, and the absence of a discernable black market an important indicator of the same,
3. the stability to date of the dinar is a real achievement of the Iraqi government (or rather the Central Bank), although doesn’t particularly indicate Iraq is going well or not – it is in fact an indicator that the Iraqi Central Bank is doing a good job of managing the currency and certainly is better than the central bank doing a bad job,
4. Cole’s pleasure with respect to a negative interpretation rather underlines that despite his great value, his critics (however generally irrational and nasty) have a point with respect to a certain lack of objectivity on real positives in Iraq. Although again in this context I emphasize that I don’t particularly regard the Central Bank’s success in maintaining a pretty stable currency as great indicator of general progress in Iraq or any other such thing; although on the other hand, at least it is one less negative. And Lord knows Iraq hardly needs more negatives.
Now, getting to the origin of this, Professor Cole first wrote in connexion with the dinar, in criticising Amer Taheri's judgment (and apparently something silly Taheri wrote about the Dinar being some great symbol of progress - I reiterate that I haven't read Taheri, although anyone touting the Iraqi dinar as a symbol of anything profound about Iraq going forward is playing Russian roulette with their rep), that the dinar is unstable (as he implies in his quote above) because it is managed. He also made reference to the history of the Egyptian Pound as an illustrative example of an unstable currency disguised with a peg (meaning the government, in general a central bank, sets the exchange rate against another currency - or unit of value, like gold, etc).
That's, to be blunt, complete bollocks. The former idea of peg being inherently indicative of instability, not the reference to the Egyptian Pound and policy being a mess - back when I dealt with Egypt I was in constant fear of a Pound crisis (although my paranoid tendencies are likely excessive). My problem with Cole's original comment being in the end that he incorrectly gave the sense the currency regime in some way itself refuted whatever Taheri's comments were.
There's hardly a currency out there that isn't subject to some massaging by its government, relative to its exchange value. And highly managed currencies, as in pegged (tied) currencies are not, ipso facto, unstable (or stable for that matter). As the saying goes, "it all depends." Or the devil is in the details. ( See this somewhat insufficient wiki art for orientation on exchange rate regimes)
In the case of Iraq, the Central Bank has established an undeclared - that is it hasn't issued a clear official declaration - trading range for the dinar against the US dollar (and by default against other currencies), in short what is often called a dirty peg (or a flexible peg, etc etc). The fact that it has done so is neither good nor bad (although most economists prefer floating exchange regimes), it all depends on the rate chosen versus the economic situation the country faces.
As a general matter, rates with some reference to the market - that is to supply and demand - are better than, well, rates pulled out of the ass of the government without reference to some underlying market demand. Mind you, there is emperically speaking quite a lot of evidence that exchange rates can get quite off what a theoretical value would be for a good number of years, although equally the evidence indicates they snap back in the end.
That begs the question, of course, in terms of a currency what is demand or supply, which is a hard thing to visualise in terms of money which most people are not used to thinking of in such terms. Supply generally is easier to think of, typically one thinks of printing actual physical cash, but generally I think most people understand that governments via a number of mechanisms can create “money” – print more bills physically, take other policy actions I am not going to bore you with, to increase the number of nominal currency units out in the word.
What trips up most people (and in terms of Iraq there is a beautiful representation of that if one goes to the Dinar ‘Investing’ sites, such as my financially illiterate ‘friends’ here) is the misplaced belief that a form or money or another has some intrinsic value, and if the government prints more money (in the broad sense of increasing money) supply that will increase the wealth of the citizens (if one searches the cited site, and reads through discussions particularly in the August 2005 period, one finds many instances of ‘Iraqis are poor, so the government should revalue the Dinar up to make them rich’ argument, a variation on this error). It doesn't by the way, as the long history of currency manipulation amply demonstrates - prices adjust to the new base and one ends up with the same overall wealth (although parenthentically I may add too little money and too much both impose penalties). See this quick definition of Money Illusion from Wikipedia, which is useful enough.
Demand (for money) is rather less obvious. Effectively one can think about a particularly currency as a product, and like any product it has near and not so near substitutes. Demand for money is essentially demand for a value place marker and store for value.
