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Foreign Exchange Intervention in Developing and Transition Economies

Author(s):
Jorge Canales Kriljenko
Published Date:
May 2003
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I. Introduction

The literature on foreign exchange intervention has focused on the experience of central banks in developed countries, especially those issuing the major international currencies.2,3 Its results suggest that sterilized foreign exchange intervention conducted by these central banks over the last 20 years may well have had an effect on the exchange rate over the short run, but not over the long run. Some authors have argued that the short-run effects have been weak and difficult to identify.4 Other authors, however, have presented a slightly more positive view about foreign exchange intervention, especially when it was conducted simultaneously by several central banks in a concerted fashion.5 These documented experiences with foreign exchange intervention have taken place in an environment of floating exchange rates, full capital mobility, and large international use of the currencies involved.

This paper explores how foreign exchange intervention can be more effective in developing and transition economies, which follow a wide array of exchange rate regimes and have in place many controls on capital mobility, currency substitution, dollarization, and the international use of their currencies. Special attention is given to the microstructure of the foreign exchange market in which the foreign exchange intervention takes place, in particular, to the aspects that can be influenced by foreign exchange regulations, monetary regulations, and central bank foreign exchange operating practices.

Foreign exchange intervention practices in developing and transition economies are characterized with information from the IMF’s 2001 Survey on Foreign Exchange Market Organization, which targeted those developing and transition economies that are members of the IMF.6 Ninety members responded to the survey, accounting for 85 percent of the exports, 91 percent of the imports, and 85 percent of the GDP of developing and transition economies in the year 2000. These countries also held about 90 percent of the developing and transition economies’ international reserves.7

The survey results suggest that official foreign exchange intervention conducted by some central banks in developing and transition economies may have more of an impact on the path of the exchange rate than official foreign exchange intervention by the central banks of developed countries issuing the major international currencies, at least in the absence of a major crisis. Several reasons can be offered. First, unlike the U.S. Federal Reserve Board (the Fed), the European Central Bank (ECB), or the Bank of Japan, not all central banks in developing and transition economies routinely fully sterilize their foreign exchange interventions. Second, unlike the central banks issuing the major international currencies, some central banks in developing and transition economies conduct foreign exchange intervention in amounts that are important relative to the level of foreign exchange market turnover, the money base, and the stock of domestic bonds outstanding. Third, some central banks in developing and transition economies have a greater information advantage over the central banks issuing the major international currencies because, among other things, they can infer the aggregate foreign exchange order flow from reporting requirements. Many central banks in developing and transition economies also use foreign exchange and monetary regulations, as well as their own foreign exchange operating practices, among other things, to increase the central bank’s information advantage and the size of foreign exchange intervention relative to the market.8 Finally, many central banks in developing and transition economies exert moral suasion to reinforce the effects of their foreign exchange market interventions.

The remainder of this paper is organized as follows. Section II describes the prevalence of foreign exchange intervention across different exchange rate regimes and degrees of market access. Section III discusses the survey responses on the issue of sterilization and compares them with the sterilization practices by the central banks issuing the major international currencies. Section IV presents evidence on the size of foreign exchange intervention relative to the market in developing and transition economies and discusses how foreign exchange regulations, monetary regulations, and central bank foreign exchange operating practices could increase the relative size and effectiveness of foreign exchange intervention. Section V discusses the asymmetric information in favor of central banks in developing and transition economies and discusses how the information asymmetry could increase the effectiveness of foreign exchange intervention. Section VI discusses moral suasion and Section VII concludes the analysis.

II. Prevalence of Foreign Exchange Intervention

Central banks issuing the major international currencies are not active participants in their foreign exchange markets. The economies in which they operate have adopted monetary policy frameworks that target short-term interest rates and exchange rate policies that limit foreign exchange intervention to calm disorderly market conditions.9 Foreign exchange intervention takes place infrequently, and although it could be of large absolute magnitude when it does take place, its size is estimated to be small relative to total foreign exchange market turnover.10 Partly because conditions in the foreign exchange market were orderly during 2001, only the Bank of Japan conducted foreign exchange intervention operations on a very small number of days in 2001. In particular, the Bank of Japan intervened on seven days following the terrorist attacks of September 11 and on three of those days, the ECB conducted foreign exchange interventions on behalf of the Bank of Japan under an existing agreement.11 However, neither the Fed nor the ECB conducted official foreign exchange intervention on its own behalf in their spot foreign exchange markets.12

Most central banks in developing and transition economies participated in their foreign exchange markets across all exchange rate regimes and degrees of market access during 2001. Almost all of the survey respondents reported that their central banks traded foreign exchange in the spot foreign exchange market and virtually all of those who answered the corresponding question indicated conducting foreign exchange intervention (Appendix Table 2).13 Most of the foreign exchange intervention took place in spot foreign exchange markets through foreign exchange transactions arranged by telephone conversations with banks as main counterparties (Appendix Table 3).14

The prevalence of foreign exchange intervention can be seen even in the more flexible exchange rate regimes.15 For example, in a managed floating exchange rate regime, the monetary authority influences the movements of the exchange rate through interest rate changes and active foreign exchange intervention, without specifying (or precommitting to) a preannounced path for the exchange rate. In an independently floating exchange rate regime, foreign exchange intervention may be conducted to moderate the rate of change of the exchange rate and preventing undue fluctuations in the exchange rate, rather than establishing a level for it. These intervention policies are consistent with the Fund’s Principles for the Guidance of Members’ Exchange Rate Policies, which call for a Fund member’s foreign exchange intervention “if necessary to counter disorderly conditions, which may be characterized, among other things, by disruptive short-term movements in the exchange value of its currency.”16

Conversely, little foreign exchange intervention is seen in some of the less flexible exchange rate regimes. The survey results do not support the view that central banks manage all the least flexible exchange rate regimes with frequent foreign exchange intervention. This finding may be surprising because, in the typical textbook exposition of fixed exchange rate regimes, the central bank stands ready to buy or sell foreign exchange to defend a given level of the exchange rate. Killeen and others (2001) provide a possible explanation within a foreign exchange market operating without controls. In their model, the private sector, not the central bank, absorbs the innovations in the foreign exchange order flow when the fixed exchange rate regime is credible.17 When exchange rate expectations are anchored, foreign exchange intermediaries would buy foreign exchange in the presence of pressures for domestic currency depreciation and sell it in the presence of those for currency appreciation. In other words, foreign exchange intermediaries would conduct stabilizing speculation, whose profitability would depend on the size of the bid-offer spread.

III. Sterilized or Not Sterilized?

Foreign exchange intervention by central banks in developing and transition economies may be more effective in affecting exchange rates than foreign exchange intervention by the central banks issuing the major international currencies, among other things, because the foreign exchange intervention by the former is not always fully sterilized.

The economic literature on foreign exchange intervention recognizes that unsterilized foreign exchange intervention has an effect on the path of exchange rates (Almekinders, 1995). Changes in the money supply have a long-run effect on its price in terms of goods and other currencies, although the adjustment on the exchange rate is usually much faster than that on goods’ prices and may involve overshooting. The change in the money supply used to achieve an exchange rate objective may be accomplished by either unsterilized foreign exchange intervention or changes in the central bank’s net domestic assets.18

When central banks issuing the major international currencies intervene, they tend to sterilize their foreign exchange interventions to achieve their short-term operating targets of monetary policy, usually short-term interest rates (Craig and Humpage, 2001). The Fed sterilizes its foreign exchange intervention to keep the amount of bank reserves at levels that are consistent with the established monetary policy goals.19 In particular, liquidity is adjusted for consistency with the federal funds target. The ECB has sterilized its foreign exchange intervention on the few occasions that it has been in the market (Frenkel and others, 2001).20The Bank of Japan conducts foreign exchange intervention as the agent of the Minister of Finance with funds from a special account of the Japanese Government. Thus, foreign exchange intervention does not affect the money base. Foreign exchange purchases are funded by issuing short-term yen-denominated bills and yen purchases by selling foreign exchange funds from the special account in the market (Bank of Japan, 2000 and Ito, 2002).

Unlike the Fed, the ECB, or the Bank of Japan, not all central banks in developing and transition economies routinely fully sterilize their foreign exchange interventions. In particular, about 10 percent of the survey respondents reported that foreign exchange intervention is never sterilized; about half indicated that it is sometimes sterilized; and about 20 percent said it is always sterilized. About 25 percent of survey respondents did not answer the corresponding section of the survey.

The frequency of sterilization varied slightly by exchange rate regime and market access. Countries that sometimes sterilize their foreign exchange interventions can be found in almost all types of exchange rate regimes (Appendix Table 4). The countries that never sterilize are concentrated in the less flexible exchange rate regimes as could be expected, but account for only a small share of all countries following these exchange rate regimes (Appendix Table 5). The countries that always sterilize their foreign exchange interventions are more likely to be found in the more flexible exchange rate regimes with market access, but can also be found in countries following soft peg exchange rate regimes (Appendix Table 6).

The finding that central banks in developing and transition economies do not always fully sterilize their foreign exchange interventions should not be surprising. Unlike the major central banks that follow short-term interest rate targets, these countries follow a wide array of monetary policy frameworks that allow some room for unsterilized intervention. In addition, many authors have argued that under certain conditions, the optimal degree of sterilization is not necessarily fully sterilizing one’s foreign exchange intervention and depends on the nature of the shocks that hit the economy and the objectives of the authorities.21 This literature revolves around the issue of the optimal exchange rate regime. Of course, whether developing and transition economies were actually following optimal sterilization rules is an empirical issue that is beyond the scope of this paper.

IV. Relative Size of Foreign Exchange Intervention

The size of foreign exchange intervention is in theory an important factor influencing the effectiveness of foreign exchange intervention. In particular, it must be large relative to the total turnover in the foreign exchange market, the stock of domestic money, or the stock of publicly traded domestic and foreign bonds held by the private sector to be effective under several possible channels of influence identified in the literature, namely the balance-of-payments-flows, monetary, and portfolio-balance channels (Rosenberg, 1996).22 Moreover, the literature has suggested that in the presence of noise traders large amounts of foreign exchange intervention may need to be involved to change the trend of the exchange rate, especially if foreign exchange intervention needs to be kept secret to be effective (Hung, 1997).23

Foreign exchange intervention by the central banks issuing the major international currencies accounts for a very small fraction of annual foreign exchange market turnover. Even in the case of the Bank of Japan, foreign exchange intervention against U.S. dollars during the year 2000 accounted for less than 0.2 percent of estimated annual foreign exchange market turnover. However, the size of foreign exchange intervention on any given day may be substantial, reaching a peak of 16 percent of foreign exchange market turnover during the period.24

Foreign exchange intervention by some central banks in developing and transition economies accounts for a much larger fraction of foreign exchange market turnover than that conducted by central banks issuing the major international currencies, especially at the interbank level of trading (Appendix Table 7). 25 In six of those countries that responded to the survey, the size of foreign exchange intervention exceeds the volume of interbank foreign exchange market turnover (excluding trades with the central bank). In contrast, the size of intervention is below 10 percent of the volume of interbank trading in four countries. The size of foreign exchange intervention is usually significantly smaller as a fraction of bank-customer trading, reflecting the fact that interbank trading in developing and transition economies usually accounts for only a fraction of turnover in the bank-customer segment of the market.26

Several reasons could help explain the larger size of foreign exchange intervention by some central banks in developing and transition economies relative to the sizes of their foreign exchange markets. First, central banks in these economies are usually large customers in the foreign exchange market. Second, many central banks in developing and transition economies use a variety of foreign exchange, monetary, and banking regulations to, among other things, increase their relative size in the foreign exchange market. Third, central bank foreign exchange operating practices may prevent the development of an interbank foreign exchange market containing the growth of the turnover in the foreign exchange market.

A. Central Banks as Large Customers in the Foreign Exchange Market

In contrast to the Fed, the ECB, and the Bank of Japan, many central banks in developing and transition economies are important players in the foreign exchange markets, whether on their own behalf or on behalf of their governments. Central banks in developing and transition economies may buy or sell foreign exchange as customers on their own behalf for several reasons. For instance, foreign exchange can be used to meet their foreign expenditures, such as paying their own external debt, or to sell the foreign exchange received from loans to support the balance of payments, including those from multilateral lending institutions. Central banks can also enter the foreign exchange market to adjust the actual level of international reserves to the desired level, for example, to meet some reserve adequacy targets. In addition, central banks in developing and transition economies often buy and sell foreign exchange to defend the level of the exchange rate or to reduce exchange rate volatility.

Many central banks in developing and transition economies also conduct foreign exchange operations on behalf of their governments, state enterprises, and nonbudgetary government agencies. More than half of the survey respondents reported that the central bank is the exclusive foreign exchange agent of the government with the government trading foreign exchange only with the central bank (Appendix Table 8).27 State-owned enterprises and nonbudgetary government agencies in many developing and transition economies are also required to trade foreign exchange exclusively with the central bank. This occurs with state-owned enterprises in about 8 percent of the survey respondents and government agencies in 15 percent of them.

The governments and their agencies in developing and transition economies are often a very important source of foreign exchange, especially in nonemerging markets where the size of the government in the economy is relatively large. In particular, the government, state enterprises, and nonbudgetary government agencies account for a large portion of foreign exchange traded in many countries. The concentration arises naturally in many developing and transition economies where financial aid from foreign donors is the main source of foreign exchange. It also occurs in countries where state enterprises obtain the bulk of the export receipts of the country and in some open economies where foreign exchange traded domestically mainly arises from taxes and royalties paid in foreign exchange. Finally, the government often becomes a large supplier of foreign exchange in countries where the fiscal deficit is financed abroad.

Moreover, many central banks in developing and transition economies sometimes conduct foreign exchange operations with government entities to achieve exchange rate policy objectives. In particular, on several occasions governments and state-owned companies have borrowed abroad with the main purpose of affecting the evolution of the exchange rate, rather than to finance fiscal expenditures or the companies’ operations. As documented by Taylor (1982), this form of secret foreign exchange intervention was also practiced in some developed countries in the late 1970s.

