IMF to scrutinise exchange rate policies
Wednesday, 20 June 2007
Krishna Guha, FT Syndication Service
WASHINGTON: The International Monetary Fund has set the stage for more rigorous scrutiny of exchange rate policies worldwide, stating that its board agreed to an overhaul of its mandate for international surveillance.
The new framework, announced last Monday, sets out a catch-all obligation on countries not to adopt policies that undermine the stability of the international system, and lists a set of criteria that will be used to indicate whether a country is complying.
Warning lights will include large-scale currency intervention, the accumulation of reserves and "fundamental exchange rate misalignment" - a term that mirrors language in a bill before the US Congress that would impose penalties on nations that failed to correct such misalignments.
The agreement goes a long way towards satisfying US demands for the fund to play a more aggressive role on exchange rates, while reassuring emerging markets with its commitment to "even-handedness" and "due regard" to countries' particular circumstances.
Hank Paulson, US Treasury secretary, welcomed the agreement, saying it "sends a strong message that the IMF will put exchange rate surveillance back at the core of its duties and rigorously implement its rules on exchange rate surveillance ".
Rodrigo Rato, IMF managing director, said: "This decision is good news for the IMF reform programme and good news for the cause of multilateralism."
The new framework gave "clear guidance to our members on how they should run their exchange rate policies, on what is acceptable to the international community and what is not".
As well as listing the criteria by which the IMF will evaluate whether a country is complying with its principles, an as-yet unpublished annexe will specify in detail what is meant by an existing rule that bans member countries from manipulating exchange rates to prevent balance of payments adjustment or gain unfair competitive advantage in trade.
The overhaul of surveillance policy is the first since 1977. Mr Rato said the new framework had "very broad support, including from industrial countries, from emerging economies and from developing countries". But an IMF official said the decision was not unanimous, with at least one country's representative dissenting.
The new framework mandates the IMF to look at all policies that affect a nation's external financial stability and the health of the international financial system.
WASHINGTON: The International Monetary Fund has set the stage for more rigorous scrutiny of exchange rate policies worldwide, stating that its board agreed to an overhaul of its mandate for international surveillance.
The new framework, announced last Monday, sets out a catch-all obligation on countries not to adopt policies that undermine the stability of the international system, and lists a set of criteria that will be used to indicate whether a country is complying.
Warning lights will include large-scale currency intervention, the accumulation of reserves and "fundamental exchange rate misalignment" - a term that mirrors language in a bill before the US Congress that would impose penalties on nations that failed to correct such misalignments.
The agreement goes a long way towards satisfying US demands for the fund to play a more aggressive role on exchange rates, while reassuring emerging markets with its commitment to "even-handedness" and "due regard" to countries' particular circumstances.
Hank Paulson, US Treasury secretary, welcomed the agreement, saying it "sends a strong message that the IMF will put exchange rate surveillance back at the core of its duties and rigorously implement its rules on exchange rate surveillance ".
Rodrigo Rato, IMF managing director, said: "This decision is good news for the IMF reform programme and good news for the cause of multilateralism."
The new framework gave "clear guidance to our members on how they should run their exchange rate policies, on what is acceptable to the international community and what is not".
As well as listing the criteria by which the IMF will evaluate whether a country is complying with its principles, an as-yet unpublished annexe will specify in detail what is meant by an existing rule that bans member countries from manipulating exchange rates to prevent balance of payments adjustment or gain unfair competitive advantage in trade.
The overhaul of surveillance policy is the first since 1977. Mr Rato said the new framework had "very broad support, including from industrial countries, from emerging economies and from developing countries". But an IMF official said the decision was not unanimous, with at least one country's representative dissenting.
The new framework mandates the IMF to look at all policies that affect a nation's external financial stability and the health of the international financial system.