Article IV of the International Monetary Fund’s Articles of Agreement stipulates, among other things, that the Fund “shall exercise firm surveillance over the exchange rate policies of members.” An integral part of that mandate is the close monitoring and careful evaluation by the IMF of exchange rates and of their underlying determinants—no matter what the member’s chosen exchange rate arrangements. The substantial overvaluation of the U.S. dollar in 1984–85, the turbulence and sudden adjustments of parities and margins within the European Monetary System in 1992–93, and the large realignment of the CFA franc in early 1994 all bear eloquent testimony to the proposition that exchange rates can get out of line with economic fundamentals. One aim of IMF surveillance activities, such as Article IV consultations and the World Economic Outlook, is to decrease the frequency and size of such exchange rate “misalignments” by encouraging a more timely adjustment of macroeconomic policies and/or exchange rates themselves.
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