B. Regulations that Increase the Relative Size of Foreign Exchange Intervention

Many central banks in developing and transition economies often use foreign exchange controls and monetary regulations not only to directly reduce pressures on the foreign exchange market, but also to increase the effectiveness of their foreign exchange intervention by raising the size of intervention relative to the foreign exchange market.28

Foreign exchange controls

Foreign exchange controls increase the size of foreign exchange intervention relative to the market by either reducing the size of the foreign exchange market or by concentrating the foreign exchange supply in the hands of the central bank.

Capital controls

If comprehensive, capital controls can reduce cross-border movements of capital and the volume of foreign exchange market turnover, increasing the relative size of central bank foreign exchange intervention.29 Banning cross-border investments is a way of discouraging nonresidents from using the domestic currency and residents from using foreign currencies and thus reducing the potential volume of transactions in the foreign exchange market. Comprehensive capital controls prevent the large movement of capital and large increases in foreign exchange market turnover that accompany deviations from interest rate parity not explained by differences in risk premiums. Thus, besides the effect of increasing the relative size of foreign exchange intervention, they provide some room for maneuver to conduct independent monetary and exchange rate policies.

Surrender requirements to the central bank

A surrender requirement is an obligation to sell foreign exchange proceeds within a specified timeframe, usually from exports. When directed to the central bank, surrender requirements increase the central bank’s relative size of foreign exchange intervention, bargaining position, and information advantage. Comprehensive surrender requirements of this kind concentrate the foreign exchange supply in the hands of the monetary authority and turn the central bank into the main foreign exchange intermediary. In this position, the central bank can better influence the path of the exchange rate by partially controlling the supply of foreign exchange. In practice, surrender requirements exist in about 40 percent of the survey respondents, but they are seldom directed to the central bank (Appendix Table 9).30

Prohibitions on interbank foreign exchange trading

Prohibitions on interbank foreign exchange trading limit the size of the foreign exchange market, increasing the relative size of foreign exchange intervention. In a few developing and transition economies, banks are allowed to conduct foreign exchange trading only on behalf of their customers. Banks can still conduct foreign exchange intermediation, buying from sources of foreign exchange and selling to end-users of foreign exchange, but cannot engage in market making activities. The prohibitions are more likely in nonemerging markets and in the less flexible exchange rate regimes (Appendix Table 10).31

Regulations hindering the taking of net open foreign exchange positions

Limits on net open foreign exchange positions reduce the size that the foreign exchange market would have in the face of pressures on the value of the domestic currency. The rapid building of net open foreign exchange positions, such as those that take place during speculative attacks, rapidly increases the size of the foreign exchange market, decreasing the relative size of the foreign exchange intervention that is feasible with available international reserves.32

Many central banks in developing and transition economies put in place a combination of measures to hinder the taking of net open foreign exchange positions by financial institutions.33 Most developing and transition economies impose limits on the level and daily variations of net open foreign exchange position of financial institutions (Appendix Tables 11 and 12). The net open foreign exchange positions subject to limits usually include open forward foreign exchange positions, since unhedged forward foreign exchange positions can trigger large pressures on the spot exchange rates when banks need to hedge their exposure and cannot find an adequate counterparty to take the opposite forward foreign exchange position.

About half the survey respondents have in place measures that restrict the operation of forward markets reducing the ability of nonfinancial institutions to fund speculative positions, but also to hedge exchange rate risk. In particular, about 15 percent of survey respondents explicitly prohibit banks from issuing forward contracts and about 40 percent impose certain requirements on banks for offering forward contracts, most notably the requirement that banks offer these contracts only for hedging the exchange rate risk of legally permitted underlying international transactions. Foreign exchange regulations in some countries also control the maturity of the forward contracts offered to customers. About 45 percent of survey respondents allow banks to issue forward contracts without any controls. However, the scope for speculative net open position taking is limited by the level of development, liquidity, and depth of the market. In particular, only 9 percent of survey respondents consider their forward foreign exchange markets to be developed, liquid, and deep, while 30 percent of survey respondents consider them to be undeveloped, illiquid, and shallow (Appendix Table 13).34

Monetary regulations

Monetary regulations can increase the relative size of central bank foreign exchange intervention by reducing the residents’ use of foreign currencies and nonresidents’ use of the domestic currency.

To reduce the scope for currency substitution, most countries that issue their own currencies have granted a series of legal privileges to their domestic currencies (Baliño and Canales-Kriljenko, 2001). Residents usually must use their domestic currency as means of payment. In particular, monetary regulations in many of the survey respondents give the domestic currency the exclusive role of means of payment (forced tender) or, at least, the advantage of legal tender so that it must be accepted in payment for financial obligations. Moreover, about half of the survey respondents explicitly prohibit their residents from making payments to other residents in foreign currencies (Appendix Table 14).

Most countries permit residents to use foreign currencies as a store of value. Practically all survey respondents allowed banks to accept foreign currency deposits, especially from exporters.35 Some developing countries explicitly prohibit other private sector residents from holding foreign currency deposits in domestic banks. Banks may also accept foreign currency deposits from the public sector, especially from state enterprises. The number of countries allowing their financial systems to offer foreign currency deposits to nonresidents was smaller. The degree of dollarization of private sector deposits was above 10 percent in about half of the survey respondents, reaching the 75–100 range in a few countries (Appendix Table 15).36

In addition, many countries imposed controls on the use of their domestic currencies by nonresidents abroad. This was the case in about a third of developing and transition economies. In addition, many countries include outright prohibitions on short-term lending in domestic currency to nonresidents to avoid fueling speculation in foreign exchange markets. In particular, about 30 percent of survey respondents explicitly prohibit their banking systems to lend domestic currency to nonresidents (Appendix Table 16).

C. Central Bank Foreign Exchange Operating Practices That Increase the Relative Size of Foreign Exchange Intervention

Foreign exchange operating practices by central banks can increase the size of foreign exchange intervention relative to the foreign exchange market. For example, many central banks in developing and transition economies act like market makers and set extremely narrow bid-offer spreads.37 This practice reduces foreign exchange transactions, particularly at the level of interbank trading because banks cannot compete with the central bank in conducting foreign exchange intermediation.38 The low level of foreign exchange market turnover tends to increase the relative size of the central bank intervention in the foreign exchange market.

Central banks can act as market makers in most exchange rate regimes. The central bank becomes a market maker when it sets firm two-way (buying and selling) exchange rates at which other dealers can trade, usually up to a certain amount established by market practices. For example, under a fixed exchange rate regime, central banks fix a rate and stand ready to meet any supply or demand imbalance at that rate. They may also behave as market makers in several other exchange rate regimes with different degrees of flexibility. In a crawling band, for example, the central bank sets two-way quotations with a wide bid-offer spread. In addition, central banks often conduct heavy intramarginal foreign exchange intervention to try to keep the exchange rate away from the band margins. They also could do the same even in countries following independently floating exchange rate regimes as long as they limit their foreign exchange intervention to preventing undue fluctuations in the exchange rate, rather than establishing a level for it.

A fixed bid-offer spread offered by the central bank may be smaller than the one that would prevail in the market. Without central bank participation, the bid-offer spread may vary over time and depend on country specific variables and market conditions. The bid-offer spread could increase with the exchange rate volatility (which in turn depends on the rate of currency depreciation) and decrease with expected trading volumes. The bid-offer spread increases to compensate foreign exchange intermediaries for the higher exchange rate risk associated with higher exchange rate volatility, which affects the unwanted net open foreign exchange positions that arise in the process of trading. They may decrease with expected trading volumes reflecting economies of scale and competition among market makers. In addition, bid-offer spreads and (unexpected) trading volumes may both rise in response to the arrival of information.39 The bid-offer spread could also depend on the presence of the central bank in the foreign exchange market. In particular, when the central bank does not behave as a market maker, foreign exchange intervention can either increase or decrease the bid-offer spread.40

V. Information Advantage

Central banks in some developing and transition economies may be more effective in affecting exchange rates through foreign exchange intervention than those in economies issuing the major international currencies because the former have a greater information advantage over the latter.41

Foreign exchange intervention can be more effective when the central bank has an information advantage if market participants change their expectations about the future path of the exchange rate after intervention operations take place.42 In such a situation, foreign exchange intervention will affect exchange rates well in excess of its contribution to aggregate foreign exchange order flow. A change in the expected exchange rate path could lead market participants to modifying their net open foreign exchange position. This could lead to a change in aggregate foreign exchange order flow, multiplying the effect of the foreign exchange intervention.

A. What Information Advantage Do Central Banks Have?

Central banks in developing and transition economies—especially in those economies that are not emerging markets—may not only have a better idea of the path for the supply of domestic currency or the targeted level of the exchange rate than other market participants, but also on the supply of foreign currency. More technically, they may have a better grasp of aggregate foreign exchange order flow than the rest of market participants. The advantage relative to the central banks issuing the major international currencies, however, consists of having a better grasp on foreign exchange order flow.

More information about monetary and exchange rate developments and policies

Like the central banks issuing the major international currencies, many central banks in developing and transition economies may, in principle, know better than other foreign exchange market participants their own intentions with respect to monetary and exchange rate policies (including foreign exchange intervention), while other market participants have to infer them from publicly available information and behavior. For example, central banks in developing and transition economies may know better their target value for the exchange rate, if any, than the rest of the participants in the foreign exchange market. In addition, some central banks in developing and transition economies may have access to information affecting exchange rates before other foreign exchange market participants, either because they compile the statistics or obtain them from the official statistical agency before the data are released.43

Some central banks in developing and transitional economies, however, may not have a real information advantage with regard to the future path of monetary policy. First, many central banks in developing and transition economies already abide by the IMF’s Code of Good Practices on Transparency in Monetary and Financial Policies, which implies that they already disclose vast amounts on information about their intended policies. Second, many central banks in developing and transition economies do not have real central bank independence. Although they may formulate a comprehensive monetary program, monetary policy may need to be changed with shifting political circumstances. Moreover, the private sector may have a better sense about the potential political shifts by hiring political analysts than the authorities in charge of formulating policy. The private sector may also realize that central bank operations to contain large pressures on the currency may be futile. In particular, managing money supply in the face of large pressures may not be credible, raising interest rates may not be feasible, and foreign exchange intervention may be considered a desperate measure with no chance of success, signaling a position of vulnerability rather than of strength. Finally, the marginal advantage of getting information about fundamentals in advance of the market may not always be relevant, as sometimes high-frequency movements in the exchange rate do not reflect fundamental developments.

More information about foreign exchange order flow

To infer exchange rate pressures embedded in foreign exchange market activity, the literature on the microstructure of foreign exchange markets emphasizes the importance of foreign exchange order flow. Intuitively, a positive foreign exchange order flow reflects an excess demand for foreign exchange that would tend to depreciate the domestic currency. Lyons (2001) surveys the literature that has empirically documented the positive relationship between order flow and currency depreciation and Vitale (2001) puts forward a theoretical argument in the context of foreign exchange intervention.

Some central banks in developing and transition economies make use of their ability to issue regulations to obtain an information advantage over other market participants, among other things, about foreign exchange order flow.44 They require market participants to submit information about their foreign exchange activities, sometimes in great detail.45The information advantage arises because only a subset of the information collected is made available to the other foreign exchange market participants. The data requested varies significantly across countries, ranging from all information on each of the foreign exchange transactions made by each authorized dealers to summary statistics, sometimes weighted by the size of the transactions. The collected information available to central banks in developing and transition economies often includes data for every licensed dealer on exchange rates (whose dispersion reflects the uncertainty in the foreign exchange market) and foreign exchange transaction volumes (Appendix Table 18).46

From the information on foreign exchange transactions, central banks could infer the size of foreign exchange order flow aggregated at some levels of trading.47 For example, in transactions between banks and their customers, foreign exchange market turnover usually equals aggregate foreign exchange order flow because customers are usually those initiating the foreign exchange transaction at the exchange rate quoted by dealer banks, especially in competitive foreign exchange markets in which market makers operate. However, in transactions among banks, foreign exchange market turnover usually differs from foreign exchange order flow. It is not possible to know in a transaction among banks which bank initiated the transaction by just looking at the volume of the transaction. The lack of foreign exchange order flow data at the interbank level is less important in developing and transition economies with shallow interbank markets because interbank trading accounts for a smaller fraction of the total foreign exchange order flow in the market.

Information about the net open foreign exchange positions of authorized dealers could be used to anticipate changes in order flow, as dealers with currency exposure are likely to go to the market to cover their positions, affecting order flow, when changes in the expected path of the exchange rate take place. This information also helps identify foreign exchange dealers that may be taking large net open foreign exchange positions and contributing to pressures on the exchange rate. In most developing and transitions countries, banks must report to the central bank their net open foreign exchange positions usually more than once a month, but the information obtained is usually never published.48 The most prevalent frequency of reporting is daily. Weekly reporting is more common than monthly in all regions, except in Eastern Europe. About 70 percent of the countries with net open foreign exchange position limits, however, reported that they never published this information (Appendix Table 20).

Besides the information obtained from reporting requirements, some central banks in developing and transition economies obtain privileged information about foreign exchange order flow in some centralized trading environments, for instance, when conducting foreign exchange auctions. Central banks conducted most foreign exchange auctions in 15 countries developing and transition economies that responded to the survey (Appendix Table 21). The central bank actively participated in the auctions in three countries, but it indirectly participated in many other auctions by deciding the amounts auctioned. A few central banks in developing and transition economies also have privileged access to the information generated in electronic broking systems.49 The central bank either is the main provider or has access to the information from electronic broking systems provided by the private sector, usually adapting infrastructure available for securities’ trading at stock exchanges.50,51 The central bank may be able to compute foreign exchange order flow directly in countries where it observes foreign exchange transactions that take place among banks through an electronic broking system. However, this would only cover a fraction of the total foreign exchange order flow, since banks can usually trade among each other outside of those trading platforms.

