An Iraq currency game plan: either adopt the classic British currency board model or simply "dollarize" Iraq.

• Author: Hanke, Steve H.
• Position: The World

In war or at peace, every successful action requires a game plan. The allied forces proved as much by executing their regime change objective in Iraq with precision. But even though the victors have grand ideas about remaking the Iraqi economy and society within a year, those ideas remain mere tacit musings. The victors have found themselves without a game plan, and the Iraqi economy remains in chaos.

Generals once knew that after a war, the vanquished must get their economy up and running again, and to accomplish that, the first order of business must be the establishment of a sound currency. Before the landings in Normandy and North Africa, the top brass at the Pentagon were busy developing a currency game plan. And to assist, they called in none other than Dr. Felix Somary, a Vienna-trained Swiss banker and one of the world's greatest currency experts, who was residing in Washington, D.C. Somary received an urgent early-morning call and was asked to meet immediately with top generals at the Pentagon. When he arrived for the meeting, Somary was asked by the assembled what the parity between the French franc and the U.S. dollar should be. He responded with another question: Which franc? The one in France or the one circulating in North Africa?

This surprised and puzzled the chairman of the meeting. He wondered why Somary had made a distinction between the mainland and the African French franc. Dr. Somary replied that the two francs had distinct exchange rates. Realizing that the assembled generals didn't know what they were talking about, and to avoid public embarrassment, the chairman said, "You must swear not to tell anybody the questions we asked you." Never mind. The Pentagon brass were at least smart enough to accept Somary's recommendations in a memorandum and formulate a game plan.

To be successful, a currency reform plan must be informed by Iraq's history and well-crafted. Speedy implementation is of the essence because victors often find that the time within which they enjoy the good will of the vanquished is short. That's why a game plan for Iraq's currency is long overdue.

Iraq established a central bank on November 16, 1947. Like central banks in most developing countries, the Central Bank of Iraq's history has been replete with mismanagement, coercive stop-gap measures and, yes, the production of an unstable, unreliable currency which has not been tradable on international markets for years. Consequently, international...