For the Iraqi dinar the obvious substitute products are of course barter, US dollars (USD) and potentially neighbouring currencies such as the Kuwait (KWD) or Jordanian dinars (JOD). Whatever Iraqi law states, one can potentially substitute for domestic (Iraqi) transactions dollars or neighbouring currencies – in the private sector one can imagine even salary payments (as an illustration). Use of USD, KWD or JOD of course depends on supplies of these, but they are substitutes, and as Lebanon – a highly dollarised economy where one can pull USD out of domestic bank ATMs – illustrates, it is very possible to see the substitution of a foreign currency for a domestic one, even in domestic transactions. Why, of course, being that trust in the currency’s ability to hold value for whatever reason has been impaired. The importance here is that the relative value of the currency. The more other forms of noting a transaction are used, rather than the Dinar (e.g.), the less there is a demand for the Dinar and the more its value will fall.
Now, this is rather simplistic (I’ve left off velocity of money, etc. etc) and for those so inclined, much nitpicking can be done. The idea was to sketch the basics, which I have hopefully done.
Returning to Iraq, the core observations are that (i) in setting up the ‘new’ Iraqi dinar the Iraqi Central Bank (CBI) was faced with the issue of “substitute products,” (ii) that the relative value of currency, like any product, depends on relative supply and demand.
The core challenge for the CBI was to set a rate that was (is) (i) practically defensible in terms of resources (effectively CBI's supply of other currencies to buy dinars to protect against a collapse in value) and (ii) economically useful and reasonable. Of course one can ask if either of these challenges were met.
The first question has already been answered in the positive, in the short term, as the history of the exhcange rate since CBI set it in 2004 has been pretty stable and CBI has not been massively pissing away reserves to defend it.
The second question is hard to answer given Iraq is descending into civil war and has little proper economic data. I had understood that the present peg had been established off of a survey by CBI of the operative black market USD-IQD rates post-invasion, however I don’t recall my sources for that understanding. This account [PDF] from the US Fed, Boston gives a somewhat different account of the process than I understood or recall (although not necessarily contradictory). Generally, I may add, the IMF Arty IV Consult Report is extremely useful and clear in terms of describing Iraq's monetary policy.
My own view on the second point, as to being economically useful and reasonable, is that while it's open to question the current peg (or trading range) was a good starting point, all things considered. Regardless of the precise facts, CBI succeeded in setting, per all available evidence, an exchange rate that was reasonable with respect to economic fundamentals (see the IMF report), as far as they could be discerned given the chaos that has prevailed since the US invasion.
I note again that the most serious problem for pegs arises when the pegged value departs seriously from supply and demand (and/or economic fundamentals) equilibrium. Pegged rates too high end up penalising domestic production in favour of imports (which seem cheap), too low is nice for exports but may feed inflation. But the key practical indicator for a truly unreasonable rate is the emergence of a black market with rates seriously different than the official one.
As I noted above, there is not a central bank in the world that doesn’t intervene to some extent to manage its currency value, and so long as a Central Bank has foreign currency reserves, of course, it can maintain any rate it wants by buying or selling where private actors will not. That being said, obviously maintaining a value far off what the market will support is expensive, and experience over the past 30-40 years suggests that rates divorced from supply and demand reality (i.e. something far over/under what a ‘free float’ or pure market rate would set: size and economic importance of the country counts of course) suggest that even when a cash flush Central Bank can defend a rate, a black market will emerge. A rough rule of thumb, no black market, the exchange rate is, at the very least, not wildly unrealistic. It may not be a good rate, or the best rate, but if there is no black market, one has nice practical evidence that the rate is not from Mars, whatever theoretical models and the like say.
As it happens, per the IMF Arty IV Consult report, the CBI is running a fairly market reasonable rate (however imperfect that market is). See IMF Art. IV report page 15 et passim. Also see the FRB article p. 23-25. Further, there appears to be no serious black market in Iraq (and this in the context of a tradition of black markets under the Sadaam regime which set a completely fictional exchange rate).