The control of the payment and settlement systems in the country could also give a marginal information edge to the central bank, as many central banks in developing and transition economies are directly involved in the settlement of foreign exchange transactions. In particular, they allow the settlement of one or both legs of foreign exchange transactions at central bank accounts. In many of the countries represented by survey respondents, where financial institutions are often required to open accounts at the central bank to meet reserve requirements, the debiting and crediting take place at central bank accounts. The foreign currency leg settlement requires that foreign currency accounts be opened at the central bank, a situation that often arises in dollarized economies in which the reserve requirements on foreign currency deposits are denominated in foreign currency (Appendix Table 23).52 However, the information advantage obtained from the control of the payment and settlement systems may be difficult to obtain in practice unless special arrangements for the settlement of foreign exchange transactions are in place to distinguish foreign exchange from other transactions.

Some other central banks in developing and transitional economies, however, may not have a real information advantage with regard to foreign exchange order flow. In economies where the banking system is highly concentrated, the few institutions controlling the bulk of foreign exchange transactions can get a very good grasp of the direction of aggregate foreign exchange order flow by observing a representative fraction of it. Being in close contact with the end customers, these institutions can arguably have a better understanding of prevailing market sentiment than the central bank, even if the central bank sees the aggregate foreign exchange order flow on a daily basis.53 The same could take place even in economies without high concentration of foreign exchange trading activity when foreign exchange dealers exchange information over the course of trading. Moreover, foreign exchange intermediaries may have access to the information about foreign exchange order flow faster than the central bank in some developing and transition economies as they get the information in real time while the central bank gets the information at the end of the day.54

B. Information Advantage and the Transparency of Foreign Exchange Intervention

Based on their information advantage, the central banks can choose the degree of transparency of foreign exchange intervention that makes it more effective.55,56 To produce a change in exchange rate expectations, on some occasions the central bank would need to announce its foreign exchange intervention either directly or through visible operations. For example, when the central bank believes, based on its information advantage on market fundamentals and developments, that the level the exchange rate has reached is unwarranted, the central bank could signal its intentions (or threaten) to tighten monetary policy in the future if the misalignment is not corrected. This can be done by announcing this policy and simultaneously conducting foreign exchange intervention in support of the domestic currency. An announced foreign exchange intervention could be required, besides the monetary policy announcement, to achieve the change in exchange rate expectations in countries where the authorities and institutions suffer from credibility problems (Mussa, 1981).

On other occasions, however, the central bank would benefit from keeping its foreign exchange intervention secret.57 The information advantage could allow the central bank to detect situations in which market sentiment is shifting (by observing foreign exchange order flow and bank-by-bank net open foreign exchange positions), which could allow for a change in the exchange rate trend to take place. In the presence of noise traders, secret foreign exchange intervention could produce an effect on the trading rules followed by noise traders that could lead them to change their net open foreign exchange positions and reinforce the effect of foreign exchange intervention. This effect on trading rules would be easier to achieve in when trading becomes thin in the market, but it may come at the cost of temporarily increasing exchange rate volatility (Hung, 1997). The central bank may also want to keep its foreign exchange intervention secret when it fears that the private sector would use the disclosed information against the central bank. The informational advantage to the central bank may protect it to some degree from speculative attacks and falling into speculative trading games from large traders in the market.58

How transparent is foreign exchange intervention?

The central banks issuing the major international currencies report their foreign exchange interventions with a lag, but they do not always announce their foreign exchange interventions. The Fed does not normally announce or confirm its foreign exchange intervention. The financial press often reports foreign exchange intervention activity, but formal studies disagree about their accuracy (Klein, 1993 and Osterberg and Humes, 1993). Foreign exchange intervention activity is officially reported quarterly on the web. The Fed has released daily foreign exchange intervention data with a one-year lag, for about the last 10 years. The ECB has announced some of its foreign exchange intervention operations and acknowledged that it conducted foreign exchange intervention that was not reported in the press (Fatum and Hutchinson, 2002). Foreign exchange interventions by the Bank of Japan are reported soon after they occur by news agencies and they become public information, but the Bank of Japan seldom confirms these foreign exchange interventions (Ramaswamy and Samiei, 2000). In 2002, however, the authorities released their daily foreign exchange intervention data since the early 1990s, information that is updated quarterly.59

Central banks in developing and transition economies are divided on the issue of transparency of foreign exchange intervention. The survey results suggest that about half of the central banks in developing and transition economies that conduct foreign exchange intervention announce their presence in the foreign exchange market. The responses were very similar across emerging and nonemerging markets, but varied somewhat by exchange rate regime. In particular, countries with conventional fixed pegs and with exchange rates within crawling bands tend not to announce their foreign exchange interventions maybe because these exchange rate regimes imply that the central bank will intervene when the pegs or bands are under pressure (Appendix Table 25). In only a few countries is the announcement made before the actual foreign exchange intervention. In particular, about 16 percent of central banks in developing and transition economies conducting foreign exchange intervention announce ex ante their foreign exchange interventions in the more flexible exchange rate regimes and in some countries with conventional fixed pegs against a single currency. These announcements never take place in other exchange rate regimes (Appendix Table 26). About 25 percent of central banks that responded to the question about transparency of foreign exchange intervention indicated that they publish data on their foreign exchange interventions, sometimes with a lag (Appendix Table 27), although the figure is slightly higher for emerging markets.

VI. Moral Suasion

Many central banks in developing and transition economies use moral suasion to support their foreign exchange intervention. Moral suasion is possible because the central bank usually requires a foreign exchange license for allowing institutions to conduct foreign exchange intermediation in their foreign exchange markets (Appendix Table 27). In addition, central banks in developing and transition economies are often the supervisory authority for the main authorized dealers, which are usually banks. Central banks in these countries monitor the behavior of individual market participants and threaten to withdraw the foreign exchange license, suspend an authorized dealer from conducting foreign exchange intermediation, or trigger close on-site inspections of the institutions that, for example, are perceived to increase exchange rate volatility. In addition, they use their large presence in the market to threaten not to trade with those agents that challenge the central bank’s objectives in the foreign exchange market.60 Central banks could also threaten to modify foreign exchange regulations to make foreign exchange intervention more effective and affect the profitability of banks speculating against the central bank.

Foreign exchange intervention may be, or at least appear to be, more effective when the central bank exerts moral suasion. Moral suasion would provide an extra signal to market participants that the authorities are serious about a given exchange rate objective, but of course, how serious the signal is taken would depend on the funds available to the central bank for foreign exchange intervention and rate of growth of the central bank net domestic assets. In addition, excessive use of moral suasion would contribute to a lack of development of the interbank foreign exchange market and increase the relative size of the central bank in the foreign exchange market. While both moral suasion and foreign exchange intervention could contribute to a particular effect on the exchange rate, formal tests are likely to attribute the entire effect to foreign exchange intervention because it would be very difficult to control for moral suasion.

VII. Conclusions

The evidence obtained from the IMF’s 2001 Survey on Foreign Exchange Market Organization indicates that foreign exchange intervention is a widely used policy instrument in developing and transition economies. The survey provides a wealth of information about foreign exchange intervention practices, such as the degree of sterilization and transparency, as well as the environment in which these operations take place, including the main foreign exchange market structures and regulations.61

Central banks in some developing and transition economies may be able to conduct foreign exchange intervention more effectively than those issuing the major international currencies because they not always fully sterilize their foreign exchange intervention. In addition, central banks in many developing and transition economies issue regulations and conduct their foreign exchange operations in a way that increases the relative size of foreign exchange intervention in foreign exchange market turnover and the central bank’s information advantage. In some of these countries, the regulations and foreign exchange market practices turn the central bank into one of the main foreign exchange intermediaries. Based on their information advantage, the central banks can choose the degree of transparency of foreign exchange intervention that makes it more effective. In addition, some central banks in these countries often use moral suasion to support their foreign exchange intervention. Thus, foreign exchange regulations, including pervasive capital controls, as well as moral suasion could make foreign exchange intervention more effective and are not necessarily just a substitute for intervention.

Future research should assess empirically the effectiveness of central bank foreign exchange intervention in developing and transition economies and analyze its costs and benefits when the intervention is supported by foreign exchange controls and monetary regulations. While these regulations could make foreign exchange intervention more effective, they could also force the central bank to intervene more often than otherwise. The central bank would bear all the cost of smoothing discrepancies in the arrival of orders to the foreign exchange market, because other market participants would not have the incentive to conduct stabilizing speculation.62 This could potentially increase the exchange rate volatility that would exist in the absence of foreign exchange intervention.

Moreover, even if foreign exchange intervention were effective in reducing, for example, exchange rate volatility, it would be useful to test whether the benefits of reducing exchange rate volatility compensate for the potential costs of these regulations, which may create distortions in resource allocation in the real sector and reduce the opportunities for investment, consumption smoothing, and risk sharing. Moreover, the administrative cost of enforcing the regulations could be substantial, as the authorities spend resources to enforce and update the regulations while the private sector spends resources trying to circumvent them. Efforts at circumvention may also give rise to corruption and other governance problems. Finally, exchange rate stability may be counterproductive in economies where the private sector can borrow abroad, as the private sector may underestimate the risk of loss associated with an eventual currency depreciation, which may encourage international overborrowing.

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APPENDIX TABLES
Table 1.Survey Response Rate, by Exchange Rate Regime and Market Access, 2001 1/(In percent of Fund member countries in each category)
Exchange rate regimes 2/Developing and Transition EconomiesTotal
Emerging Markets 3/Other
No country-specific currency--87
CAEMC 4/--1717
Other--1713
Country-specific currency865467
Currency board675057
Conventional fixed pegs against a single currency886370
Conventional fixed pegs against a composite1007180
Pegs with horizontal bands within a cooperative

arrangement


--


--


--
Pegs with horizontal bands within a Fund supported

program
--6750
Crawling pegs1006775
Exchange rates within crawling bands100100100
Managed floating, no preannounced path for

exchange rate
794660
Independently floating1004263
Total834356
Memo item:
Total Fund Members in Developing and Transition Economies

(In number of countries)
53107160
Note: -- stands for not applicable, zero, or negligible amount.Source: IMF, 2001 Survey on Foreign Exchange Market Organization.

The 2001 Survey on Foreign Exchange Market Organization was sent to country authorities in all Fund member developing and transition economics on October 2001. Ninety answers were received by March 2002. Emerging market economies are in italics and underlined below.

The Survey respondents are Albania, Angola, Armenia, Azerbaijan, Bahamas, Bahrain, Bangladesh, Barbados, Belarus, Bhutan, Bolivia, Brazil, Bulgaria, Cambodia, Cape Verde, Chile, China (Mainland), Colombia, Republic of Congo, Costa Rica, Croatia, Czech Republic, Djibouti, Dominican Republic, Egypt, El Salvador, Estonia, Fiji, Ghana, Guatemala, Guyana, Honduras, Hungary, India, Indonesia, Iran, Israel, Kazakhstan, Kenya, Korea, Kuwait, Kyrgyz Republic, Lao, Latvia, Lebanon, Lesotho, Libya, Lithuania, Macedonia (FYR), Madagascar, Malaysia, Malta, Mauritius, Mexico, Moldova, Morocco, Mozambique, Namibia, Nepal, Nicaragua, Oman, Pakistan, Papua New Guinea, Paraguay, Peru, Philippines, Poland, Qatar, Romania, Samoa, Sierra Leone, Singapore, Slovak Republic, Slovenia, South Africa, Sri Lanka, Swaziland, Syria, Tanzania, Thailand, Tonga, Trinidad and Tobago, Turkey, Ukraine, United Arab Emirates, Uruguay, Vanuatu, Venezuela, Yemen, and Zambia.

Follows the IMF’s de facto exchange rate regime classification as published in the IMF’s International Financial Statistics.

Corresponds to the Fund member developing and transition countries considered as emerging markets in the Fund’s internal quarterly publication named “Emerging Market Financing: A Quarterly Report on Developments and Prospects”.

The Central African Economic and Monetary Community (CAEMC) is itself a conventional fixed peg arrangement.

Note: -- stands for not applicable, zero, or negligible amount.Source: IMF, 2001 Survey on Foreign Exchange Market Organization.

The 2001 Survey on Foreign Exchange Market Organization was sent to country authorities in all Fund member developing and transition economics on October 2001. Ninety answers were received by March 2002. Emerging market economies are in italics and underlined below.

The Survey respondents are Albania, Angola, Armenia, Azerbaijan, Bahamas, Bahrain, Bangladesh, Barbados, Belarus, Bhutan, Bolivia, Brazil, Bulgaria, Cambodia, Cape Verde, Chile, China (Mainland), Colombia, Republic of Congo, Costa Rica, Croatia, Czech Republic, Djibouti, Dominican Republic, Egypt, El Salvador, Estonia, Fiji, Ghana, Guatemala, Guyana, Honduras, Hungary, India, Indonesia, Iran, Israel, Kazakhstan, Kenya, Korea, Kuwait, Kyrgyz Republic, Lao, Latvia, Lebanon, Lesotho, Libya, Lithuania, Macedonia (FYR), Madagascar, Malaysia, Malta, Mauritius, Mexico, Moldova, Morocco, Mozambique, Namibia, Nepal, Nicaragua, Oman, Pakistan, Papua New Guinea, Paraguay, Peru, Philippines, Poland, Qatar, Romania, Samoa, Sierra Leone, Singapore, Slovak Republic, Slovenia, South Africa, Sri Lanka, Swaziland, Syria, Tanzania, Thailand, Tonga, Trinidad and Tobago, Turkey, Ukraine, United Arab Emirates, Uruguay, Vanuatu, Venezuela, Yemen, and Zambia.

Follows the IMF’s de facto exchange rate regime classification as published in the IMF’s International Financial Statistics.

Corresponds to the Fund member developing and transition countries considered as emerging markets in the Fund’s internal quarterly publication named “Emerging Market Financing: A Quarterly Report on Developments and Prospects”.

The Central African Economic and Monetary Community (CAEMC) is itself a conventional fixed peg arrangement.

