You are correct. The banks need dollars because their customers, businesses in particular, need the dollars to conduct international business. Nobody outside of Iraq will accept dinars, so they need dollars for all international transactions.
The Iraqi government needs the dinars to fund the budget. The Iraq budget for 2009 was about $60 Billion… or 70 Trillion dinars. There was an article out a while back that stated Iraq’s budget expenditures are about 70% dinar and the rest dollars. So they need 70% of 70 Trillion just for the budget. That’s basically 50 Trillion dinars. Since they have very little revenue in dinars, they must get all that dinar from the auctions. That’s 4 Trillion a month they need to buy back just to break even on the budget. They aren’t buying that much back, so that’s why the M2 numbers keep going up. They would be going up at a much faster rate if not for the auctions though. This all explains perfectly that article that Rasica has posted 100 or so times. Yes, they are buying back 1 to 1.5 billion dollars worth back every month. That doesn’t even cover what they need for the budget. That’s why the M2 and currency in circ numbers have grown for the entire year he has been posting that article.
Just for info… The US has about a 3 trillion dollar a year budget. It is paid for with about 3 Trillion dollars a year tax revenues. At least that’s the way it’s supposed to work. Obviously those numbers have gotten pretty screwed up lately. Iraq doesn’t work like that, they don’t generate much tax revenue. 90-95% of their revenue is dollars from oil.