The point here not being that the rate (around 1470 IQD to 1 USD) is perfect or even a particularly well-founded long-term rate, but rather that, contra Cole’s original presumption that because there is a peg that means the IQD is equivalent to the Egyptian pound situ, at present the IQD rate appears to be fairly reasonable. Is this long term stable? I don’t know. Depends on what happens. Short term? It strikes me, yes the rate is stable (if we take stable in the context of a country in the midst of a civil war. It sure ain't Switzerland, but let's keep reasonable benchmarks in mind).
Moving along to the issue of "oil backing" the currency: Is the source of CBI's ability to fund the rate, oil revenues? Yes, but contra Cole that doesn’t say that much about CBI succeeding in executing the policy (indeed if one looks a the exchange rate history of an oil producer like Mexico or say Nigeria, one quickly realises that even in a strong income environment, a strong currency does not of necessity obtain) Further contra Cole, CBI being able to do the same is not a trivial achievement given the completely fucked up environment in Iraq, indeed as underlined by the issues cited by Cole’s follow-up correspondent.
As such, while I would not cite CBI’s success to date in maintaining the rate as a huge indicator of anything regarding the future (other than a suggestion that Iraqis in general have placed some degree of confidence in CBI, and thus some degree of confidence in the idea of central government in a fashion), I would say that it is a real achievement that is not to be poo-pooed away as the mechanical result of Iraq being an oil exporter.
In the context of all-hell breaking loose, CBI has shown some real skill and institutional capacity in what can only be described as highly adverse circumstances, and that is not without some significance (although let me hasten to add that doesn't mean I would hold up CBI as being a great lesson to fellow Arabs, etc. etc., but give credit where due.)
Ultimately, as any regular reader here knows, I think the dynamic of hard men with guns overwhelms these institutional successes, but I will say Cole’s approach to this issue speaks poorly of his analytical neutrality overall. As I told him in my personal email, I respect him for his real insights and for the wealth of information and critical view provided on Iraq: I was involved in Iraqi economic issues early on and despite my less-than-fond feelings for Cole’s politics in general, I wish there were and had been more critical commentary in the US, might have saved Iraq and the US from the stunning incompetence that was the CPA-Iraq. However, that stunning incompetence is not a reason to throw reason out in evaluating any and all achievements of Iraqi institutions like CBI. To do so suggests axe grinding.
Now with respect to Professor Cole’s correspondent:
'[The] statement that “The peg (properly a dirty peg, or trading range) is being run with reference to the market, maintained with regular Dinar and Dollar auctions.” is wrong and misleading, see below. Like many others, your correspondent has a “picture” in mind and assumes that it represents the facts. Would the currency have collapsed if there were no peg? Probably in theory, yes. But there would have been and would be under the circumstances no way to implement a “free market” for the Dinar, see below.
Well, what can I say?
Like many people commenting on things, the author has a picture in his mind and assumes it represents the facts. Even given Cole’s defective, if unintentionally so, representation of my comments, there is nothing justifying this statement (above all given a few factual errors the writer commits). However, no one is perfect, and the writer conveys some interesting information.
Let me say, however, that I could not give a $% about "theory" - it's a meaningless statement and actually factually incorrect: early pressure in 2004 was towards currency appreciation not collapse (depreciation) as many (esp. Arabs) were speculating c. 2003-2004 on a Kuwaiti style revaluation back up to Sadaam levels (based I may add on a serious lack of understanding of that exchange rate).
A completely free-float, of course, probably would have in the end gone badly wrong, but then Bremer's policies, free floats and the like have fuck all to do with my comments and seem to represent the writer and perhaps Cole's knee-jerking.
Now, moving along to the body of the comment:
There has certainly been a de facto peg, contrary to Bremer’s original intention and applicable laws he “enacted” (although they are superficial and incomplete).
I fail to see what the fuck Bremer’s original intention and sins have to do with either Cole’s rendition of my comments or an evaluation of whether the CBI rate is a success or not – or useful or anything.
That being said, let me note for the record that as an economic liberal but someone with more than a superficial experience in the MENA region, I was and am not a fan of the Bremer CPA.
One can search me old posts when I was back working on investment and Iraq in 2003 and climbing the walls.
Moving along again:
The IMF in its recent report acknowledged the fact. The permitted “trading range” has been 1475-1483, with the target 1475. On Sunday, as a greeting to the new government, for the first time in months, the Central Bank bought a significant amount of Dinars to achieve the target rate of 1475 for one day. The exchange rate has been held firm at 1477 since then.
