- International Monetary Fund. Monetary and Capital Markets Department
- Published Date:
- November 2011
Annual Report on Exchange Arrangements and Exchange Restrictions
International Monetary Fund
©2008 International Monetary Fund
Library of Congress Cataloging-in-Publication Data
International Monetary Fund.
Annual Report on exchange arrangements and exchange restrictions[electronic resources]. 1979–
Continues: International Monetary Fund. Annual Report on exchange restrictions, 1950–1978
1. Foreign exchange — Law and Legislation — Periodicals. 2. Foreign exchange administration — Periodicals. 1. Title
K4440.A13 157 2007 341.7’5179-644506
ISBN 978-1-58906-747-9 (summary with CD-ROM)
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Note: The term “country,” as used in this publication, does not in all cases refer to a territorial entity that is a state as understood by international law and practice; the term also covers some territorial entities that are not states but for which statistical data are maintained and provided internationally on a separate and independent basis.
The Annual Report on Exchange Arrangements and Exchange Restrictions has been published by the IMF since 1950. It draws on information available to the IMF from a number of sources, including that provided in the course of official staff visits to member countries, and has been prepared in close consultation with national authorities. The information is presented in a tabular format.
This project was coordinated in the Monetary and Capital Markets Department by a staff team directed by Karl F. Habermeier and comprising Harald Jens Anderson, Annamaria Kokeny, Maria Zenaida M. de Mesa, Judit Vadasz, Romain Veyrune, and Jahanara Zaman. It draws on the specialized contribution of that department (for specific countries), with assistance from staff members of the IMF’s five area departments, together with staff of other departments. The report was edited by Linda Griffin Kean of the External Relations Department (EXR) and produced by Mrs. de Mesa, Alicia Etchebarne-Bourdin of EXR, and the IMF Multimedia Services Division. Lucy Scott Morales provided editorial assistance.
Atlantic, Caribbean, and Pacific countries
Asian Clearing Union (Bangladesh, Bhutan, India, Islamic Republic of Iran, Myanmar, Nepal, Pakistan, and Sri Lanka)
African Economic Community
ASEAN free trade area (see ASEAN, below)
African Growth and Opportunity Act (United States)
Asian monetary unit
Australia-New Zealand Closer Economic Relations and Trade Agreement
Asia Pacific Economic Cooperation
Association of Southeast Asian Nations (Brunei Darussalam, Indonesia, Malaysia, Philippines, Singapore, and Thailand)
Agreement on Textiles and Clothing
Central Bank of West African States (Benin, Burkina Faso, Côte d’Ivoire, Guinea-Bissau, Mali, Niger, Senegal, and Togo)
Bank of Central African States (Cameroon, Central African Republic, Chad, Republic of Congo, Equatorial Guinea, and Gabon)
Central American Common Market (Costa Rica, El Salvador, Guatemala, Honduras, and Nicaragua)
Central African Economic and Monetary Community (members of the BEAC)
Central American Free Trade Agreement
Common agricultural policy (of the EU)
Caribbean Community and Common Market (Antigua and Barbuda, Barbados, Belize, Dominica, Grenada, Guyana, Haiti, Jamaica, Montserrat, St. Kitts and Nevis, St. Lucia, St. Vincent and the Grenadines, Suriname, and Trinidad and Tobago); The Bahamas is also a member of CARICOM, but it does not participate in the Common Market
Economic Community of Central African States (Angola, Burundi, Cameroon, Central African Republic, Chad, Democratic Republic of the Congo, Republic of Congo, Equatorial Guinea, Gabon, Rwanda, and São Tomé and Príncipe)
Central European Free Trade Area (Bulgaria, Hungary, Poland, Romania, Slovak Republic, and Slovenia)
Economic Community of the Great Lakes Countries (Burundi, Democratic Republic of the Congo, and Rwanda)
Common effective preferential tariff of the AFTA
Common external tariff
Communauté financière d’Afrique (administered by the BCEAO) and Coopération financière en Afrique centrale (administered by the BEAC)
Chartered Institute of Management Accountants Code of Ethics for Professional Accountants
Commonwealth of Independent States (Armenia, Azerbaijan, Belarus, Georgia, Kazakhstan, Kyrgyz Republic, Moldova, Russian Federation, Tajikistan, Turkmenistan, Ukraine, and Uzbekistan)
Convention on International Trade in Endangered Species of Wild Fauna and Flora
Continued Linked Settlement (Denmark, Norway, and Sweden)
Common Monetary Area (a single exchange control territory comprising Lesotho, Namibia, South Africa, and Swaziland)
Caribbean Multilateral Clearing Facility
Council for Mutual Economic Assistance (dissolved; formerly Bulgaria, Cuba, Czechoslovakia, German Democratic Republic, Hungary, Mongolia, Poland, Romania, the U.S.S.R., and Vietnam)