Table 2.Survey Respondents Conducting Foreign Exchange Intervention, by Exchange Rate Regime and Market Access, 2001 1/(In percent of countries answering the corresponding Survey question in each category)
Exchange rate regimes 2/Developing and Transition EconomiesTotal
Emerging Markets 3/Other
No country-specific currency--100100
CAEMC 4/--100100
Other------
Country-specific currency889491
Currency board5010067
Conventional fixed pegs against a single currency608877
Conventional fixed pegs against a composite100100100
Pegs with horizontal bands within a cooperative

arrangement
------
Pegs with horizontal bands within a Fund supported

program
--100100
Crawling pegs100100100
Exchange rates within crawling bands8010083
Managed floating, no preannounced path for

exchange rate
1009196
Independently floating9110094
Total889491
Memo item:
Number of countries answering question413576
In percent of survey respondents937684
Note: -- stands for not applicable, zero, or negligible amount.Source: IMF, 2001 Survey on Foreign Exchange Market Organization.

The 2001 Survey on Foreign Exchange Market Organization was sent to country authorities in all Fund member developing and transition economies on October 2001. Ninety answers were received by March 2002. Table 1 shows the list of respondents.

Follows the IMF’s de facto exchange rate regime classification as published in the IMF’s International Financial Statistics.

Corresponds to the Fund member developing and transition countries considered as emerging markets in the Fund’s quarterly publication “Emerging Market Financing: A Quarterly Report on Developments and Prospects”.

The Central African Economic and Monetary Community (CAEMC) is itself a conventional fixed peg arrangement.

Note: -- stands for not applicable, zero, or negligible amount.Source: IMF, 2001 Survey on Foreign Exchange Market Organization.

The 2001 Survey on Foreign Exchange Market Organization was sent to country authorities in all Fund member developing and transition economies on October 2001. Ninety answers were received by March 2002. Table 1 shows the list of respondents.

Follows the IMF’s de facto exchange rate regime classification as published in the IMF’s International Financial Statistics.

Corresponds to the Fund member developing and transition countries considered as emerging markets in the Fund’s quarterly publication “Emerging Market Financing: A Quarterly Report on Developments and Prospects”.

The Central African Economic and Monetary Community (CAEMC) is itself a conventional fixed peg arrangement.

Table 3.Selected Characteristics of Foreign Exchange Intervention in Developing and Transition Economies, 2001(In percent of countries answering the corresponding Survey question in each category)
Market AccessExchange Rate Regime 1/Total
Emerging

Markets 2/
OtherPeggedIntermediateFlexible
Foreign exchange intervention conducted
in the spot market827461838978
in the forward market276044
Main counterparts
Banks10091941009696
Government8485821008284
Exporters and importers543074
Trading Platforms
Telephone orders665264336259
Online trading systems
Reuters 2000-1362833253332
Electronic broking system1891281613
Source: IMF, 2001 Survey on Foreign Exchange Market Organization.

The exchange rate regimes group categories from the IMF’s de facto exchange rate regime classification as published in the IMF’s International Financial Statistics. Pegged regimes include countries without a country specific currency, currency boards, and conventional fixed peg arrangements. Intermediate regimes include pegged exchange rate within horizontal bands, crawling pegs, and exchange rates within crawling bands. Flexible regimes include managed and independently floating exchange rate regimes.

Corresponds to the Fund member developing and transition countries considered as emerging markets in the Fund’s quarterly publication “Emerging Market Financing: A Quarterly Report on Developments and Prospects.”

Source: IMF, 2001 Survey on Foreign Exchange Market Organization.

The exchange rate regimes group categories from the IMF’s de facto exchange rate regime classification as published in the IMF’s International Financial Statistics. Pegged regimes include countries without a country specific currency, currency boards, and conventional fixed peg arrangements. Intermediate regimes include pegged exchange rate within horizontal bands, crawling pegs, and exchange rates within crawling bands. Flexible regimes include managed and independently floating exchange rate regimes.

Corresponds to the Fund member developing and transition countries considered as emerging markets in the Fund’s quarterly publication “Emerging Market Financing: A Quarterly Report on Developments and Prospects.”

Table 4.Survey Respondents that Sometimes Sterilize Foreign Exchange Intervention, by Exchange Rate Regime and Market Access, 2001 1/(In percent of countries answering the corresponding Survey question in each category)
Exchange rate regimes 2/Developing and Transition

Economies
Total
Emerging

Markets 3/
Other
No country-specific currency--100100
CAEMC 4/--100100
Other------
Country-specific currency616763
Currency board------
Conventional fixed pegs against a single currency406755
Conventional fixed pegs against a composite67--33
Pegs with horizontal bands within a cooperative arrangement------
Pegs with horizontal bands within a Fund supported program--100100
Crawling pegs100100100
Exchange rates within crawling bands605057
Managed floating, no preannounccd path for exchange rate698275
Independently floating606763
Total616864
Memo item:
Number of countries answering question383169
In percent of survey respondents866777
Note: -- stands for not applicable, zero, or negligible amount.Source: IMF, 2001 Survey on Foreign Exchange Market Organization.

The 2001 Survey on Foreign Exchange Market Organization was sent to country authorities in all Fund member developing and transition economies on October 2001. Ninety answers were received by March 2002. Table 1 shows the list of respondents.

Follows the IMF’s de facto exchange rate regime classification as published in the IMF’s International Financial Statistics.

Corresponds to the Fund member developing and transition countries considered as emerging markets in the Fund’s quarterly publication “Emerging Market Financing: A Quarterly Report on Developments and Prospects”.

The Central African Economic and Monetary Community (CAEMC) is itself a conventional fixed peg arrangement.

Note: -- stands for not applicable, zero, or negligible amount.Source: IMF, 2001 Survey on Foreign Exchange Market Organization.

The 2001 Survey on Foreign Exchange Market Organization was sent to country authorities in all Fund member developing and transition economies on October 2001. Ninety answers were received by March 2002. Table 1 shows the list of respondents.

Follows the IMF’s de facto exchange rate regime classification as published in the IMF’s International Financial Statistics.

Corresponds to the Fund member developing and transition countries considered as emerging markets in the Fund’s quarterly publication “Emerging Market Financing: A Quarterly Report on Developments and Prospects”.

The Central African Economic and Monetary Community (CAEMC) is itself a conventional fixed peg arrangement.

Table 5.Survey Respondents that Never Sterilize Foreign Exchange Intervention, by Exchange Rate Regime and Market Access, 2001 1/(In percent of countries answering the corresponding Survey question in each category)
Exchange rate regimes 2/Developing and Transition

Economies
Total
Emerging Markets 3/Other
No country-specific currency------
CAEMC 4/------
Other------
Country-specific currency81712
Currency board100--100
Conventional fixed pegs against a single currency201718
Conventional fixed pegs against a composite336750
Pegs with horizontal bands within a cooperative arrangement------
Pegs with horizontal bands within a Fund supported program------
Crawling pegs------
Exchange rates within crawling bands------
Managed floating, no preannounced path for exchange rate--94
Independently floating--176
Total81612
Memo item:
Number of countries answering question383169
In percent of survey respondents866777
Note: -- stands for not applicable, zero, or negligible amount.Source: IMF, 2001 Survey on Foreign Exchange Market Organization.

The 2001 Survey on Foreign Exchange Market Organization was sent to country authorities in all Fund member developing and transition economies on October 2001. Ninety answers were received by March 2002. Table 1 shows the list of respondents.

Follows the IMF’s de facto exchange rate regime classification as published in the IMF’s International Financial Statistics.

Corresponds to the Fund member developing and transition countries considered as emerging markets in the Fund’s quarterly publication “Emerging Market Financing: A Quarterly Report on Developments and Prospects”.

The Central African Economic and Monetary Community (CAEMC) is itself a conventional fixed peg arrangement.

Note: -- stands for not applicable, zero, or negligible amount.Source: IMF, 2001 Survey on Foreign Exchange Market Organization.

The 2001 Survey on Foreign Exchange Market Organization was sent to country authorities in all Fund member developing and transition economies on October 2001. Ninety answers were received by March 2002. Table 1 shows the list of respondents.

Follows the IMF’s de facto exchange rate regime classification as published in the IMF’s International Financial Statistics.

Corresponds to the Fund member developing and transition countries considered as emerging markets in the Fund’s quarterly publication “Emerging Market Financing: A Quarterly Report on Developments and Prospects”.

The Central African Economic and Monetary Community (CAEMC) is itself a conventional fixed peg arrangement.

Table 6.Survey Respondents that Always Sterilize Foreign Exchange Intervention, by Exchange Rate Regime and Market Access, 2001 1/(In percent of countries answering the corresponding Survey question in each category)
Exchange rate regimes 2/Developing and Transition

Economies
Total
Emerging

Markets 3/
Other
No country-specific currency------
CAEMC 4/------
Other------
Country-specific currency321725
Currency board------
Conventional fixed pegs against a single currency401727
Conventional fixed pegs against a composite--3317
Pegs with horizontal bands within a cooperative arrangement------
Pegs with horizontal bands within a Fund supported program------
Crawling pegs------
Exchange rates within crawling bands405043
Managed floating, no preannounced path for exchange rate31921
Independently floating401731
Total321625
Memo item:
Number of countries answering question383169
In percent of survey respondents866777
Note: -- stands for not applicable, zero, or negligible amount.Source: IMF, 2001 Survey on Foreign Exchange Market Organization.

The 2001 Survey on Foreign Exchange Market Organization was sent to country authorities in all Fund member developing and transition economies on October 2001. Ninety answers were received by March 2002. Table 1 shows the list of respondents.

Follows the IMF’s de facto exchange rate regime classification as published in the IMF’s International Financial Statistics.

Corresponds to the Fund member developing and transition countries considered as emerging markets in the Fund’s quarterly publication “Emerging Market Financing: A Quarterly Report on Developments and Prospects”.

The Central African Economic and Monetary Community (CAEMC) is itself a conventional fixed peg arrangement.

Note: -- stands for not applicable, zero, or negligible amount.Source: IMF, 2001 Survey on Foreign Exchange Market Organization.

The 2001 Survey on Foreign Exchange Market Organization was sent to country authorities in all Fund member developing and transition economies on October 2001. Ninety answers were received by March 2002. Table 1 shows the list of respondents.

Follows the IMF’s de facto exchange rate regime classification as published in the IMF’s International Financial Statistics.

Corresponds to the Fund member developing and transition countries considered as emerging markets in the Fund’s quarterly publication “Emerging Market Financing: A Quarterly Report on Developments and Prospects”.

The Central African Economic and Monetary Community (CAEMC) is itself a conventional fixed peg arrangement.

Table 7.Magnitude of Foreign Exchange Intervention in Selected Developing and Transition Economies, 2000(In percent of foreign exchange market turnover at different levels of trading)
Countries 1/Foreign exchange intervention in percent of
Interbank foreign

exchange market

turnover 2/
Foreign exchange

market turnover

between bank and end-

customers 3/
Foreign exchange market

turnover among banks

and between bank and

end-customers 2/
Country 15,153.40.10.1
Country 21,351.7239.0203.1
Country 3161.8----
Country 4160.23.13.0
Country 5138.425.721.7
Country 6118.1----
Country 790.29.68.7
Country 859.3----
Country 936.57.36.1
Country 1032.415.910.7
Country 114.63.92.1
Country 123.019.02.6
Country 131.0----
Country 140.00.00.0
Country 15--7.4--
Country 16--68.1--
Country 17--5.5--
Bank of Japan 3/0.20.90.1
Note: -- stands for not applicable, zero, or negligible amount.Source: IMF, 2001 Survey on Foreign Exchange Market Organization; Bank of International Settlements, 2001 Triennial Central Bank Survey of Foreign Exchange and Derivatives Market Activity; and Bank of Japan.

The names of the countries are omitted for confidentiality reasons.

The different levels of foreign exchange market turnover exclude transactions with the central bank.

Foreign exchange intervention conducted in U.S. dollars in 2000 vs. spot market turnover of the yen against the US dollar on a yearly basis, as published in table E-2 of the 2001 BIS triennial Survey statistical annex. To compute the figure on a yearly basis 22 trading days are assumed each month.

Note: -- stands for not applicable, zero, or negligible amount.Source: IMF, 2001 Survey on Foreign Exchange Market Organization; Bank of International Settlements, 2001 Triennial Central Bank Survey of Foreign Exchange and Derivatives Market Activity; and Bank of Japan.

The names of the countries are omitted for confidentiality reasons.

The different levels of foreign exchange market turnover exclude transactions with the central bank.

Foreign exchange intervention conducted in U.S. dollars in 2000 vs. spot market turnover of the yen against the US dollar on a yearly basis, as published in table E-2 of the 2001 BIS triennial Survey statistical annex. To compute the figure on a yearly basis 22 trading days are assumed each month.

Table 8.Survey Respondents whose Central Bank is the Exclusive Foreign Exchange Agent of the Government, by Exchange Rate Regime and Market Access, 2001 1/(In percent of member countries responding the Survey question in each category)
Exchange rate regimes 2/Developing and Transition

Economies
Total
Emerging

Markets 3/
Other
No country-specific currency--5050
CAEMC 4/--100100
Other------
Country-specific currency526358
Currency board------
Conventional fixed pegs against a single currency437563
Conventional fixed pegs against a composite674050
Pegs with horizontal bands within a cooperative arrangement------
Pegs with horizontal bands within a Fund supported program------
Crawling pegs--10067
Exchange rates within crawling bands6010071
Managed floating, no preannounced path for exchange rate605558
Independently floating558365
Total526357
Memo item:
Number of countries answering question444387
In percent of survey respondents1009397
Note: -- stands for not applicable, zero, or negligible amount.Source: IMF, 2001 Survey on Foreign Exchange Market Organization.

The 2001 Survey on Foreign Exchange Market Organization was sent to country authorities in all developing and transition economies on October 2001. Ninety answers were received by March 2002. Table 1 shows the list of respondents.

Follows the IMF’s de facto exchange rate regime classification as published in the IMF’s International Financial Statistics.