Right, and if one reads said IMF report (which I directed Professor Cole to by the way), one gets a reasonably clear picture of the rate regime being run – a dirty peg.
Which renders rather queer the correspondent’s opening comments about meself and pictures – although perhaps he got a wrong impression from Cole’s rendering of my comments (although again let me note that this was an honest miscommunication probably due to my defective communication, as much as I am irritated by it). I might quibble I note about the trading range given observed values, but that's trivia.
Each day, between 15 and 22 banks participate in the Central Bank auctions. At least fifteen of them are state-owned and one, Rashid, when I last saw figures (six or so months ago) held more than 90% of all bank deposits in Iraq. Needless to say, the Embassy is beavering “fanatically” to privatize the banking system, but there is a long way to go even if the new Government were to decide that it should be privatized, which I doubt that they will.
This, however, is complete bollocks, unless I misunderstand the comment.
First, the statement that “[a]t least fifteen” of the banks are state-owned is factually incorrect. The Iraqi banking sector has at my last count 2 state owned commercial banks (Rafidian and Rashid), four specialist banks and 20 odd private commercial banks, the last having been set up in the mid to late 90s when our dear Sadaam had to loosen up a bit. (See this account as well as the PDFs cited supra, as well as what should be this current list). Frankly if someone is going to talk about “pictures” accuracy and the like to me, they should get underlying facts right.
Now, as I personally know the owners of several of the Iraqi banks, have worked on valuation of the same banks for certain private purposes (i.e nothing to do with CPA, UK Treas., USG, or other governmental whanking), I can’t say that the private commercial banks are anything brilliant nor that the ownership is terribly independent from the old ‘Saadamite’ (to use a term that amuses me at the moment) power structure, but they are privately owned.
The writer is correct that USG has been trying to set up the circumstances where Rashid and Rafidian would / could be privatised – the sector banks I understand to be complete basket cases I may add.
In my opinion, having looked at banking books, and given my experience in the region, there’s nothing wrong per se with the US backing privatisation of the State banks – which have functioned historically to piss away money on behalf of the government – although as I said back at the time the CPA was relevant, the approach Bremer’s band of stunning incompetents was all wrong.
As in most things, CPA pissed away the real opportunities and poisoned the well for well-founded liberalisation. Honestly why should the Iraqis follow US advice given the massive incompetence shown. However, that’s neither here nor there on the actual issue at hand.
I should add that the commentator, as far as I knew from the reporting I reviewed as well as public data, is perfectly right in noting in terms of deposit taking the State banks dominate the system – indeed the private banks activities don’t match what one would expect a standard commercial bank to be engaged in. They were and remain to an extent captive banks of the big trading families or speculative ventures little involved in actual deposit taking. Of course the writer should realise that deposit taking really isn't the ideal benchmark here, but rather what capital the bank has free to engage in market transactions. Given other sources of financing than deposits.
The peg system can be (and is) maintained because its principal function is to convert the accounts of the Government’s Ministries from Dollars to Dinars. The Government receives 90% or more of its revenues from oil exports, priced and paid for in Dollars. The Central Bank accounts and the transition accounts in the Ministry of Finance are maintained in Dollars. The Ministries, for salaries and much else, make expenditures in Dinars. While I cannot prove it with a documentary citation, my belief and assumption (based upon a knowledgeable reading of the text of the KPMG audit reports) is that Dollar deposits are made on a Ministry-by-Ministry basis in the commercial banks and the banks then buy Dinars for the US Dollars deposited on a daily basis (plus or minus $50 million) to provide the Dinars for next day’s government expenditures. The “purchased” Dinars are used to fund the Ministries’ expenses. If the daily amounts are totaled, the annual total is on the order of the size of the Government’s budget, which you and I have been estimating (recall our earlier exchanges on that subject; at his last press conference, Prime Minister Jafari said that, at the end, his budget was $14 billion). As you can see, it is a closed system (although the banks probably also convert some non-government Dollars). They could maintain the peg, within limits, at any level they liked. The banks cooperate because most of them are state-owned.