Common Market for Eastern and Southern Africa (Burundi, Comoros, Democratic Republic of the Congo, Djibouti, Egypt, Eritrea, Ethiopia, Kenya, Madagascar, Malawi, Mauritius, Namibia, Rwanda, Seychelles, Sudan, Swaziland, Uganda, Zambia, and Zimbabwe)
Commercial processing zone
East African Community
European Bank for Reconstruction and Development
European Council (Council of the European Union)
European Central Bank
European Community Council
Eastern Caribbean Central Bank (Anguilla, Antigua and Barbuda, Dominica, Grenada, Montserrat, St. Kitts and Nevis, St. Lucia, and St. Vincent and the Grenadines)
Eastern Caribbean Currency Union
Economic Community of West African States (Benin, Burkina Faso, Cape Verde, Côte d’Ivoire, the Gambia, Ghana, Guinea, Guinea-Bissau, Liberia, Mali, Niger, Nigeria, Senegal, Sierra Leone, and Togo)
European Coal and Steel Community
European economic area
European Free Trade Association (Iceland, Liechtenstein, Norway, and Switzerland)
European Investment Bank
European Economic and Monetary Union (Austria, Belgium, Cyprus, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Malta, Netherlands, Portugal, Slovenia, and Spain)
Export processing zone
Exchange rate mechanism (of the European monetary system)
European Union (formerly European Community; Austria, Belgium, Bulgaria, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden, and United Kingdom)
Financial Action Task Force on Money Laundering (of the OECD)
Former Soviet Union
Group of Eight (Canada, France, Germany, Italy, Japan, Russia, United Kingdom, and United States)
Group of Ten (Belgium, Canada, France, Germany, Italy, Japan, Netherlands, Sweden, Switzerland, United Kingdom, and United States)
Greater Arab Free Trade Agreement
Gulf Cooperation Council (Cooperation Council for the Arab States of the Gulf; Kingdom of Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and United Arab Emirates)
Generalized system of preferences
International Bank for Reconstruction and Development (World Bank)
Inter-American Development Bank
International Monetary Fund
International Organization of Securities Commissions
Latin American Integration Association (Argentina, Bolivia, Brazil, Chile, Colombia, Ecuador, Mexico, Paraguay, Peru, Uruguay, and República Bolivariana de Venezuela)
Letter of credit
London interbank bid rate
London interbank offered rate
Southern Cone Common Market (Argentina, Brazil, Paraguay, and Uruguay)
Ministry of Finance
North American Framework Agreement (Canada, Mexico, and United States)
North American Free Trade Agreement
Organization for Economic Cooperation and Development
Organization of Eastern Caribbean States (Antigua and Barbuda, Dominica, Grenada, Montserrat, St. Kitts and Nevis, St. Lucia, and St. Vincent and the Grenadines)
Open general license
Pacific Agreement on Closer Economic Relations (of the Pacific Islands Forum; Australia, Cook Islands, Fiji, Kiribati, Marshall Islands, Federated States of Micronesia, Nauru, New Zealand, Niue, Palau, Papua New Guinea, Samoa, Solomon Islands, Tonga, Tuvalu, and Vanuatu)
Pacific Regional Trade Agreement (of the Pacific Islands Forum)
Pacific Island Countries Trade Agreement (of the Pacific Islands Forum; Cook Islands, Fiji, Kiribati, Marshall Islands, Federated States of Micronesia, Nauru, Niue, Palau, Papua New Guinea, Samoa, Solomon Islands, Tonga, Tuvalu, and Vanuatu)
Regional Council on Public Savings and Financial Markets (an institution of WAEMU countries that is involved in the authorization for issuance and marketing of securities)
Regional Integration Facilitation Forum (formerly the Cross-Border Initiative; Burundi, Comoros, Kenya, Madagascar, Malawi, Mauritius, Namibia, Rwanda, Seychelles, Swaziland, Tanzania, Uganda, Zambia, and Zimbabwe)
Southern African Customs Union (Botswana, Lesotho, Namibia, South Africa, and Swaziland)
Southern Africa Development Community (Angola, Botswana, Democratic Republic of the Congo, Lesotho, Malawi, Mauritius, Mozambique, Namibia, Seychelles, South Africa, Swaziland, Tanzania, Zambia, and Zimbabwe)
Scandinavian Cash Pool (Denmark, Norway, and Sweden)
Special drawing right
South Pacific Regional Trade and Economic Cooperation Agreement (Australia, Cook Islands, Fiji, Kiribati, Marshall Islands, Federated States of Micronesia, Nauru, New Zealand, Niue, Palau, Papua New Guinea, Samoa, Solomon Islands, Tonga, Tuvalu, and Vanuatu)
Central African Units of Accounts
Undertakings for the Collective Investment of Transferable Securities
Central African Customs and Economic Union (Cameroon, Central African Republic, Chad, Republic of Congo, Equatorial Guinea, and Gabon)
National Union for the Total Independence of Angola
West African Economic and Monetary Union (formerly WAMU; members of the BCEAO)
West African Monetary Agency (formerly WACH)
West African Monetary Zone
Exchange rate mechanism (of the WAMZ)
World Trade Organization
Note: This list does not include abbreviations of purely national institutions mentioned in the country chapters.
