Chapter

Appendix I: Exchange Rate Arrangements and Anchors of Monetary Policy1, 2

Author(s):
International Monetary Fund. Monetary and Capital Markets Department
Published Date:
September 2002
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Exchange Rate RegimeMonetary Policy Framework
(Number of countries)Exchange rate anchorMonetary aggregate targetInflation targeting frameworkIMF-supported or other monetary programOther
ExchangeAnotherEuro area4,5
arrangementscurrency asCFA franc zoneAustria
with no separatelegal tenderECCU3WAEMUCAEMCBelgium
legal tender (40)Ecuador*Antigua andBenin*Cameroon*Finland
El Salvador6BarbudaBurkinaCentralFrance
KiribatiDominicaFaso*AfricanGermany
Marshall IslandsGrenadaCôteRep.*Greece
Micronesia, Fed.St. Kitts andd’Ivoire*Chad*Ireland
States ofNevisGuinea.Congo.Italy
PalauSt. LuciaBissau*Rep. of*Luxembourg
PanamaSt. VincentMali*EquatorialNetherlands
San Marinoand theNiger*GuineaPortugal
GrenadinesSenegal*Gabon*Spain
Togo
Currency boardArgentina*
arrangements (8)Bosnia and Herzegovina*
Brunei Darussalam
Bulgaria*
China—Hong Kong SAR
Djibouti*
Estonia*
Lithuania*
OtherAgainst a single currency (31)Against a composite (10)China†8
conventional fixedArubaBotswana7
peg arrangementsBahamas, The7Fiji
(including deBahrain, Kingdom ofKuwait
facto pegBangladeshLatvia*
arrangementsBarbadosLibya
under managedBelizeMalta
floating) (41)BhutanMorocco
Cape VerdeSamoa
China†8Seychelles
Comoros9Vanuatu
Eritrea
Iran, I.R. of7,8
Jordan*8
Lebanon8
Lesotho*
Macedonia, FYR*8
Malaysia
Maldives8
Namibia
Nepal
Netherlands Antilles
Oman
Qatar8, 10
Saudi Arabia8, 10
Sudan8
Suriname7, 8
Swaziland
Syrian Arab Rep.7
Turkmenistan8
United Arab Emirates8, 10
Zimbabwe8
Pegged exchangeWithin a cooperativeOther bandHungary†
rates withinarrangement ERM II (1)arrangements (4)
horizontalDenmarkCyprus
Bands (5)11Egypt7
Hungary†
Tonga
Crawling pegs (4)Bolivia*
Costa Rica8
Nicaragua*
Solomon Islands8
Exchange ratesBelarusRomania*8Israel†
within crawlingHonduras*Uruguay*
bands (6)12Israel†Venezuela, Rep. Bolivariana de
Managed floatingGhana*Thailand*AzerbaijanAlgeria4
with no pre-Guinea*Cambodia7Angola4
announced pathGuyana*CroatiaBurundi4
for exchange rateIndonesia*EthiopiaDominican Rep.4,7
(42)Jamaica*8KazakhstanGuatemala4
MauritiusKenyaIndia4
Mongolia*Kyrgyz Rep.Iraq13
São Tomé andLao PDR7Myanmar4,7,8
Príncipe*MauritaniaParaguay4
SloveniaNigeriaSingapore4
Sri Lanka*PakistanSlovak Rep.4
TunisiaRussian FederationUzbekistan4,7
Rwanda
Trinidad and
Tobago
Ukraine
Vietnam
Yugoslavia, Fed.
Rep. of
Zambia
IndependentlyGambia, The*AustraliaAlbaniaAfghanistan.
floating (40)Malawi*Brazil*ArmeniaI.S. of 7,13
Peru*†CanadaCongo, Dem.Haiti4
Philippines*Chile7Rep. ofJapan4
SierraColombia*GeorgiaLiberia4
Leone*Czech Rep.MadagascarPapua New Guinea4
Turkey*IcelandMoldovaSomalia7,13
Yemen,KoreaMozambiqueSwitzerland4
Rep. of*MexicoTajikistanUnited States4
NewTanzania
ZealandUganda
Norway
Poland
South Africa
Sweden
United
Kingdom
Source: IMF staff reports

Data are accurate as of December 31, 2001. The following countries were reclassified subsequent to that date: Argentina, the Islamic Republic of Iran, São Tomé and Príncipe, Sudan, and Repùblica Bolivariana de Venezuela.

An asterisk (*) indicates that the country has an IMF-supported or other monetary program. A dagger (†) indicates that the country adopts more than one nominal anchor in conducting monetary policy (it should be noted, however, that it would not be possible, for practical reasons, to infer from this table which nominal anchor plays the principal role in conducting monetary policy).

These countries have a currency board arrangement.

The country has no explicitly stated nominal anchor, but rather monitors various indicators in conducting monetary policy.

Until they are withdrawn in the first quarter of 2002, national currencies will retain their status as legal tender within their national territories.

For El Salvador, the printing of new colones, the domestic currency, is prohibited, but the existing stock of colones will continue to circulate, along with the U.S. dollar as legal tender until all colón notes wear out physically.

Member maintains an exchange arrangement involving more than one market. The arrangement shown is that maintained in the major market.