Emphasis added.
Well, first, the emphasised comment is factually incorrect unless of course I have been subject to fraudulent information. I would trust the commentator a bit more if this were not the case (although yes, the state institutions are important actors).
The Banks “cooperate” because they are (or were last I knew) making decent money off of the present arrangements, and from FX business, have an important revenue stream. CBI’s position makes bets against it a losing proposition. As the incentives are aligned with the present XR, the private banks are playing ball, indeed everyone is playing ball, because CBI is playing a smart FX game (despite playing in a no data situ).
That being said, the above discussion re the manner in which dollar income is being distributed by I-Gov to Ministries sounds plausible. I’ve never looked at governmental accounts so I can’t say. I can only speak to private sector banks.
In administering the peg, “market conditions” may be taken into account, but the data collection and analysis systems are still far from complete.
Yeah, indeed.
Makes CBI’s work so far all the more impressive.
In any event, “market conditions” are only “taken into account” in respect of the insignificant variations within 1475-1483, which has been the range for nearly three years, during which a lot has happened. Is there a black market? I do not know. If it were substantial, one would have thought that at least one reporter would have noted the fact.
Well, let me tell you then, Dear Correspondent w Prof Cole, there is no significant black market. Yet.
Indeed, of course, a lot has happened in 3 years, not much positive. However, that merely underlines that despite a tradition of black market dealing, despite instability, CBI has managed to achieve a relative stability.
CBI deserves props for doing so, rather than pissing and moaning from critics whose real problem is with USG and UK policy that really has fuck-all to do with the exchange rate or CBI monetary policy as such.
Of course, everyone is driving blind in Iraq and any “market conditions” (as so snottily put) are… well rather fucked up in Iraq. Nevertheless, fucked up war market conditions are still market conditions.
Now, for the comprehension impaired, I would like to emphasize that such conditions are, well, nothing resembling anything that a proper liberal market would require for proper operation – you know price clearing etc – but regardless, war markets do transmit information, and the ability of a Central Bank to maintain currency value does transmit some real information. I would suggest that it says that enough of the population still have confidence in central institutions to have some degree of trust in the currency (recall one can start opting for other currencies as Lebanese did).
Is that a great indicator for Iraq and the Central Gov? Not particularly, although I would say that my take away is that there is some reservoir of support in the population for the attempt at a unified state. And that at least one central institution is functional, despite an entirely fucked up situation. Again, something that has some positive value – although more about limiting the downside than a statement that, wow, Iraq is taking off.
This is, in itself a useful if limited data point
Regarding other indicators:
The inflation rate provides an indication as to what the level of a “freely-floating Dinar” might be, although care must be taken because there are surely supply problems in parts of Iraq, including Baghdad, resulting from the security conditions. The most recent report (yesterday; reported in VOI) from the Ministry of Planning shows inflation at 48% (down from 53%), but the data are probably not complete and conditions presumably vary among different parts of Iraq.
This is correct, and certainly double digit inflation rates would suggest, all things being equal, that the currency should be depreciating.
However, even freely floating currencies depart from Purchasing Power Parity, which is the implicit value benchmark in this case, even significantly by double digits (the USD being a prime example, but history hardly lacks for others).
This being said, the Commentator’s point I agree with, medium-term pressure is probably towards depreciation – although the point re local supply problems being that immediate shortages may be driving major price fluctuations, that may not be systematic.
The system is “good” (stable) because the money supply is calibrated in effect to oil exports, ie. Gross Domestic “Production” (not “Consumption”). The aggregate money supply is firm, because the Central Bank can count (an audit by Ernst & Young is overdue) the physical Dinars it has issued. There are none of the sophisticated money market equivalents that we and most other advanced nations have. The entire system is “primitive.”
Few instruments, not none , but that is a quibble. Re physical dinars and having a count on them, this is a strange way to put it, but let’s agree that largely speaking CBI has a pretty good grasp on M1 – physical money and very close equivalents- and not much to worry about after that except counterfeiting or IQD losing its place to KWD or JOD or USD or whatever.