Corresponds to the Fund member developing and transition countries considered as emerging markets in the Fund’s quarterly publication “Emerging Market Financing: A Quarterly Report on Developments and Prospects”.

The Central African Economic and Monetary Community (CAEMC) is itself a conventional fixed peg arrangement.

Note: -- stands for not applicable, zero, or negligible amount.Source: IMF, 2001 Survey on Foreign Exchange Market Organization.

The 2001 Survey on Foreign Exchange Market Organization was sent to country authorities in all developing and transition economies on October 2001. Ninety answers were received by March 2002. Table 1 shows the list of respondents.

Follows the IMF’s de facto exchange rate regime classification as published in the IMF’s International Financial Statistics.

Corresponds to the Fund member developing and transition countries considered as emerging markets in the Fund’s quarterly publication “Emerging Market Financing: A Quarterly Report on Developments and Prospects”.

The Central African Economic and Monetary Community (CAEMC) is itself a conventional fixed peg arrangement.

Table 9.Survey Respondents Imposing Surrender Requirements, by Exchange Rate Regime and Market Access, 2001 1/(In percent of countries answering the corresponding Survey question in each category)
Exchange rate regimes 2/Developing and Transition

Economies
Total
Emerging

Markets 3/
Other
No country-specific currency--5050
CAEMC 4/--100100
Other------
Country-specific currency364842
Currency board------
Conventional fixed pegs against a single currency439274
Conventional fixed pegs against a composite676063
Pegs with horizontal bands within a cooperative arrangement------
Pegs with horizontal bands within a Fund supported program------
Crawling pegs------
Exchange rates within crawling bands--10029
Managed floating, no preannounced path for exchange rate401831
Independently floating453842
Total364842
Memo item:
Number of countries answering question444690
In percent of survey respondents100100100
Note: -- stands for not applicable, zero, or negligible amount.Source: IMF, 2001 Annual Report on Exchange Arrangements and Exchange Restrictions (AREAER).

The 2001 Survey on Foreign Exchange Market Organization did not include a question about surrender requirements, but the information was obtained from the AREAER.

Follows the IMF’s de facto exchange rate regime classification as published in the IMF’s International Financial Statistics.

Corresponds to the Fund member developing and transition countries considered as emerging markets in the Fund’s quarterly publication “Emerging Market Financing: A Quarterly Report on Developments and Prospects”.

The Central African Economic and Monetary Community (CAEMC) is itself a conventional fixed peg arrangement.

Note: -- stands for not applicable, zero, or negligible amount.Source: IMF, 2001 Annual Report on Exchange Arrangements and Exchange Restrictions (AREAER).

The 2001 Survey on Foreign Exchange Market Organization did not include a question about surrender requirements, but the information was obtained from the AREAER.

Follows the IMF’s de facto exchange rate regime classification as published in the IMF’s International Financial Statistics.

Corresponds to the Fund member developing and transition countries considered as emerging markets in the Fund’s quarterly publication “Emerging Market Financing: A Quarterly Report on Developments and Prospects”.

The Central African Economic and Monetary Community (CAEMC) is itself a conventional fixed peg arrangement.

Table 10.Survey Respondents Prohibiting Dealers to Trade on their Own Behalf, by Exchange Rate Regime and Market Access, 2001 1/(In percent of countries answering the corresponding Survey question in each category)
Exchange rate regimes 2/Developing and Transition

Economies
Total
Emerging

Markets 3/
Other
No country-specific currency------
CAEMC 4/------
Other------
Country-specific currency2169
Currency board------
Conventional fixed pegs against a single currency143326
Conventional fixed pegs against a composite--2013
Pegs with horizontal bands within a cooperative arrangement------
Pegs with horizontal bands within a Fund supported program------
Crawling pegs------
Exchange rates within crawling bands--5014
Managed floating, no preannounced path for exchange rate------
Independently floating--135
Total2159
Memo item:
Number of countries answering question444690
In percent of survey respondents100100100
Note: -- stands for not applicable, zero, or negligible amount.Source: IMF, 2001 Survey on Foreign Exchange Market Organization.

The 2001 Survey on Foreign Exchange Market Organization was sent to country authorities in all Fund member developing and transition economies on October 2001. Ninety answers were received by March 2002. Table 1 shows the list of respondents.

Follows the IMF’s de facto exchange rate regime classification as published in the IMF’s International Financial Statistics.

Corresponds to the Fund member developing and transition countries considered as emerging markets in the Fund’s quarterly publication “Emerging Market Financing: A Quarterly Report on Developments and Prospects”.

The Central African Economic and Monetary Community (CAEMC) is itself a conventional fixed peg arrangement.

Note: -- stands for not applicable, zero, or negligible amount.Source: IMF, 2001 Survey on Foreign Exchange Market Organization.

The 2001 Survey on Foreign Exchange Market Organization was sent to country authorities in all Fund member developing and transition economies on October 2001. Ninety answers were received by March 2002. Table 1 shows the list of respondents.

Follows the IMF’s de facto exchange rate regime classification as published in the IMF’s International Financial Statistics.

Corresponds to the Fund member developing and transition countries considered as emerging markets in the Fund’s quarterly publication “Emerging Market Financing: A Quarterly Report on Developments and Prospects”.

The Central African Economic and Monetary Community (CAEMC) is itself a conventional fixed peg arrangement.

Table 11.Survey Respondents Imposing Net Open Foreign Exchange Position Limits, by Exchange Rate Regime and Market Access, 2001 1/(In percent of countries answering the corresponding Survey question in each category)
Exchange rate regimes 2/Developing and Transition

Economies
Total
Emerging

Markets 3/
Other
No country-specific currency--100100
CAEMC 4/--100100
Other--100100
Country-specific currency937484
Currency board1005075
Conventional fixed pegs against a single currency866472
Conventional fixed pegs against a composite1004063
Pegs with horizontal bands within a cooperative arrangement------
Pegs with horizontal bands within a Fund supported program--100100
Crawling pegs1005067
Exchange rates within crawling bands100100100
Managed floating, no preannounced path for exchange rate879188
Independently floating1008895
Total937684
Memo item:
Number of countries answering question444589
In percent of survey respondents1009899
Note: -- stands for not applicable, zero, or negligible amount.Source: IMF, 2001 Survey on Foreign Exchange Market Organization.

The 2001 Survey on Foreign Exchange Market Organization was sent to country authorities in all Fund member developing and transition economies on October 2001. Ninety answers were received by March 2002. Table 1 shows the list of respondents.

Follows the IMF’s de facto exchange rate regime classification as published in the IMF’s International Financial Statistics.

Corresponds to the Fund member developing and transition countries considered as emerging markets in the Fund’s quarterly publication “Emerging Market Financing: A Quarterly Report on Developments and Prospects”.

The Central African Economic and Monetary Community (CAEMC) is itself a conventional fixed peg arrangement.

Note: -- stands for not applicable, zero, or negligible amount.Source: IMF, 2001 Survey on Foreign Exchange Market Organization.

The 2001 Survey on Foreign Exchange Market Organization was sent to country authorities in all Fund member developing and transition economies on October 2001. Ninety answers were received by March 2002. Table 1 shows the list of respondents.

Follows the IMF’s de facto exchange rate regime classification as published in the IMF’s International Financial Statistics.

Corresponds to the Fund member developing and transition countries considered as emerging markets in the Fund’s quarterly publication “Emerging Market Financing: A Quarterly Report on Developments and Prospects”.

The Central African Economic and Monetary Community (CAEMC) is itself a conventional fixed peg arrangement.

Table 12.Daily Fluctuation Limits on Net Open Foreign Exchange Position Limits, by Exchange Rate Regime and Market Access, 2001 1/(In percent of countries answering the corresponding Survey question in each category)
Exchange rate regimes 2/Developing and Transition

Economies
Total
Emerging Markets 3/Other
No country-specific currency------
CAEMC 4/------
Other------
Country-specific currency978
Currency board------
Conventional fixed pegs against a single currency29917
Conventional fixed pegs against a composite------
Pegs with horizontal bands within a cooperative arrangement------
Pegs with horizontal bands within a Fund supported program------
Crawling pegs100--33
Exchange rates within crawling bands20--14
Managed floating, no preannounced path for exchange rate------
Independently floating--2511
Total978
Memo item:
Number of countries answering question434588
In percent of survey respondents989898
Note: -- stands for not applicable, zero, or negligible amount.Source: IMF, 2001 Survey on Foreign Exchange Market Organization.

The 2001 Survey on Foreign Exchange Market Organization was sent to country authorities in all Fund member developing and transition economies on October 2001. Ninety answers were received by March 2002. Table 1 shows the list of respondents.

Follows the IMF’s de facto exchange rate regime classification as published in the IMF’s International Financial Statistics.

Corresponds to the Fund member developing and transition countries considered as emerging markets in the Fund’s quarterly publication “Emerging Market Financing: A Quarterly Report on Developments and Prospects”.

The Central African Economic and Monetary Community (CAEMC) is itself a conventional fixed peg arrangement.

Note: -- stands for not applicable, zero, or negligible amount.Source: IMF, 2001 Survey on Foreign Exchange Market Organization.

The 2001 Survey on Foreign Exchange Market Organization was sent to country authorities in all Fund member developing and transition economies on October 2001. Ninety answers were received by March 2002. Table 1 shows the list of respondents.

Follows the IMF’s de facto exchange rate regime classification as published in the IMF’s International Financial Statistics.

Corresponds to the Fund member developing and transition countries considered as emerging markets in the Fund’s quarterly publication “Emerging Market Financing: A Quarterly Report on Developments and Prospects”.

The Central African Economic and Monetary Community (CAEMC) is itself a conventional fixed peg arrangement.

Table 13.Selected Regulations on Forward Foreign Exchange Transactions in Developing and Transition Economies, 2001(In percent of countries answering the Survey in each category)
Market AccessExchange Rate Regime 1/Total
Emerging

Markets 2/
OtherPeggedIntermediateFlexible
Forward markets allowed896370588476
Forward markets not allowed5241881314
Not able to determine7131233210
Types of derivative contracts

all weight forward contracts
896370588476
Nondeliverable forward contracts592833425143
Futures613039425146
Options773045426253
Requirements for offering forward contracts
Quantitative limits112018171316
Verification of existence of legally

permitted underlying current or

capital transactions
273339172730
Transaction made only on behalf

of their customers
51115048
Freely662430335844
Not able to determine200021
Subjective Assesssment of forward

markets
Developed3472182220
Undeveloped485242675150
Other1126097
Not able to determine73930251823
Liquid27112182019
Illiquid433539423839
Other18068119
Not able to determine115433423133
Deep187981612
Shallow553745504446
Other1429098
Not able to determine145436423134
Developed, liquid, and deep14460139
Undeveloped, illiquid, and shallow323027423131
Source: IMF, 2001 Survey on Foreign Exchange Market Organization.

The exchange rate regimes group categories from the IMF’s de facto exchange rate regime classification as published in the IMF’s International Financial Statistics. Pegged regimes include countries without a country specific currency, currency boards, and conventional fixed peg arrangements. Intermediate regimes include pegged exchange rate within horizontal bands, crawling pegs, and exchange rates within crawling bands. Flexible regimes include managed and independently floating exchange rate regimes.

Corresponds to the Fund member developing and transition countries considered as emerging markets in the Fund’s quarterly publication “Emerging Market Financing: A Quarterly Report on Developments and Prospects”.

Source: IMF, 2001 Survey on Foreign Exchange Market Organization.

The exchange rate regimes group categories from the IMF’s de facto exchange rate regime classification as published in the IMF’s International Financial Statistics. Pegged regimes include countries without a country specific currency, currency boards, and conventional fixed peg arrangements. Intermediate regimes include pegged exchange rate within horizontal bands, crawling pegs, and exchange rates within crawling bands. Flexible regimes include managed and independently floating exchange rate regimes.

Corresponds to the Fund member developing and transition countries considered as emerging markets in the Fund’s quarterly publication “Emerging Market Financing: A Quarterly Report on Developments and Prospects”.

Table 14.Selected Monetary Regulations that Affect Residents in Developing and Transition Economies, 2001(In percent of countries responding the Survey in each category)
Market AccessExchange Rate Regime 1/Total
Emerging

Markets 2/
OtherPeggedIntermediateFlexible
Residents prohibited from
Making payments to each other in

foreign currencies
485758335352
Holding foreign notes and coins18263981322
Denominating domestic financial

contracts in foreign exchange
342636172930
Holding foreign currency deposits

in the domestic banking system
18173001318
Receiving foreign currency loans

from domestic financial

institutions
25263682226
Denominating nonfinancial

contracts in foreign currencies
183333252026
Holding foreign currency

denominated financial assets

abroad
433945334041
Source: IMF, 2001 Survey on Foreign Exchange Market Organization.

The exchange rate regimes group categories from the IMF’s de facto exchange rate regime classification as published in the IMF’s International Financial Statistics. Pegged regimes include countries without a country specific currency, currency boards, and conventional fixed peg arrangements. Intermediate regimes include pegged exchange rate within horizontal bands, crawling pegs, and exchange rates within crawling bands. Flexible regimes include managed and independently floating exchange rate regimes.

Corresponds to the Fund member developing and transition countries considered as emerging markets in the Fund’s quarterly publication “Emerging Market Financing: A Quarterly Report on Developments and Prospects”.

Source: IMF, 2001 Survey on Foreign Exchange Market Organization.

The exchange rate regimes group categories from the IMF’s de facto exchange rate regime classification as published in the IMF’s International Financial Statistics. Pegged regimes include countries without a country specific currency, currency boards, and conventional fixed peg arrangements. Intermediate regimes include pegged exchange rate within horizontal bands, crawling pegs, and exchange rates within crawling bands. Flexible regimes include managed and independently floating exchange rate regimes.

Corresponds to the Fund member developing and transition countries considered as emerging markets in the Fund’s quarterly publication “Emerging Market Financing: A Quarterly Report on Developments and Prospects”.