This volume (the 59th edition) of the Annual Report on Exchange Arrangements and Exchange Restrictions (AREAER) provides a description of the foreign exchange arrangements, exchange and trade restrictions, capital controls, and relevant prudential measures of all IMF member countries.1 Publication of the AREAER fulfills Article XIV, Section 3, of the IMF’s Articles of Agreement, which mandates annual reports on the restrictions in force under Article XIV, Section 2. The AREAER also contributes to implementing Paragraph 16 of the 2007 Surveillance Decision, which restates the obligation under the IMF’s Articles of Agreement for each member country to notify the IMF of the exchange arrangement it intends to apply and any changes in the arrangement.
The 2008 edition, like previous editions, attempts to provide a comprehensive description of exchange and trade systems, going beyond exchange restrictions or exchange controls. To this end, a few changes have been made to the structure and content of the report. These aim to provide a more accurate and transparent description of the regulatory framework for current and capital transactions:
Introduction of a new category, “Foreign exchange markets,” with additional subcategories to describe the various market structures existing in member countries: Some of the information included in this category was previously incorporated into the description of the exchange rate arrangement. This new category describes foreign exchange markets in a more transparent way.
Change in the name of category II.2, “International security restrictions,” to “Exchange measures imposed for security reasons”: This change reflects the fact that restrictions on current payments and transfers may be imposed for both national and international security reasons.
Inclusion of de jure exchange rate arrangements in addition to the IMF staff’s de facto classification of the exchange rate arrangements: The description of the de jure arrangement in the “Exchange Arrangement” section of the country chapters is based solely on information provided by the authorities.
In general, the report includes the description of exchange and trade systems as of end-2007. However, to ensure that it is as up-to-date as possible, in some cases reference is made to significant developments that occurred through end-July 2008. In addition to exchange measures imposed solely for security reasons, the report also provides information related to restrictions on current international payments and transfers and multiple currency practices (MCPs) maintained under either Article XIV or Article VIII of the IMF’s Articles of Agreement. This information consists of verbatim quotes from the latest IMF staff reports issued as of December 31, 2007, and represents the views of IMF staff, which may not necessarily have been endorsed by the IMF Executive Board.2 Exchange measures imposed for security reasons include measures notified to the IMF in accordance with the relevant IMF Executive Board decision and other security restrictions.3
The report also includes a table on the de facto classification of exchange rate arrangements and monetary policy frameworks (Table 1). This classification provides summary information in a tabular format on the various features of the exchange rate arrangements in member countries in addition to the more detailed descriptions in the country chapters. The classification is based on the information available on members’ de facto arrangements, as analyzed by IMF staff, which may differ from countries’ officially announced (de jure) arrangements. Table 2 details the changes in the classification of countries’ exchange arrangements. The Summary Features of Exchange Arrangements and Regulatory Frameworks for Current and Capital Transactions in Member Countries table (which appears at the end of this introduction) provides an overview of the characteristics of the exchange and trade systems of IMF member countries. The Country Table Matrix (which comprises the Appendix) provides a complete listing of the categories used in the database, and the Compilation Guide (which follows this introduction) includes definitions and explanations for the consistent application and interpretation of the categories and reflects the changes introduced this year to the AREAER. The Annex describes foreign exchange mar-kets—their role, the main types, and their trading arrangements.
|The classification system is based on the members’ actual, de facto regimes, which may differ from their officially announced, de jure arrangements. The system ranks exchange rate arrangements on the basis of their degree of flexibility and the existence of formal or informal commitments to an exchange rate path. It distinguishes among the more rigid forms of pegged regimes (such as currency board arrangements), other conventional pegged 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. It also includes a category to distinguish the exchange arrangements of countries that have no separate legal tender. The system presents members’ exchange rate regimes against alternative monetary policy frameworks in order to highlight the role of the exchange rate in broad economic policy and to illustrate that different exchange rate regimes can be consistent with similar monetary frameworks. 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 predetermined level or within a 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.
