Iraq is starting not only a new government but also a new system for banking in their country. In the blog The Iraqi Central Bank Law covers the topic of what new banking laws will bring to the long-term growth of the country, along with stability. By creating strict guidelines the government is hoping to maintain domestic price stability along with a stable and competitive market-based financial system.
The Law has 74 articles and 42 pages covering every topic one can think of. It very carefully defines the roles the government will play in the new system, monetary policy and open market operations. In creating such defined rules and regulations it appears to be the making of an honest government which would lead to growth.
One of the Authors points in the article was that the new laws failed to define “domestic price stability. That leaves “domestic price stability” to be defined by the “international standards” which is “slow and steady inflation.” Inflation won’t cause the country to be any poorer, in fact inflation would do the exact opposite, and it would help redistribute income. Inflation will also help the wages of the people go up, making growth the end result. Isn’t growth what really matters
1 comment:
The original post centers on the idea of organizing a central bank that is driven by rules rather than discretion (see Chapter 13 in the Colander text). The last 30 years or so have seen a big push in this direction. Countries do worse when the officials in charge of the country can also print the money. Taking that power away is called central bank independence.
The real debate in the comments is about shoe-leather-costs (see Chapter 6 in the Colander text). Inflation can be close to costless to a society, as long as everyone's prices go up at the same rate. Except for the shoe-leather-costs; the dumb stuff that we do to try and beat inflation instead of otherwise productive work.
But, remember that inflation doesn't affect everyone the same way. It has its biggest effect on people and firms whose prices are fixed for periods of time. The less flexibility you have, the more you are hurt. Inflation turns out to be quite literally a transfer of wealth from those with inflexible nominal prices to those who are flexible.
Kid - the quality of the spelling and grammar in your post declined badly in the last paragraph.
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