Table 15.Selected Indicators of Financial Dollarization in Developing and Transition Economies, 2001(In percent of countries responding the Survey in each category)
Market AccessExchange Rate Regime: 1/Total
Emerging

Markets 2/
OtherPeggedIntermediateFlexible
Banks allowed to accept

foreign currency deposits
100989710010099
from residents
private sector
exporters100989710010099
nonexporters 3/828070928781
public sector
government343033582432
state enterprises616355756462
government agencies434845504446
central bank23918171316
from nonresidents 4/100989710010099
Degree of dollarization of

deposits 5/
Between 0 and 10 percent915240712
Between 10 and 20 percent1673171611
Between 20 and 50 percent20171282719
Between 50 and 75 percent51332599
Between 75 and 100

percent
2901776
Not able to determine 6/483755333642
Banks allowed to make

foreign currency loans
867261928979
Sources: IMF, 2001 Survey on Foreign Exchange Market Organization, Annual Report on Exchange Arrangements and Exchange Restrictions (AREAER), and monetary database.

The exchange rate regimes group categories from the IMF’s de facto exchange rate regime classification as published in the IMF’s International Financial Statistics. Pegged regimes include countries without a country specific currency, currency boards, and conventional fixed peg arrangements. Intermediate regimes include pegged exchange rate within horizontal bands, crawling pegs, and exchange rates within crawling bands. Flexible regimes include managed and independently floating exchange rate regimes.

Corresponds to the Fund member developing and transition countries considered as emerging markets in the Fund’s quarterly publication “Emerging Market Financing: A Quarterly Report on Developments and Prospects”.

Considers the countries in which banks can offer foreign currency deposits and residents arc allowed to hold foreign currency deposits in the banking system.

Obtained from AREAER.

Includes only deposits from private sector residents.

The degree of dollarization is most likely below 10 percent.

Sources: IMF, 2001 Survey on Foreign Exchange Market Organization, Annual Report on Exchange Arrangements and Exchange Restrictions (AREAER), and monetary database.

The exchange rate regimes group categories from the IMF’s de facto exchange rate regime classification as published in the IMF’s International Financial Statistics. Pegged regimes include countries without a country specific currency, currency boards, and conventional fixed peg arrangements. Intermediate regimes include pegged exchange rate within horizontal bands, crawling pegs, and exchange rates within crawling bands. Flexible regimes include managed and independently floating exchange rate regimes.

Corresponds to the Fund member developing and transition countries considered as emerging markets in the Fund’s quarterly publication “Emerging Market Financing: A Quarterly Report on Developments and Prospects”.

Considers the countries in which banks can offer foreign currency deposits and residents arc allowed to hold foreign currency deposits in the banking system.

Obtained from AREAER.

Includes only deposits from private sector residents.

The degree of dollarization is most likely below 10 percent.

Table 16.Main Regulations on the Use on Domestic Currencies by Nonresidents in Developing and Transition Economies, 2001(In percent of countries responding the Survey in each category)
Market AccessExchange Rate Regime 1/Total
Emerging

Markets 2/
OtherPeggedIntermediateFlexible
Nonresidents prohibited from
Making payments to each other

in domestic currencies.
14111825412
Holding domestic notes and

coins
119158710
Denominating domestic

financial contracts in

domestic currency
251121171618
Holding domestic currency

deposits in the domestic

banking system
14111581112
Receiving domestic currency

loans from domestic financial

institutions
36203083128
Denominating nonfinancial

contracts in domestic

currency
11111533211
Making payments in national

currency abroad
234342252933
Holding domestic currency

notes and coins abroad
234339253133
Denominating international

financial contracts in national

currency
202427251822
holding national currency

deposits abroad
253742172731
receiving national currency loans

abroad
273539252731
Denominating nonfinancial

contracts in national currency
182433251121
Source: IMF, 2001 Survey on Foreign Exchange Market Organization.

The exchange rate regimes group categories from the IMF’s de facto exchange rate regime classification as published in the IMF’s International Financial Statistics. Pegged regimes include countries without a country specific currency, currency boards, and conventional fixed peg arrangements. Intermediate regimes include pegged exchange rate within horizontal bands, crawling pegs, and exchange rates within crawling bands. Flexible regimes include managed and independently floating exchange rate regimes.

Corresponds to the Fund member developing and transition countries considered as emerging markets in the Fund’s quarterly publication “Emerging Market Financing: A Quarterly Report on Developments and Prospects”.

Source: IMF, 2001 Survey on Foreign Exchange Market Organization.

The exchange rate regimes group categories from the IMF’s de facto exchange rate regime classification as published in the IMF’s International Financial Statistics. Pegged regimes include countries without a country specific currency, currency boards, and conventional fixed peg arrangements. Intermediate regimes include pegged exchange rate within horizontal bands, crawling pegs, and exchange rates within crawling bands. Flexible regimes include managed and independently floating exchange rate regimes.

Corresponds to the Fund member developing and transition countries considered as emerging markets in the Fund’s quarterly publication “Emerging Market Financing: A Quarterly Report on Developments and Prospects”.

Table 17.Survey Respondents Setting or Mandating Fixed Bid-Offer Spreads, by Exchange Rate Regime and Market Access, 2001 1/(In percent of countries answering the corresponding Survey question in each category)
Exchange rate regimes 2/Developing and Transition

Economies
Total
Emerging

Markets 3/
Other
No country-specific currency------
CAEMC 4/------
Other------
Country-specific currency304839
Currency board100--50
Conventional fixed pegs against a single currency805865
Conventional fixed pegs against a composite6710086
Pegs with horizontal bands within a cooperative arrangement------
Pegs with horizontal bands within a Fund supported program--100100
Crawling pegs--10067
Exchange rates within crawling bands40--29
Managed floating, no preannounced path for exchange rate82717
Independently floating--3314
Total304538
Memo item:
Number of countries answering question374279
In percent of survey respondents849188
Note: -- stands for not applicable, zero, or negligible amount.Source: IMF, 2001 Survey on Foreign Exchange Market Organization.

The 2001 Survey on Foreign Exchange Market Organization was sent to country authorities in all Fund member developing and transition economies on October 2001. Ninety answers were received by March 2002. Table 1 shows the list of respondents.

Follows the IMF’s de facto exchange rate regime classification as published in the IMF’s International Financial Statistics.

Corresponds to the Fund member developing and transition countries considered as emerging markets in the Fund’s quarterly publication “Emerging Market Financing: A Quarterly Report on Developments and Prospects”.

The Central African Economic and Monetary Community (CAEMC) is itself a conventional fixed peg arrangement.

Note: -- stands for not applicable, zero, or negligible amount.Source: IMF, 2001 Survey on Foreign Exchange Market Organization.

The 2001 Survey on Foreign Exchange Market Organization was sent to country authorities in all Fund member developing and transition economies on October 2001. Ninety answers were received by March 2002. Table 1 shows the list of respondents.

Follows the IMF’s de facto exchange rate regime classification as published in the IMF’s International Financial Statistics.

Corresponds to the Fund member developing and transition countries considered as emerging markets in the Fund’s quarterly publication “Emerging Market Financing: A Quarterly Report on Developments and Prospects”.

The Central African Economic and Monetary Community (CAEMC) is itself a conventional fixed peg arrangement.

Table 18.Reporting Requirements on Foreign Exchange Transactions in Developing and Transition Economies, 2001(In percent of countries responding the Survey in each category)
Market AccessExchange Rate Regime 1/Total
Emerging

Markets 2/
OtherPeggedIntermediateFlexible
Exchange rate data415236505347
Weighted average on
all bank foreign exchange sales and

purchases
275027504439
all bank foreign exchange sales182812173323
all bank foreign exchange purchases162612172921
all foreign exchange sales and

purchases among banks
253315333829
all foreign exchange sales to nonbank

customers
23286333826
all foreign exchange purchases from

nonbank customers
20286423324
all forward foreign exchange sales

and purchases among banks
18133172416
Volume data898073929184
all bank foreign exchange sales and

purchases
808067928780
all bank foreign exchange sales484836425848
all bank foreign exchange purchases484836425848
all foreign exchange sales and

purchases among banks
734842756960
all foreign exchange sales to nonbank

customers
911981110
all foreign exchange purchases from

nonbank customers
665745926461
Source: IMF, 2001 Survey on Foreign Exchange Market Organization.

The exchange rate regimes group categories from the IMF’s de facto exchange rate regime classification as published in the IMF’s International Financial Statistics. Pegged regimes include countries without a country specific currency, currency boards, and conventional fixed peg arrangements. Intermediate regimes include pegged exchange rate within horizontal bands, crawling pegs, and exchange rates within crawling bands. Flexible regimes include managed and independently floating exchange rate regimes.

Corresponds to the Fund member developing and transition countries considered as emerging markets in the Fund’s quarterly publication “Emerging Market Financing: A Quarterly Report on Developments and Prospects.”

Source: IMF, 2001 Survey on Foreign Exchange Market Organization.

The exchange rate regimes group categories from the IMF’s de facto exchange rate regime classification as published in the IMF’s International Financial Statistics. Pegged regimes include countries without a country specific currency, currency boards, and conventional fixed peg arrangements. Intermediate regimes include pegged exchange rate within horizontal bands, crawling pegs, and exchange rates within crawling bands. Flexible regimes include managed and independently floating exchange rate regimes.

Corresponds to the Fund member developing and transition countries considered as emerging markets in the Fund’s quarterly publication “Emerging Market Financing: A Quarterly Report on Developments and Prospects.”

Table 19.Survey Respondents Allowing Offshore Trading of Domestic Currency, by Exchange Rate Regime and Market Access, 2001 1/(In percent of countries answering the corresponding Survey question in each category)
Exchange rate regimes 2/Developing and Transition

Economies
Total
Emerging

Markets 3/
Other
No country-specific currency------
CAEMC 4/------
Other------
Country-specific currency703251
Currency board1005075
Conventional fixed pegs against a single currency71832
Conventional fixed pegs against a composite676063
Pegs with horizontal bands within a cooperative arrangement------
Pegs with horizontal bands within a Fund supported program--5050
Crawling pegs--5033
Exchange rates within crawling bands80--57
Managed floating, no preannounced path for exchange rate535554
Independently floating911358
Total703050
Memo item:
Number of countries answering question444690
In percent of survey respondents100100100
Note: -- stands for not applicable, zero, or negligible amount.Source: IMF, 2001 Survey on Foreign Exchange Market Organization.

The 2001 Survey on Foreign Exchange Market Organization was sent to country authorities in all Fund member developing and transition economics on October 2001. Ninety answers were received by March 2002. Table 1 shows the list of respondents.

Follows the IMF’s de facto exchange rate regime classification as published in the IMF’s International Financial Statistics.

Corresponds to the Fund member developing and transition countries considered as emerging markets in the Fund’s quarterly publication ‘Emerging Market Financing: A Quarterly Report on Developments and Prospects”.

The Central African Economic and Monetary Community (CAEMC) is itself a conventional fixed peg arrangement.

Note: -- stands for not applicable, zero, or negligible amount.Source: IMF, 2001 Survey on Foreign Exchange Market Organization.

The 2001 Survey on Foreign Exchange Market Organization was sent to country authorities in all Fund member developing and transition economics on October 2001. Ninety answers were received by March 2002. Table 1 shows the list of respondents.

Follows the IMF’s de facto exchange rate regime classification as published in the IMF’s International Financial Statistics.

Corresponds to the Fund member developing and transition countries considered as emerging markets in the Fund’s quarterly publication ‘Emerging Market Financing: A Quarterly Report on Developments and Prospects”.

The Central African Economic and Monetary Community (CAEMC) is itself a conventional fixed peg arrangement.

Table 20.Management of Net Open Foreign Exchange Positions in Developing and Transition Economies, 2001(In percent of countries responding the Survey in each category)
Market AccessExchange Rate Regime 1/Total
Emerging

Markets 2/
OtherPeggedIntermediateFlexible
Management of positions
Limits apply
Continuously322224332727
Overnight503533584442
Month-end71168119
Others740896
Not able to determine777777
Frequency of verification
Randomly verified252418173124
Daily verified20116331816
Weekly verified11159171613
Fortnightly verified020021
Monthly verified341715333126
Others (verified)25223382023
Not able to determine777777
Frequency of reporting
Daily Reporting453521674740
Weekly Reporting93518172722
Fortnightly Reporting020021
Monthly Reporting302024172724
Others (Reporting)1426898
Not able to determine777777
Frequency of publication
Never684852755858
Weekly223022
Monthly11460118
Other593897
Not able to determine777777
Memo item
Percent of Survey respondents with net

open position limits
937470929183
Source: IMF, 2001 Survey on Foreign Exchange Market Organization.

The exchange rate regimes group categories from the IMF’s de facto exchange rate regime classification as published in the IMF’s International Financial Statistics. Pegged regimes include countries without a country specific currency, currency boards, and conventional fixed peg arrangements. Intermediate regimes include pegged exchange rate within horizontal bands, crawling pegs, and exchange rates within crawling bands. Flexible regimes include managed and independently floating exchange rate regimes.

Corresponds to the Fund member developing and transition countries considered as emerging markets in the Fund’s quarterly publication “Emerging Market Financing: A Quarterly Report on Developments and Prospects.”

Source: IMF, 2001 Survey on Foreign Exchange Market Organization.

The exchange rate regimes group categories from the IMF’s de facto exchange rate regime classification as published in the IMF’s International Financial Statistics. Pegged regimes include countries without a country specific currency, currency boards, and conventional fixed peg arrangements. Intermediate regimes include pegged exchange rate within horizontal bands, crawling pegs, and exchange rates within crawling bands. Flexible regimes include managed and independently floating exchange rate regimes.

Corresponds to the Fund member developing and transition countries considered as emerging markets in the Fund’s quarterly publication “Emerging Market Financing: A Quarterly Report on Developments and Prospects.”