The main point is that, so long as the preponderance of aggregate national macroeconomic income is from oil exports, and so long as the oil industry is state-owned (which it will be for some time longer than the four-year term of the current Government), the system in place is the only and best thing that can be done, which is why the IMF has “endorsed it.”
I am not sure what the scare quotes at the end, but yes, the Arty IV pretty much states flat out the system is the best one can do in a situ where everything is fucked into a cocked hat, and CBI can’t even collect the most basic of economic survey data on a regular basis.
The Central Bank cannot “print money” arbitrarily, because the money supply is calibrated to oil export revenues. That eliminates one source of a currency’s collapse. The system is “artificial” (“conservative”) to an extent, because oil export revenues, and the money supply derived there-from, do not represent all productive economic activity.
Bollocks, utter bollocks.
It is a policy choice, CBI can certainly opt to do things differently. Saying “cannot” mischaracterizes the situ. If CBI wanted to, they can start printing money. Of course that means abandoning the exchange rate peg, but choices are choices.
Now, I frankly find terms such as artificial fundamentally unhelpful and abusive, but beyond that I find the characterisation "calibrated" to be .... overdone . But nitpicking over phrasing is not terribly useful.
Pax to your correspondent, the system has little (or nothing) to do with currency market supply and demand.
Also complete bollocks.
Supply and demand, as very imperfectly and sloppily conveyed by the auctions (which contra the oddly unfactual pretension do have private participation and are not mere shuffling between parts of the government), and lack of any significant black markets or extensive substitution of other currencies in internal domestic transactions, has rather clearly fed into both the initial rate and subsequent variation (variation in who’s coming to market, participation, etc.).
Now, it certainly ain’t your picture perfect currency market – quite the contrary, it is a mess, doubtless subject to manipulation, speculation and lots of very fucked-up fucking around – but the rate has enough of a relationship with supply and demand to be reasonable and defensible.
However, I rather suspect the Correspondent is thinking he’s responding to someone who thinks the IQD is operating in some nice little academic situation.
I should, thought return to my starting point re critiquing Cole, which was simply that his sour commentary connecting a peg ipso facto to an unstable currency was wrong (and I say this from the opinion that pegs are not generally speaking a good idea).
I do not know what determines the insignificant variations within the “trading range.”
Ah, great, in short the writer has no sense of the market and simply wants to hand wave it away to fit his conclusions.
Maybe I should introduce said author to some market participants. In the private commercial banks that don’t exist.
I have attempted to rationalize specific movements, but they make no theoretical sense.
Spoken like a true governmental economist, which I have to suspect the correspondant is.
Theoretical sense be fucked, it’s what traders are doing (plus, yes, the manipulators etc).
It could be a game played by the handful of people who participate in the Central Bank auctions. (As a footnote, at the time the peg target was established, I recommended that they pick a low number so that the situation in Japan with trillions would be avoided. They did not do that, we the 000,000 will abound for a long time.)
(emphasis added)
Well, yes.
It’s speculation, demand variation, and manipulation all rolled into one.
As for the Commentator’s recommendation – well I am glad they didn’t listen as frankly it’s a dumb rec., the Iraqis would have run into serious transition problems due to the population not understanding the rebasing. CBI was smart, in basing the rate off of observed black market rates and thus minimising transition issues, population confusion and various kinds of speculation from poorly informed observers who would not have understood the "zero lopping."
While a “currency board peg” is expressly disallowed by the Central Bank Law, the Bank has been holding substantial amounts in US Dollars, $8 billion the last report I saw, which was months ago. See process above which involves receiving Dollars for oil, selling Dinars to the Ministries for Dollars and then holding the Dollars. The amount should be substantially more than that by now and it is being recommended to some that Dollars in excess of the amounts required to maintain the peg (relatively small, given the closed system) be used for major infrastructure projects such as refineries and electric power plants. It would seem to be a better use for Iraq’s “national savings.” We shall see.
I would be happy if the reserve accumulation is not used to repeg at a higher IQD value to subsidize current import consumption or something of the like.
There you have it.
The actual point of disagreement here I would suggest is limited and while I am sure it arose in part from miscommunication, the errors induced by the Commentator rather rub me the wrong way.
Posted by The Lounsbury
Filed Under: Economic Policy , Iraq War , Op-Ed
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