tlm724] Good morning Shredders, in our chat the other nite Bondlady inspired me to look into the past to see the future . You were amazing by the way and thank you ! I was doing some research and came across these two reports from 2003 .
You may have read them already but I thought I would share them with you. You vast knowledge of economics will allow you to fully understand these as my brain hurts just thinking about economics !
[tlm724] The first report is titled : The Benefits of the New Iraqi Dinar Author: Brad W. Setser, Fellow for Geoeconomics August 7, 2003 Iraq Reconstruction Report
[tlm724] and the second one is : Should Iraq Dollarize, Adopt a Currency Board or Let Its Currency Float? Authors: Brad W. Setser, Fellow for Geoeconomics, and Nouriel Roubini May 23, 2003 Council on Foreign Relations
[Shredd] Thank you Miss Timmy. You are absolutely correct about revisiting past articles.
Read More Link On Right
[Shredd] This article from August 2003 stating that until the government can issue debt (bonds), they will solely rely on the auctions to be the dominant monetary policy. What's neat is for the last few months, we've seen more activity in regards to the issuance of sovereign debt.
Therefore, we can deduce from an economics perspective, Iraq is close to unhinging themselves from utilizing the auctions and when the auctions cease, we will have a strong dinar.
"The new Iraqi government is unlikely to be in a position for some time to issue dinar debt that can be bought and sold to help regulate the money supply. Managing bank balances and buying and selling foreign currency will be the dominant monetary policy instruments for a while.
And since most of the economy’s hard currency earnings are coming from the sale of oil by the government, the transfer of frozen assets to the government and international aid, the state will play a much larger role in the foreign exchange market than is typical in advanced economies."
[Shredd] The second paper was very informative and supports my thinking of a managed float. See here:
"The introduction of a new currency might be easier if the new currency is temporarily pegged to the dollar, though this is not strictly speaking necessary. But the goal should be to move quickly to a managed float and to ensure monetary stability with sound fiscal management and some form of inflation targeting.
In the short-run, the dollar offers a convenient solution to many of the immediate problems that the transitional government is likely to face.
However, a core policy objective should be to find ways of solving immediate problems without “locking” Iraq into a suboptimal monetary arrangement, since a managed float exchange rate regime would be preferable to outright dollarization or a currency board over the medium term."
[Shredd] Additionally, on a free float, we assume the exchange rate would soar in a short period of time. If, for the sake of argument, that would not be the case immediately or if it gained at a slow/steady rate, we have to consider what I had forgotten..............spending.
We know that spending for infrastructure and government projects will move at an unprecedented rate. In fact, I don't expect very much of unused allocated budget funds for these projects.
So, if the spending is high and the floating rate, market driven monetary policy cannot keep pace to cover and not only cover but outreach spending, the Iraqi economy would struggle and suffer setbacks and continued investment delays.
[Shredd] That's my two dinars worth! Thank you for bringing these to me!
[tlm724] Shredd your welocme and thank you for helping us all understand. Your amazing ! shredd and timmy – out here are the links to the above mention papers :