Table 21.Selected Characteristics of Foreign Exchange Auctions in Developing and Transition Economies(In number of countries)
Source: IMF, 2001 Survey on Foreign Exchange Market Organization.n.a. means not available.
Source: IMF, 2001 Survey on Foreign Exchange Market Organization.n.a. means not available.
Table 22.Survey Respondents with Electronic Broking Systems, by Exchange Rate Regime and Market Access, 2001 1/(In percent of countries answering the corresponding Survey question in each category)
Exchange rate regimes 2/Developing and Transition

Economies
Total
Emerging

Markets 3/
Other
No country-specific currency------
CAEMC 4/------
Other------
Country-specific currency39220
Currency board------
Conventional fixed pegs against a single currency14--5
Conventional fixed pegs against a composite------
Pegs with horizontal bands within a cooperative arrangement------
Pegs with horizontal bands within a Fund supported program------
Crawling pegs100--33
Exchange rates within crawling bands60--43
Managed floating, no preannounced path for exchange rate27919
Independently floating73--42
Total39220
Memo item;
Number of countries answering question444690
In percent of survey respondents100100100
Note: -- stands for not applicable, zero, or negligible amount.Source: IMF, 2001 Survey on Foreign Exchange Market Organization.

The 2001 Survey on Foreign Exchange Market Organization was sent to country authorities in all Fund member developing and transition economies on October 2001. Ninety answers were received by March 2002. Table 1 shows the list of respondents.

Follows the IMF’s de facto exchange rate regime classification as published in the IMF’s International Financial Statistics.

Corresponds to the Fund member developing and transition countries considered as emerging markets in the Fund’s quarterly publication “Emerging Market Financing: A Quarterly Report on Developments and Prospects”.

The Central African Economic and Monetary Community (CAEMC) is itself a conventional fixed peg arrangement.

Note: -- stands for not applicable, zero, or negligible amount.Source: IMF, 2001 Survey on Foreign Exchange Market Organization.

The 2001 Survey on Foreign Exchange Market Organization was sent to country authorities in all Fund member developing and transition economies on October 2001. Ninety answers were received by March 2002. Table 1 shows the list of respondents.

Follows the IMF’s de facto exchange rate regime classification as published in the IMF’s International Financial Statistics.

Corresponds to the Fund member developing and transition countries considered as emerging markets in the Fund’s quarterly publication “Emerging Market Financing: A Quarterly Report on Developments and Prospects”.

The Central African Economic and Monetary Community (CAEMC) is itself a conventional fixed peg arrangement.

Table 23.Selected Characteristics of Foreign Exchange Settlement Systems in Developing and Transition Economies, 2001(In percent of countries responding the Survey in each category)
Market AccessExchange Rate Regime 1/Total
Emerging

Markets 2/
OtherPeggedIntermediateFlexible
Both legs are settled at accounts at
the central bank.455955425352
another domestic institution20111581816
The foreign exchange leg is settled at foreign

correspondent bank accounts.
777270757874
Settlement basis
payment versus payment255448333640
netting515128910
SWIFT 3/10096971009898
Sources: IMF, 2001 Survey on Foreign Exchange Market Organization.

The exchange rate regimes group categories from the IMF’s de facto exchange rate regime classification as published in the IMF’s International Financial Statistics. Pegged regimes include countries without a country specific currency, currency boards, and conventional fixed peg arrangements. Intermediate regimes include pegged exchange rate within horizontal bands, crawling pegs, and exchange rates within crawling bands. Flexible regimes include managed and independently floating exchange rate regimes.

Corresponds to the Fund member developing and transition countries considered as emerging markets in the Fund’s quarterly publication “Emerging Market Financing: A Quarterly Report on Developments and Prospects”.

SWIFT is the acronym for the Society for Worldwide Interbank Financial Telecommunications, which is a nonprofit cooperative of member banks based in Brussels, Belgium. By end 2001, the network was composed of over 2000 member banks in 196 countries, of which 175 were Fund members.

Sources: IMF, 2001 Survey on Foreign Exchange Market Organization.

The exchange rate regimes group categories from the IMF’s de facto exchange rate regime classification as published in the IMF’s International Financial Statistics. Pegged regimes include countries without a country specific currency, currency boards, and conventional fixed peg arrangements. Intermediate regimes include pegged exchange rate within horizontal bands, crawling pegs, and exchange rates within crawling bands. Flexible regimes include managed and independently floating exchange rate regimes.

Corresponds to the Fund member developing and transition countries considered as emerging markets in the Fund’s quarterly publication “Emerging Market Financing: A Quarterly Report on Developments and Prospects”.

SWIFT is the acronym for the Society for Worldwide Interbank Financial Telecommunications, which is a nonprofit cooperative of member banks based in Brussels, Belgium. By end 2001, the network was composed of over 2000 member banks in 196 countries, of which 175 were Fund members.

Table 24.Number of Foreign Exchange Intermediaries in Developing and Transition Economies, 2001
Foreign Exchange DealersVoice

brokers
BanksBureausOthersTotalOf

which:
Market

makers
Albania1324340 1/10n.a.
Angola813--211--
Armenia2921615260 2/n.a.n. a.
Azerbaijan52----52----
Bahamas7--29 1/----
Bahrainn.a.----0n.a.4
Bangladesh605518--1123n.a.--
Barbados81--98--
Belarus26----26----
Bhutan2----2----
Bolivia12443995 1/----
Brazil119--2854043051
Bulgaria35760--795664
Cambodia2817--45----
Cape Verde43--7----
Chile255--30n.a.--
Colombia26122664 1/3/9026
Congo, Republic of1324--3724--
Costa Rica2121134 1/--2
Croatia42--1355 1/5--
Czech Republicn.a.13--131213
Djibouti34--7----
Dominican Republic14100--114n.a.n.a.
Egypt51126--177----
El Salvador1510--25n.a.--
Estonia7190--197197n.a.
Fiji615--21n.a.n.a.
Ghana17350--367n.a.--
Guatemala3181655 1/3--
Guyana728--35--n.a.
Honduras21--425 1/--7
Hungary28700--72812.5--
India100470--57010--
Iran10----10n.a.n.a.
Kazakhstan--626--62629--
Kenya5248--100n.a.--
Korea70----709--
Kuwait929--3892
Kyrgyz Republic19259--278n.a.n.a.
Lao1312--25----
Lebanon6836728463 1/15
Lesotho2----22--
Libya27----27----
Lithuania14--317 1/3.5--
Macedonia, FYR10----1018--
Madagascar11--2----
Malaysia32627--659n.a.--
Malta411--152--
Mauritius21----2110n.a.
Mexico4026--667--
Moldova440182--6225--
Morocco15----15----
Mozambique1331852 1/----
Namibia51--64--
Nepal1563--78----
Nicaragua54211 1/11--
Oman15----15----
Pakistan43----4310--
Papua New Guinea6----66--
Paraguay2023--43n.a.--
Qatar1516--3115--
Romania41370--411n.a.--
Samoa34--7----
Sierra Leone631--376--
Slovak Republicn.a.600--600n.a.n.a.
Slovenia20----203--
South Africa367--438--
Sri Lanka2432--5613--
Swaziland4----4----
Tanzania17--623 1/n.a.--
Thailand32--335 4/n.a.--
Tonga32--53n.a.
Trinidad and Tobago107--17----
Turkey75778--853n.a.--
Ukraine1493931--4080n.a.n.a.
Uruguay225725104 1/5/n.a.--
Venezuela3819764 1/3--
Yemen14264--27820--
Zambia1644--604--
Note: -- stands for not applicable, zero, or negligible amount.Source: IMF’s 2001 Survey on Foreign Exchange Market Organization.

Nonbank financial institutions

Independent dealers

Includes two state enterprises

Export-Import Bank of Thailand, Industrial Finance Corporation of Thailand, and a finance company.

Includes 6 offshore institutions

Note: -- stands for not applicable, zero, or negligible amount.Source: IMF’s 2001 Survey on Foreign Exchange Market Organization.

Nonbank financial institutions

Independent dealers

Includes two state enterprises

Export-Import Bank of Thailand, Industrial Finance Corporation of Thailand, and a finance company.

Includes 6 offshore institutions

Table 25.Survey Respondents Not Announcing or Reporting Foreign Exchange Intervention, by Exchange Rate Regime and Market Access, 2001 1/(In percent of countries answering the corresponding Survey question in each category)
Exchange rate regimes 2/Developing and Transition

Economies
Total
Emerging

Markets 3/
Other
No country-specific currency------
CAEMC 4/------
Other------
Country-specific currency473641
Currency board------
Conventional fixed pegs against a single currency502735
Conventional fixed pegs against a composite675057
Pegs with horizontal bands within a cooperative arrangement------
Pegs with horizontal bands within a Fund supported program------
Crawling pegs100--33
Exchange rates within crawling bands6010071
Managed floating, no preannounced path for exchange rate405546
Independently floating452537
Total473440
Memo item:
Number of countries answering question434487
In percent of survey respondents989697
Note: -- stands for not applicable, zero, or negligible amount.Source: IMF, 2001 Survey on Foreign Exchange Market Organization.

The 2001 Survey on Foreign Exchange Market Organization was sent to country authorities in all Fund member developing and transition economies on October 2001. Ninety answers were received by March 2002. Table 1 shows the list of respondents.

Follows the IMF’s de facto exchange rate regime classification as published in the IMF’s International Financial Statistics.

Corresponds to the Fund member developing and transition countries considered as emerging markets in the Fund’s quarterly publication “Emerging Market Financing: A Quarterly Report on Developments and Prospects”.

The Central African Economic and Monetary Community (CAEMC) is itself a conventional fixed peg arrangement.

Note: -- stands for not applicable, zero, or negligible amount.Source: IMF, 2001 Survey on Foreign Exchange Market Organization.

The 2001 Survey on Foreign Exchange Market Organization was sent to country authorities in all Fund member developing and transition economies on October 2001. Ninety answers were received by March 2002. Table 1 shows the list of respondents.

Follows the IMF’s de facto exchange rate regime classification as published in the IMF’s International Financial Statistics.

Corresponds to the Fund member developing and transition countries considered as emerging markets in the Fund’s quarterly publication “Emerging Market Financing: A Quarterly Report on Developments and Prospects”.

The Central African Economic and Monetary Community (CAEMC) is itself a conventional fixed peg arrangement.

Table 26.Survey Respondents Announcing Ex Ante Foreign Exchange Intervention, by Exchange Rate Regime and Market Access, 2001 1/(In percent of countries answering the corresponding Survey question in each category)
Exchange rate regimes 2/Developing and Transition

Economies
Total
Emerging

Markets 3/
Other
No country-specific currency--5050
CAEMC 4/--100100
Other------
Country-specific currency141012
Currency board------
Conventional fixed pegs against a single currency14811
Conventional fixed pegs against a composite------
Pegs with horizontal bands within a cooperative arrangement------
Pegs with horizontal bands within a Fund supported program------
Crawling pegs------
Exchange rates within crawling bands20--14
Managed floating, no preannounced path for exchange rate201016
Independently floating92917
Total141213
Memo item:
Number of countries answering question444286
In percent of survey respondents1009196
Note: -- stands for not applicable, zero, or negligible amount.Source: IMF, 2001 Survey on Foreign Exchange Market Organization.

The 2001 Survey on Foreign Exchange Market Organization was sent to country authorities in all Fund member developing and transition economies on October 2001. Ninety answers were received by March 2002. Table 1 shows the list of respondents.

Follows the IMF’s de facto exchange rate regime classification as published in the IMF’s International Financial Statistics.

Corresponds to the Fund member developing and transition countries considered as emerging markets in the Fund’s quarterly publication “Emerging Market Financing: A Quarterly Report on Developments and Prospects”.

The Central African Economic and Monetary Community (CAEMC) is itself a conventional fixed peg arrangement.

Note: -- stands for not applicable, zero, or negligible amount.Source: IMF, 2001 Survey on Foreign Exchange Market Organization.

The 2001 Survey on Foreign Exchange Market Organization was sent to country authorities in all Fund member developing and transition economies on October 2001. Ninety answers were received by March 2002. Table 1 shows the list of respondents.

Follows the IMF’s de facto exchange rate regime classification as published in the IMF’s International Financial Statistics.

Corresponds to the Fund member developing and transition countries considered as emerging markets in the Fund’s quarterly publication “Emerging Market Financing: A Quarterly Report on Developments and Prospects”.

The Central African Economic and Monetary Community (CAEMC) is itself a conventional fixed peg arrangement.

Table 27.Survey Respondents Publishing Foreign Exchange Intervention Figures, by Exchange Rate Regime and Market Access, 2001 1/(In percent of countries answering the corresponding Survey question in each category)
Exchange rate regimes 2/Developing and Transition

Economies
Total
Emerging Markets 3/Other
No country-specific currency------
CAEMC 4/------
Other------
Country-specific currency271220
Currency board50--25
Conventional fixed pegs against a single currency------
Conventional fixed pegs against a composite33--14
Pegs with horizontal bands within a cooperative arrangement------
Pegs with horizontal bands within a Fund supported program------
Crawling pegs--5033
Exchange rates within crawling bands20--14
Managed floating, no preannounced path for exchange rate472738
Independently floating181316
Total271119
Memo item:
Number of countries answering question444589
In percent of survey respondents1009899
Note: -- stands for not applicable, zero, or negligible amount.Source: IMF, 2001 Survey on Foreign Exchange Market Organization.

The 2001 Survey on Foreign Exchange Market Organization was sent to country authorities in all Fund member developing and transition economies on October 2001. Ninety answers were received by March 2002. Table 1 shows the list of respondents.

Follows the IMF’s de facto exchange rate regime classification as published in the IMF’s International Financial Statistics.

Corresponds to the Fund member developing and transition countries considered as emerging markets in the Fund’s quarterly publication “Emerging Market Financing: A Quarterly Report on Developments and Prospects”.

The Central African Economic and Monetary Community (CAEMC) is itself a conventional fixed peg arrangement.

Note: -- stands for not applicable, zero, or negligible amount.Source: IMF, 2001 Survey on Foreign Exchange Market Organization.

The 2001 Survey on Foreign Exchange Market Organization was sent to country authorities in all Fund member developing and transition economies on October 2001. Ninety answers were received by March 2002. Table 1 shows the list of respondents.

