A Monetary-Exchange Rate Strategy for the Reconstruction of Iraq; Strategic Insights, v.2, issue 5 (May 2003)

Abstract

As the military conflict for Iraq concluded, a new battle began over the best way to rebuild the Iraqi economy. On the one side are those who believe that, by establishing proper institutions and rules, the Iraqis will be able to rebuild their own economy without an extended period of outside oversight and massive financial assistance. Another side sees the necessity of substantial infusions of foreign assistance and technical support over an extended period of time. A possible third group primarily led by the French and Russians feels that a new Iraqi government should set a high priority on paying back the tens of billions of dollars in loans taken by Saddam's government (Rahn 2003). While differing somewhat on ends and means, no doubt all sides would agree that any recovery of the Iraqi economy will entail successfully addressing a daunting set of tasks: (a) what rules should be used by an Iraqi Central Bank in issuing new dinars? and (b) how should the exchange rate be set with regard to other currencies? This document focuses on these issues in an attempt to identify the best monetary system for facilitating Iraq's reconstruction, restructuring, and future economic growth.