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AHSAN H. MANSUR

The purpose of this paper is to review a number of approaches that are available for determining an appropriate exchange rate level for a developing economy.1 Developing countries in recent years have been experiencing increasing balance of payments difficulties that, in many instances, are attributable to their foreign exchange regimes. In a typical situation, the government maintains an exchange rate fixed at an unrealistic level, while the level and composition of imports are determined by quantitative restrictions that give rise to the misallocation of resources. In an effort to overcome these problems and to re-establish conditions for reasonable economic growth and a sustainable balance of payments position, many countries resort to adjustment programs, including exchange rate actions. However, before any exchange rate action can take place, the appropriate new level for the exchange rate must be determined. This paper outlines a series of approaches that, in combination, can be used to address the issue.

Mr. Andrew Berg, Mr. Paolo Mauro, Mr. Michael Mussa, Mr. Alexander K. Swoboda, Mr. Esteban Jadresic, and Mr. Paul R Masson

Abstract

This paper examines the consequences of heightened capital mobility and of the integration of developing economies in increasingly globalized markets for the exchange rate regimes of the industrial, developing, and transition economies. It builds upon previous studies by IMF staff on various aspects of the exchange rate arrangements of member countries, consistent with the IMF's role of surveillance over its members exchange rate policies.

International Monetary Fund. External Relations Dept.

The IMF released on September 14 the report of a group of independent experts: External Evaluation of IMF Surveillance. At a press conference accompanying the release of the report—whose conclusions were broadly welcomed by the IMF Executive Board, management, and staff—the chair of the Board’s Evaluation Group, Thomas Bernes of Canada, said that in selecting the topic of IMF surveillance, the Board “wanted to look at what is at the heart of the IMF’s mandate.” The aim was not to look at individual country programs, he said, but to examine how the whole process of surveillance was carried out—both bilateral reviews of individual economies and multilateral surveillance (as in the case of the IMF’s World Economic Outlook exercise).

Mr. Andrew Berg, Mr. Paolo Mauro, Mr. Michael Mussa, Mr. Alexander K. Swoboda, Mr. Esteban Jadresic, and Mr. Paul R Masson

Abstract

The exchange rate regimes in today’s international monetary and financial system, and the system itself, are profoundly different in conception and functioning from those envisaged at the 1944 meeting of Bretton Woods establishing the IMF and the World Bank. The conceptual foundation of that system was of fixed but adjustable exchange rates to avoid the undue volatility thought to characterize floating exchange rates and to prevent competitive depreciations, while permitting enough flexibility to adjust to fundamental disequilibrium under international supervision. Capital flows were expected to play only a limited role in financing payments imbalances and widespread use of controls would insulate the real economy from instability arising from short-term capital flows. Temporary official financing of payments imbalances, mainly through the IMF, would smooth the adjustment process and avoid undue disturbances to current accounts, trade flows, output, and employment.

Mr. Andrew Berg, Mr. Paolo Mauro, Mr. Michael Mussa, Mr. Alexander K. Swoboda, Mr. Esteban Jadresic, and Mr. Paul R Masson

Abstract

Since the creation of the IMF at Bretton Woods, the international exchange rate regime has undergone very substantial changes, which may be broken down into four main phases. The first was a phase of reconstruction and gradual reduction in inconvertibility of current account transactions under the aegis of the Marshall Plan and the European Payments Union, culminating in the return to current account convertibility by most industrial countries in 1958. The second phase corresponds to the heyday of the Bretton Woods system and was characterized by fixed, though adjustable, exchange rates, the partial removal of restrictions on capital account transactions in the industrial countries, a gold-dollar standard centered on the United States and its currency, and a periphery of developing country currencies that remained largely inconvertible. The end of convertibility of the dollar into gold in the summer of 1971 was a first step toward the breakdown of this system, which collapsed with the floating of major currencies in early 1973, This marked the beginning of the third phase.

Mr. Andrew Berg, Mr. Paolo Mauro, Mr. Michael Mussa, Mr. Alexander K. Swoboda, Mr. Esteban Jadresic, and Mr. Paul R Masson

Abstract

The developing and transition countries whose exchange arrangements are the subject of this section cover a very broad range of economic development—from the very poorest to the newly industrialized economies with per capita incomes at levels that categorize them, along with industrial countries, as “advanced economies.” Correlated with the level of economic development, but not perfectly so, are both the degree of domestic financial sophistication and the extent of involvement with the global economic system, especially modern, global financial markets. The 30 or so countries that are most advanced in this last regard are commonly referred to as the “emerging markets.”

International Monetary Fund. Research Dept.

The IMF Research Bulletin, a quarterly publication, selectively summarizes research and analytical work done by various departments at the IMF, and also provides a listing of research documents and other research-related activities, including conferences and seminars. The Bulletin is intended to serve as a summary guide to research done at the IMF on various topics, and to provide a better perspective on the analytical underpinnings of the IMF’s operational work.

International Monetary Fund
The Euro system maintains a high level of transparency in all aspects of operations, demonstrating a strong institutional commitment to openness and a high degree of observance of the code. Greater consistency in the disclosure practices of individual National Central Banks (NCBs) will ensure that the conduct of monetary policy, payment system oversight, and the development of financial markets proceed in a uniform basis. Executive Directors suggests that the European Central Bank (ECB) review its current practice of selective and informal public consultation on payment issues.
Mr. Jeromin Zettelmeyer
This paper studies the impact effect of monetary policy shocks—identified by the reaction of three month market interest rates to policy announcements—on the exchange rate in Australia, Canada, and New Zealand during the 1990s. The main results are that (1) on average, a 100 basis point contractionary shock will appreciate the exchange rate by 2-3 percent on impact; (ii) seemingly “perverse” reactions of the exchange rate to monetary policy are mainly attributable to reverse causality; (iii) in a few instances, there were true “perverse” reactions of exchange rates to policy— generally, appreciations following expansionary shocks.
Wouter Bossu, Mr. Masaru Itatani, Catalina Margulis, Arthur D. P. Rossi, Hans Weenink, and Akihiro Yoshinaga
This paper analyzes the legal foundations of central bank digital currency (CBDC) under central bank and monetary law. Absent strong legal foundations, the issuance of CBDC poses legal, financial and reputational risks for central banks. While the appropriate design of the legal framework will up to a degree depend on the design features of the CBDC, some general conclusions can be made. First, most central bank laws do not currently authorize the issuance of CBDC to the general public. Second, from a monetary law perspective, it is not evident that “currency” status can be attributed to CBDC. While the central bank law issue can be solved through rather straithforward law reform, the monetary law issue poses fundmental legal policy challenges.