Follows the IMF’s de facto exchange rate regime classification as published in the IMF’s International Financial Statistics.

Corresponds to the Fund member developing and transition countries considered as emerging markets in the Fund’s quarterly publication “Emerging Market Financing: A Quarterly Report on Developments and Prospects”.

The Central African Economic and Monetary Community (CAEMC) is itself a conventional fixed peg arrangement.

Table 28.Survey Respondents Requiring Foreign Exchange Licenses, by Exchange Rate Regime and Market Access, 2001 1/(In percent of countries answering the corresponding Survey question in each category)
Exchange rate regimes 2/Developing and Transition

Economies
Total
Emerging

Markets 3/
Other
No country-specific currency--100100
CAEMC 4/--100100
Other--100100
Country-specific currency829186
Currency board100100100
Conventional fixed pegs against a single currency1008289
Conventional fixed pegs against a composite678075
Pegs with horizontal bands within a cooperative arrangement------
Pegs with horizontal bands within a Fund supported program--100100
Crawling pegs100100100
Exchange rates within crawling bands8010086
Managed floating, no preannounced path for exchange rate879188
Independently floating6410079
Total829187
Memo item:
Number of countries answering question444589
In percent of survey respondents1009899
Note: -- stands for not applicable, zero, or negligible amount.Source: IMF, 2001 Survey on Foreign Exchange Market Organization.

The 2001 Survey on Foreign Exchange Market Organization was sent to country authorities in all Fund member developing and transition economies on October 2001. Ninety answers were received by March 2002. Table 1 shows the list of respondents.

Follows the IMF’s de facto exchange rate regime classification as published in the IMF’s International Financial Statistics.

Corresponds to the Fund member developing and transition countries considered as emerging markets in the Fund’s quarterly publication “Emerging Market Financing: A Quarterly Report on Developments and Prospects”.

The Central African Economic and Monetary Community (CAEMC) is itself a conventional fixed peg arrangement.

Note: -- stands for not applicable, zero, or negligible amount.Source: IMF, 2001 Survey on Foreign Exchange Market Organization.

The 2001 Survey on Foreign Exchange Market Organization was sent to country authorities in all Fund member developing and transition economies on October 2001. Ninety answers were received by March 2002. Table 1 shows the list of respondents.

Follows the IMF’s de facto exchange rate regime classification as published in the IMF’s International Financial Statistics.

Corresponds to the Fund member developing and transition countries considered as emerging markets in the Fund’s quarterly publication “Emerging Market Financing: A Quarterly Report on Developments and Prospects”.

The Central African Economic and Monetary Community (CAEMC) is itself a conventional fixed peg arrangement.

1The author appreciates the very useful comments and suggestions received from Hervé Ferhani, Shyamala Gopinath, Roberto Guimarães, Shogo Ishii, Cem Karacadag, John Leimone, Gabriel Sensenbrenner, Susana Sosa, and Mark Zelmer. Natalie Baumer provided valued editorial assistance and Nadia Malikyar and Joanna Meza-Cuadra efficiently and diligently assisted in managing the survey responses.
2Following country practices and most papers in the literature and country practices, foreign exchange intervention is defined in this paper as foreign exchange operations (buying and selling foreign exchange) undertaken by country authorities with the objective of affecting the behavior of exchange rates. Moreover, “central bank” foreign exchange intervention in this paper refers to any official foreign exchange intervention because the central bank is either the exchange rate authority or conducts foreign exchange intervention on behalf of the exchange rate authority.
3The experiences of central banks in other developed economies including Australia, Canada, Sweden, Switzerland, and the United Kingdom have also been documented in the literature with similar results to those obtained in the three major economies—many of the key characteristics of intervention, like the degree of sterilization, are the same.
6The survey results presented in this paper thus expand the work of Cheung and Chin (2001) and Neely (2000).
7The overall response rate was 60 percent (Appendix Table 1).
8The main participants in the foreign exchange market are often identified in the literature as dealers, brokers, and customers.
9While no widely accepted definition of disorderly market conditions exists and the interpretation of this concept is likely to vary across central banks and over time, central banks are likely to consider disorderly market conditions characterized by large intraday exchange rate fluctuations, a sharp widening of bid-offer spreads, and sharp changes in foreign exchange market turnover.
10The exception may be the foreign exchange intervention conducted by the Bank of Japan, which is the most active of the three central banks issuing the major international currencies (see discussion on the size of foreign exchange intervention below).
11For information about the ECB’s foreign exchange intervention operations, see European Central Bank (2001); for Japan, see http://www.mof.go.jp/english/elc021.htm; and for the United States, see http://www.ny.frb.org/pihome/news/forex/.
12The ECB drew on three days from a foreign exchange swap arrangement signed with the U.S. Federal Reserve Bank of New York in the aftermath of the terrorist attacks, which alleviated liquidity demands that could have otherwise generated large pressures on the exchange rate. However, it cannot be considered foreign exchange intervention because the purpose of the operation was not to affect exchange rates but to smooth potential disruptions in the payment systems. Moreover, although a foreign exchange swap theoretically involves simultaneous spot and forward foreign exchange operations, market makers hedge their exposure by operations in the money market rather than on the foreign exchange market.
13The Survey did not obtain information about the frequency of foreign exchange intervention in developing and transition economies.
14For an analysis of these and other operational aspects of foreign exchange intervention, see Canales-Kriljenko, Guimarães, and Karacadag (2003, forthcoming).
15Exchange rate regime classification based on de facto policies is discussed in Ishii and others (2003).
16The Guidelines are electronically available at http://www.imf.org/external/pubs/ft/sd/index.asp?decision=5392-(77/63).
17The foreign exchange order flow is transaction volume that is given a positive sign for foreign exchange transactions initiated by buyers of foreign exchange and a negative sign for those initiated by sellers of foreign exchange. Thus, aggregate foreign exchange order flow is a measure of excess demand for foreign exchange.
18Several developing and transition economies use unsterilized foreign exchange operations instead of money market operations to achieve other domestic or external objectives. In particular, in thin domestic money markets it may be more efficient to manage liquidity through unsterilized foreign exchange operations.
19See U.S. Fed Point 44 available at http://www.ny.frb.org/pihome/fedpoint/fed44.html.
20The intervention operations conducted during 2001 by the ECB, and not considered in Frenkel and others (2001), were also sterilized. In particular, the foreign exchange intervention conducted on behalf of the Bank of Japan did not affect the money base.
22This holds in the absence of signaling effects and changes in exchange rate expectations—see below. The balance of payments, monetary, and portfolio balance channels have been extensively discussed in the literature and will not be discussed here.
23Noise traders conduct foreign exchange transactions following trends and market sentiment rather than on the basis an analysis of the fundamental determinants of exchange rates.
24For the calculation, only total turnover in the spot market between yen and U.S. dollars is taken, as documented by the 2001 BIS Triennial Central Bank Survey of Foreign Exchange and Derivatives Market Activity. About 95 percent of foreign exchange intervention by the Bank of Japan is conducted against U.S. dollars.
25Only a few Survey respondents provided information of the amounts of foreign exchange intervention and foreign exchange market turnover that permits the comparison. To maintain confidentiality, Appendix Table 7does not identify the names of the countries that provided the information.
26In contrast, interbank trading accounts for most of the foreign exchange market turnover among the major international currencies.
27In some countries, the government is not allowed to hold foreign currency deposits and must surrender its foreign exchange to the central bank. In others, the government may keep foreign exchange deposits in or out of the central bank, but when it decides to exchange them, it has to conduct the exchange through the central bank.
28None of the measures described in this section are currently used by the central banks issuing the major international currencies.
29For review of country experiences with the use and liberalization of capital controls, see Ariyoshi and others (2000).
30Surrender requirements to the government may be motivated by a desire to allocate foreign exchange to particular uses, to make more foreign exchange available to the central bank for foreign exchange intervention in periods of pressure on the exchange rate, and to meet public foreign exchange expenditure commitments—among the most important reasons.
31The central bank thus reduces competition from the market in setting exchange rates, which increases the impact of foreign exchange intervention on the exchange rate.
32The limits also prevent banks from excessively building their net open foreign exchange positions with foreign exchange obtained from central bank foreign exchange intervention, thus allowing the foreign exchange provided to the central bank to reach the end-customer.
33Net open foreign exchange positions also play an important prudential role limiting banks’ exposure to exchange rate risk (Abrams and Beato, 1998).
34In contrast, about 40 percent of the Survey respondents perceived their spot foreign exchange markets to be developed, liquid, and deep, while only 6 percent perceived them to be undeveloped, illiquid, and shallow.
35When the country imposes the requirement to surrender export receipts to the foreign exchange market, the exporter can often keep foreign exchange earnings in a foreign currency account for a period before she must sell the foreign exchange.
36The Survey did not capture information on the number of countries prohibiting financial contracts from being indexed to the exchange rate, which would preserve the store of value role of foreign currencies and could give rise to exchange rate pressures.
37In addition, some countries directly issue regulations directly limiting the size of the bid-offer spread. In practice, many central banks in developing and transition economies set a fixed bid-offer spread across a wide variety of exchange rate regimes (Appendix Table 17).
38Narrow bid-offer spreads set by the central bank appear to have prevented the development of interbank foreign exchange markets in several Fund members.
39These predictions are based on inventory cost models. See Galati (2000), who finds evidence of the positive correlation between bid-offer spreads and volatility but fails to find evidence of the relationship between bid-offer spreads and expected or unexpected trading volumes.
40Market makers may increase the size of the bid-offer spread when they fear they could deal with a better informed market participant, like the central bank (see Naranjo and Nimalendran, 2000). Foreign exchange intervention could decrease the bid-offer spread when it unexpectedly increases trading volumes in the foreign exchange market.
41Having more information provides an edge to the central bank only to the extent that both groups of players (the central bank and the private sector) have the same capacity to analyze and make inferences about the exchange rate based on the information obtained. This is clearly not the case in all developing and transition economies where the private sector may have developed an ability to make better inferences about the future path of monetary and exchange rate policies based on the publicly available information. The private sector may better analyze publicly available information than the central banks in some developing and transition economies.
42Many of the theoretical studies of the effectiveness of sterilized foreign exchange intervention rely on the existence of an information advantage to the central bank. See Eijffinger and Verhagen (1997), Lyons (2001), Mussa (1981), Popper and Montgomery (2001), and Vitale (1999).
43Many central banks in developing countries monitor the day-to-day domestic currency liquidity position of the main participants in the foreign exchange market, whether through reporting requirements or through the monitoring of accounts at the central bank to meet reserve requirements. This gives information to the central bank of which market participants have the domestic currency liquidity to buy foreign exchange in large amounts. It also allows the central bank to monitor the effect of intervention on banks’ domestic currency liquidity.
44Authorities in most advanced economies usually do not have this prerogative established by law because the information generated in the process of trading foreign exchange within the private sector is considered to be proprietary.
45The provision of such information is often a condition for being able to conduct foreign exchange intermediation, to the extent that sometimes the obligation to provide information to the central bank is embedded in the foreign exchange license.
46The central banks issuing the major international currencies do not have the luxury of frequent data on worldwide foreign exchange market turnover involving their currencies. The statistics compiled by the Bank for International Settlements provide a snapshot of the volume traded in the worldwide foreign exchange market during one month every three years. Moreover, the information is disclosed with a lag that takes about six months.
47Reporting requirements provide a good picture of foreign exchange market turnover in a country where institutions reporting to the central bank concentrate the bulk of foreign exchange market turnover. This is more likely to be the case in about half of the countries in the sample, which actually prohibit the offshore trading of their currencies (Appendix Table 19).
48The United States requests information on the net open foreign exchange positions of the internationally active international banks every quarter, information that is available at http://www.fms.treas.gov/bulletin/index.html.
49In electronic broking systems, market participants place orders to buy or sell foreign exchange—orders which are electronically matched in a centralized scheme.
50Electronic broking systems are in place in about 40 percent of emerging market economies (Appendix Table 22).
51Granting access to information from electronic broking systems is not the norm in developed or developing and transition countries. The most widely used electronic broking systems in developing and transition economies are the Reuters 2000-2 and 3000-Spot matching systems, which do not grant access to the trading information to the central bank. The most widely used electronic broking system for trading the major international currencies is EBS. The trading protocol in this system does not allow the central bank to accurately measure the amount being traded and it is very unlikely that EBS would grant access to privileged information to the central banks issuing the major international currencies. Of the currencies of developing and transition economies, only those of Mexico and Singapore are currently traded in EBS.
52The fact that most countries also reported that the foreign currency leg is settled at the accounts of correspondent banks abroad suggests that the central bank accounts serve as an intermediate netting scheme, but that the final payments must be done at the accounts of correspondent banks, transfering money to or from the central bank.
53Appendix Table 24 reports the number of banks, foreign exchange bureaus, voice brokers, and other market participants in many surveyed countries. It also identifies how many of those participants play the role of market makers.
54Although this is increasingly unlike as many central banks in developing and transition economies already have access to real-time information systems on exchange rates and maintain close contacts with the main market participants.
55For an early discussion of the pros and cons of transparency of central bank foreign exchange operations, see Enoch, 1998.
56The Fund’s Code of Good Practices on Transparency in Monetary and Financial Policies does not directly deal with issues related to the transparency of foreign exchange operations.
57It may not be so easy, however, to keep foreign exchange intervention secret, especially on a systematic basis.
58Some central banks keep secret their foreign exchange operations not intended to affect exchange rates to avoid misperceptions, while others disclose all the details of these operations for the same reason.
59The data is available at http://www.mof.go.jp/english/e1c021.htm.
60Neely (2000) found that 23 percent of the respondents to his survey used moral suasion as an indirect method for foreign exchange intervention.
61See also Canales-Kriljenko (2003) for a deeper analysis of foreign exchange market organization in developing and transition economies.
62Private sector speculation may be stabilizing or destabilizing depending on the private sector’s exchange rate expectations.

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