The two legs that have held up the forint in recent years—a strong “EU accession effect” and positive sentiment toward emerging markets—may no longer be strong enough to offset Hungary’s weak fundamentals. Fiscal consolidation efforts should be supported by stronger budget controls and greater transparency and accountability. This paper is an effort to shed light on Hungary’s employment dynamics, placed in the European Union (EU) context. Hungary’s employment generation has been relatively strong, partly owing to the country’s favorable initial employment distribution across sectors.
This paper examines exchange rate behavior in the ASEAN-5 countries (Indonesia, Malaysia, the Philippines, Singapore, and Thailand). It finds that for the last 10 years there is no evidence that their central banks target particular exchange rate levels against any currency or basket. Thus, contrary to some assertions, they do not belong to a U.S. dollar club, a Japanese yen club, a Chinese renminbi club, or an ASEAN club. At the same time, they clearly try to smooth short-term volatility, particularly vis-à-vis the U.S. dollar. The degree of smoothing declined noticeably after the Asian Financial Crisis and less obviously after the Global Financial Crisis, with heterogeneity across countries. Short-term smoothing without level targeting does not interfere with monetary policies aimed at price stability.
International Monetary Fund. Monetary and Capital Markets Department
; some depreciated more than 20 percent. These currencies, in many cases, have partially recovered since March. The range of emerging market and developing economy currencymovement was broadly comparable to what was seen during the global financial crisis and significantly larger than during the 2013 taper tantrum ( Figure 1.5.1 ).
Figure 1.5.1. Emerging Market and Developing Economy Nominal Effective Exchange Rate Movements
(Percent change from start of episode; days on x-axis)
Sources: IMF, Global Data Source; and IMF staff calculations.
This paper shows that extending the convertibility guarantee of the traditional currency board to a second reserve currency brings about an automatic, market-driven change of the peg when the initial reserve currency appreciates beyond a specified level. The “dual” currency board thus maintains the advantages of a hard peg, but avoids the economic difficulties associated with the link to an overvalued reserve currency. As an added benefit, the system has the potential to promote global currency stability, with the reserves of the dual currency board country acting as a buffer stock to the exchange cross-rate of the chosen reserve currencies.
“Co-circulation” involves the regular use of two or more currencies within an economy. This paper examines methodologies to measure the extent to which foreign currencies are circulated within an economy. Ample anecdotal evidence exists that the U.S. dollar, DM, and other currencies are widely used outside their home countries, as general mediums of exchange, as speculative instruments, or as means of saving. Co-circulation is rarely estimated, which can result in serious errors in statistical estimates of international capital flows and monetary aggregates. We examine a variety of measurement techniques that might be used in various situations. However, estimation remains difficult or impossible in some settings. Limited evidence available suggests that co-circulation is widespread and large scale in some countries. In the final section, we discuss some policy implications of co-circulation regarding seigniorage, inflation control, and the partial integration of monetary systems that accompanies co-circulation. An appendix by Roman Zytek discusses possible sampling biases in measuring co-circulation due to segmentation in markets.
What is the extent of currency diversification in the international monetary system? How has
it evolved over time? In this paper, we quantify the degree of currency diversification using
regression methods of currency co-movements to determine the extent to which national
currencies across the world belong to a reserve currency bloc. We then use these estimates to
calculate the economic size of each currency bloc. A key contribution of our paper is that we
quantify the size of the Chinese renminbi bloc. Our analysis suggests that the international
monetary system has transitioned from a bi-polar system - consisting of the U.S. dollar and
the euro - to a tri-polar one that includes the renminbi. The dollar bloc is estimated to
continue to dominate, having the largest share in global GDP (40 percent), followed by the
renminbi (30 percent) and the euro blocs (20 percent). The geographical area of influence for
the RMB bloc appears to be most evident among the BRICS’ currencies. The British pound
and the Japanese yen blocs appear to play minor roles.
The Background Papers gathers together a number of studies that were prepared as research to the final report. Although not a part of the report itself, these papers provide detail on a number of issues grouped together here by general topic; data sources and methodology, direct investment, portfolio investment, international banking statistics, and other capital flows.
Rate using the Impulse Response Functions (IRFs)
F. Concluding Thoughts
1. Real GDP Growth and Exchange Rate Change
2. Real GDP Growth
3. Economic Growth versus CurrencyMovement
4. EM Real GDP Growth
5. EM Economic Growth versus EM CurrencyMovement
6. External Debt as a Share of Exports
7. EM External Debt as a Share of Exports
8. Strength of the Expenditure Switching Effect
9. Strength of the Balance Sheet Effect
10. Change in Domestic Value Added Share of Total Exports
11. Change in Net International Investment