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Mr. Manuel Guitián and Saleh M. Nsouli

Abstract

Currency convertibility—defined in the broadest sense as the right to convert freely and without limit a currency into any other at the prevailing exchange rate—is the linchpin of today’s globalized world economy. To assess the importance of convertibility, it is only necessary to point out that a system of well-managed convertible national currencies imparts to the international arena advantages analogous to those resulting from the introduction of money in a national economy, most notably, the elimination of barter (and the need for coincidence of needs) as a basis for international trade and the provision of an instrument for the development of financial markets.

Abstract

It is an honor and a genuine pleasure for me to deliver the opening remarks today for this seminar on currency convertibility. I wish, first of all, to welcome you to Marrakesh, a city with a rich cultural heritage and a wealth of tourist attractions. I also wish to thank the authorities of the Arab Monetary Fund and the International Monetary Fund for choosing to hold this seminar in the Kingdom of Morocco. In addition, I would like to express our appreciation to Mr. Osama Faquih, Director General and Chairman of the Board of the Arab Monetary Fund, who has honored us by attending and participating personally in this important event, and to congratulate him on his election as President of the Islamic Development Bank. Furthermore, I wish to extend greetings to the senior officials from the participating countries. Their presence demonstrates the interest and importance that the Arab countries’ monetary authorities accord to the topics to be discussed during this seminar.

Mr. Manuel Guitián

Abstract

Currency convertibility has always been a fundamental notion in international economic relations. Yet, since the abandonment of the Bretton Woods par value regime, a remarkable degree of silence has until recently surrounded the subject. Possibly this silence is related to the advent and prevalence of flexible exchange rate arrangements that followed the Bretton Woods order. The reason could be that, in theory, flexible exchange rates would make exchange and other restrictions unnecessary or redundant; and, therefore, under such exchange rate arrangements currencies would be convertible by definition, so to speak. But as is often the case, what can be expected in principle does not always materialize in practice; exchange, payments, and other international restrictions have continued to prevail in the period of flexible exchange rates and, therefore, questions of currency convertibility have remained open.

Saleh M. Nsouli

Abstract

In a world where goods, services, and financial markets have become increasingly integrated, it is argued that current account convertibility has become an anachronism.1 Yet, current account convertibility remains at the center of the mandate of the International Monetary Fund and constitutes for many countries an important policy objective, which is often seen as an intermediate step toward the attainment of full convertibility. A key unresolved issue is whether countries with inconvertible currencies should move directly to full convertibility or go through a transitional period of current account convertibility. While the focus of this paper will be primarily on current account convertibility, it will attempt to shed some light on the considerations involved in the move to full convertibility.

Mustapha Kara and Salam Hleihel

Abstract

Reliance upon exchange controls and restrictions played an important part in the economic policies of the Arab countries, with the exception of the Gulf Cooperation Council (GCC) countries, and Lebanon, which adopted early on an open trade and payments system. The extent and character of exchange controls, however, varied among the countries depending on their economic orientation, resource endowments, and external sector circumstances. In those countries with a dominant public sector, exchange controls were part of an overall system of administrative allocation of resources, while balance of payments concerns were the main reason for the use of restrictions in market-oriented economies.

Abdelmoumen Souayah

Abstract

This paper reviews the experience of Tunisia in liberalizing its exchange system and highlights the steps envisaged for the future in decontrolling further the exchange system. The appendix provides additional background information.

Ali Amor

Abstract

The recent changes in the world economy have led most countries to seek growth and development for their economies through international trade. These changes, which have also affected economic doctrine, have shown, particularly for developing countries, that, in an increasingly globalized economy, growth cannot result from inward-oriented policies. The need to integrate domestic economies in the global world economy and to remove all restrictions to international trade in goods and services has moved to the forefront of present concerns a notion virtually forgotten in the economic literature: currency convertibility.

Arfan Al-Azmeh

Abstract

In recent years, the issue of currency convertibility has received increasing attention in the economic literature, especially in articles from the staff of the International Monetary Fund (IMF). This has taken place in spite of the fact that the concept of convertibility and the provisions governing it in the IMF’s Articles of Agreement have been widely known for many years. A possible source of the renewed interest in convertibility may have been the transformation process now under way in the economies of many countries that once were part of the Soviet Union or had a centrally planned economic system and their increased interaction in international trade and the world economy.

Mr. Manuel Guitián

Abstract

An important feature of the international financial code of conduct established at the Bretton Woods Conference toward the end of World War II was the acceptability of controls and restrictions on international capital flows. Specifically, the Articles of Agreement of the International Monetary Fund, which contain such a code of conduct, prescribe that

Mr. Paolo Mauro, Mr. Torbjorn I. Becker, Mr. Jonathan David Ostry, Mr. Romain Ranciere, and Mr. Olivier D Jeanne

Abstract

This paper focuses on what countries can do on their own—that is, on the role of domestic policies—with respect to country insurance. Member countries are routinely faced with a range of shocks that can contribute to higher volatility in aggregate output and, in extreme cases, to economic crises. The presence of such risks underlies a potential demand for mechanisms to soften the blow from adverse economic shocks. For all countries, the first line of defense against adverse shocks is the pursuit of sound policies. In light of the large costs experienced by emerging markets and developing countries as a result of past debt crises, fiscal policies should seek to improve sustainability, taking into account that sustainable debt levels seem to be lower in emerging and developing countries than in advanced countries. Although much can be accomplished by individual countries through sound policies, risk management, and self-insurance through reserves, collective insurance arrangements are likely to continue playing a key role in cushioning countries from the impact of shocks.