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RE: [casi] "Dollarization" in postwar Iraq

> My knowledge of political economy, trade and finance is woefully
> lacking, so I was curious as to whether others (with better
> micro-macroeconomic acumen) on the list could comment on the possible
> short-term and long-term effects of 'dollarization' -- effects that
> can be, I assume, both positive and negative.

Dear Brian,

One of the most basic economic perceptions is that the actual unit of
account used should not make much economic difference as long as it
possesses certain characteristics like stability (i.e. predictable or low
inflation).  The question of who controls the currency supply is important
as that body will set monetary policy: if the US dollar is used, Iraq will
ride the coat tails of monetary policy designed for the US; if a currency
specific to Iraq is used, then it is more likely that the monetary policy
behind it will be sensitive to Iraqi economic needs.

Iraqis have been quite happy to trade US$ throughout the 1990s.  I suspect,
though, that many would see a US-instigated replacement of the Iraqi dinar
by the US$ as a step toward colonisation rather than toward independence.
Britons may not like the Queen, but most would oppose an attempt by Brussels
to replace by force her image on British currency.


Colin Rowat

work | Room 406, Department of Economics | The University of Birmingham |
Birmingham, B15 2TT, UK | | (+44/0) 121 414 3754 |
(+44/0) 121 414 7377 (fax) |

personal | (+44/0) 7768 056 984 (mobile) | (+44/0) 7092 378 517 (fax) |
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