2-4-13 Shredd: Having an Internationally Tradable Currency: What’s the Big Deal? It’s been coming up for quite some time whether or not Iraq really NEEDS to revalue their currency and get it to a place where it is internationally tradable.
The question goes something like this; “Can’t Iraq just keep on going like they have been and do all business in US Dollars?” Well, I’ve been digging around and have some thoughts to share with you.
First of all, without an internationally tradable currency, Iraq is walled off from the globalized financial system, thus raising the cost of business and increasing risk and uncertainty in the economy.
This problem is that the CBI will not be able to provide a currency that people can use throughout the world.
Now, this may not seem like a big deal at first but without an internationally tradable currency, you have no access to the globalized ﬁnancial system and all the services that it offers in addition to credit and deposits.
Here’s another big point: Without an international currency, you cannot manage your risks in the efficient ways that have become the standard in countries with internationally tradable currencies.
The lack of international stability is also a problem in trade. Let me explain….
The trade of intermediate goods is expanding enormously as connectivity and globalization are creating global chains of production, in which a component of any given product is produced in one country, the other components in other countries, and then they are assembled together in still another country.
Entering into these chains with internationally tradable currencies is deﬁnitely an advantage, because costs can be estimated more accurately in the long term, transaction costs can be minimized, and risks against other international currencies can be hedged.
Lastly, companies in the developing countries would have to enter the global competition with a crucial disadvantage.
While their competitors would be able to hedge, swap, and obtain ﬁnancing wherever it is cheaper and most convenient, they would be forced to rely on the credits and services provided in their weak, shallow ﬁnancial systems.
So, hopefully this brings a little more light to WHY it is important for Iraq to move to an internationally tradable currency…..especially at a time when we can see for ourselves that investment is growing, infrastructure is building and measurable progress is taking place in Iraq.