David DeRosa praises the new Iraqi Central Bank Law:
One part of the Iraq story that gets little attention is what the ruling Coalition Provisional Authority has accomplished in re-building the country, including its financial sector.Under the official rules, the CBI's first task is to maintain "domestic price stability". However, since "price stability" is not defined in the document, it is left to "international standards", meaning a slow and steady inflation will probably result. Only under a regime of price stability is the CBI permitted to pursue policies to promote "sustainable economic growth, employment, and prosperity."
The financial architecture for Iraq centers on establishing an independent central bank. What's remarkable is the scope and detail the coalition brought to the task of establishing that institution. In March, the CPA published the Central Bank of Iraq Law, which is far more than a law -- it's a primer on central banking.
The law's 74 articles and 42 densely written pages cover every topic imaginable on how to run a central bank, including: the bank's capital stock, its board of directors, its relationship with the rest of the government, management of its foreign reserves, monetary policy and open market operations, reserve requirements, issuance of currency, supervision of the banking system, the national payments system, compilation of official statistics, audits, criminal offenses and the establishment of a financial services tribunal.
The coalition maintains the "goals of the new law are to achieve long-term growth and prosperity through measures designed to maintain domestic price stability and foster a stable and competitive market-based financial system.'"
At least they're making it harder to game the system than before. Still, actively managing a fiat currency is not an easy task; unlike the rather mundane accounting, minting, and servicing tasks of a government currency based on a set number of certificates tied to gold, fiat money is easy to print, and profitable to manipulate.
But an independent central bank presents advantages to professional economists and the general public, as such experts are required to assume positions of importance and power in the polity. We may think Greenspan has way too much influence on the stock market and other areas, and his position may be a net cost to our economy, but it's hard to deny that the public statements of a powerful secular Iraqi central banker might be the only source of finance and economics education for a vast majority of the rural population, and might be a huge stabilizng force.
Meanwhile, note that the CBI is authorized to create balance of payments, monetary, and other financial statistics, but not macroeconomic statistics. How are they to manage the economy when they don't have the data?