The regime operating de facto in the country is different from its de jure regime.

Comoros has the same arrangement with the French Treasury as the CFA franc zone countries do.

Exchange rates are determined on the basis of a fixed relationship to the SDR, within margins of up to ±7.25%. However, because of the maintenance of a relatively stable relationship with the U.S. dollar, these margins are not always observed.

The band width for these countries is Cyprus (±2.25%), Denmark (±2.25%), Egypt (±3%), Hungary (±15%), and Tonga (±5%).

The band width for these countries is Belarus (±5%), Honduras (±7%), Israel (±22%), Romania (unannounced), Uruguay (±3%), and República Bolivariana de Venezuela (±7.5%).

Insufficient information on the country is available for classification.

Source: IMF staff reports

Data are accurate as of December 31, 2001. The following countries were reclassified subsequent to that date: Argentina, the Islamic Republic of Iran, São Tomé and Príncipe, Sudan, and Repùblica Bolivariana de Venezuela.

An asterisk (*) indicates that the country has an IMF-supported or other monetary program. A dagger (†) indicates that the country adopts more than one nominal anchor in conducting monetary policy (it should be noted, however, that it would not be possible, for practical reasons, to infer from this table which nominal anchor plays the principal role in conducting monetary policy).

These countries have a currency board arrangement.

The country has no explicitly stated nominal anchor, but rather monitors various indicators in conducting monetary policy.

Until they are withdrawn in the first quarter of 2002, national currencies will retain their status as legal tender within their national territories.

For El Salvador, the printing of new colones, the domestic currency, is prohibited, but the existing stock of colones will continue to circulate, along with the U.S. dollar as legal tender until all colón notes wear out physically.

Member maintains an exchange arrangement involving more than one market. The arrangement shown is that maintained in the major market.

The regime operating de facto in the country is different from its de jure regime.

Comoros has the same arrangement with the French Treasury as the CFA franc zone countries do.

Exchange rates are determined on the basis of a fixed relationship to the SDR, within margins of up to ±7.25%. However, because of the maintenance of a relatively stable relationship with the U.S. dollar, these margins are not always observed.

The band width for these countries is Cyprus (±2.25%), Denmark (±2.25%), Egypt (±3%), Hungary (±15%), and Tonga (±5%).

The band width for these countries is Belarus (±5%), Honduras (±7%), Israel (±22%), Romania (unannounced), Uruguay (±3%), and República Bolivariana de Venezuela (±7.5%).

Insufficient information on the country is available for classification.

Classification of Exchange Rate Arrangements and Monetary Policy Frameworks

The classification system is based on the members’ actual, de facto, regimes that may differ from their officially announced arrangements. The scheme ranks exchange rate regimes on the basis of the degree of flexibility of the arrangement. It distinguishes between the more rigid forms of pegged regimes (such as currency board arrangements); other conventional fixed peg regimes against a single currency or a basket of currencies; exchange rate bands around a fixed peg; crawling peg arrangements; and exchange rate bands around crawling pegs, in order to help assess the implications of the choice of exchange rate regime for the degree of independence of monetary policy. This includes a category to distinguish the exchange arrangements of those countries that have no separate legal tender. The system presents members’ exchange rate regimes against alternative monetary policy frameworks with the intention of using both criteria as a way of providing greater transparency in the classification scheme and to illustrate that different forms of exchange rate regimes could be consistent with similar monetary frameworks. The categories are explained in the compilation guide.

Members’ exchange rate regimes are presented against alternative monetary policy frameworks in order to present the role of the exchange rate in broad economic policy and help identify potential sources of inconsistency in the monetary-exchange rate policy mix. The monetary policy frameworks listed are as follows.

Exchange rate anchor

The monetary authority stands ready to buy or sell foreign exchange at given quoted rates to maintain the exchange rate at its preannounced level or range (the exchange rate serves as the nominal anchor or intermediate target of monetary policy). These regimes cover exchange rate regimes with no separate legal tender, currency board arrangements, fixed pegs with or without bands, and crawling pegs with or without bands, where the rate of crawl is set in a forward-looking manner.

Monetary aggregate target

The monetary authority uses its instruments to achieve a target growth rate for a monetary aggregate (reserve money, M1, M2, etc.) and the targeted aggregate becomes the nominal anchor or intermediate target of monetary policy.

Inflation targeting framework

Involves the public announcement of medium-term numerical targets for inflation with an institutional commitment by the monetary authority to achieve these targets. Additional key features include increased communication with the public and the markets about the plans and objectives of monetary policymakers and increased accountability of the central bank for obtaining its inflation objectives. Monetary policy decisions are guided by the deviation of forecasts of future inflation from the announced inflation target, with the inflation forecast acting (implicitly or explicitly) as the intermediate target of monetary policy.

IMF-supported or other monetary program

Involves implementation of monetary and exchange rate policy within the confines of a framework that establishes floors for international reserves and ceilings for net domestic assets of the central bank. As the ceiling on net domestic assets limits increases in reserve money through central bank operations, indicative targets for reserve money may be appended to this system.

Other

The country has no explicitly stated nominal anchor, but rather monitors various indicators in conducting monetary policy. This is also used when no relevant information on the country is available.

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