Monetary aggregate target
The monetary authority uses its instruments to achieve a target growth rate for a monetary aggregate, such as reserve money, M1, or M2, and the targeted aggregate becomes the nominal anchor or intermediate target of monetary policy.
This 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 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.
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.
|Exchange rate arrangement (number of countries)||Monetary Policy Framework|
|Exchange rate anchor||Monetary aggregate target||Inflation-targeting framework||Other1|
|U.S. dollar (66)||Euro (27)||Composite (15)||Other (7)||(22)||(44)||(11)|
|Exchange arrangement with no separate legal tender (10)||Ecuador|
Micronesia, Fed. States of
|Currency board arrangement (13)||Antigua and Barbuda2|
Hong Kong SAR
St. Kitts and Nevis2
St. Vincent and the Grenadines2
|Bosnia and Herzegovina|
|Other conventional pegged arrangement (68)||Angola|
Trinidad and Tobago
United Arab Emirates
Venezuela, Rep. Bolivariana de
Yemen, Rep. of
Central African Rep.5
Congo, Rep. of5
|Pegged exchange rate within horizontal bands (3)||Slovak Rep.3||Syria|
|Crawling peg (8)||Bolivia|
Iran, I.R. of
|Crawling band (2)||Costa Rica||Azerbaijan|
|Managed floating with no predetermined path for the exchange rate (44)||Cambodia|
|Afghanistan, I.R. of|
Papua New Guinea
São Tomé and Príncipe
|Independently floating (40)||Zambia||Albania|
Korea, Rep. of
|Congo, Dem. Rep. of|
|Change Recorded||Arrangement in the 2007 AREAER||Arrangement in the 2008 AREAER|
|Azerbaijan||In 2007, the Azerbaijan National Bank appreciated the exchange rate against the U.S. dollar along a smooth path. Starting March 11, 2008, the authorities fixed the value of the manat vis-à-vis a euro/U.S. dollar composite. The weights of the currencies in the composite are regularly changed to increase the weight of the euro. Thus, effective March 11, 2008, the classification of the de facto exchange rate arrangement has been changed from a crawling peg to a crawling band arrangement.||Crawling peg||Crawling band|
|Bangladesh||Against the backdrop of significant intervention, the exchange rate arrangement has been maintained within a 2% band. Thus, effective January 1, 2007, the classification of the de facto exchange rate arrangement has been changed from managed floating with no predetermined path for the exchange rate to a conventional pegged arrangement.||Managed floating with no predetermined path for the exchange rate||Conventional pegged arrangement|
|Bolivia||After a period of stability, during which the arrangement was classified as a conventional peg, the peso appreciated more steadily starting April 30, 2007. Thus, effective December 1, 2007, the classification of the de facto exchange rate arrangement has been changed from a conventional pegged arrangement to a crawling peg vis-à-vis the U.S. dollar.||Conventional pegged arrangement||Crawling peg|
|Croatia||The exchange rate of the kuna vis-à-vis the euro remained broadly stable in 2007 as a result of overall market conditions and actions of the Croatian National Bank to stabilize it on several occasions. Thus, effective September 1, 2006, the classification of the de facto exchange rate arrangement has been changed from managed floating with no predetermined path for the exchange rate to a conventional pegged arrangement.||Managed floating with no predetermined path for the exchange rate||Conventional pegged arrangement|
|Cyprus||Effective January 1, 2008, Cyprus participates in a currency union (EMU) with 14 other members of the EU and has no separate legal tender. The euro, the common currency, floats freely and independently against other currencies. Previously, Cyprus participated in the ERM II, and the pound fluctuated within a tight band: officially ±15% but in practice less than ±2.25%. As a result, effective January 1, 2008, the exchange rate arrangement of Cyprus has been reclassified from a pegged exchange rate within a horizontal band to independently floating.||Pegged exchange rate within horizontal bands||Independently floating|
|Czech Republic||The Czech National Bank pursues a program of daily sales of foreign exchange reserves, broadly equivalent to the amount of portfolio gains on its reserves, aimed at preventing the level of reserves from continuing to rise. Other exchange rate interventions have been limited to conversion of large one-off privatization receipts and proceeds of EU transfers. However, since 2006, no privatization revenue has been received, and EU transfers represented an insignificant amount in net terms. Thus, the classification of the de facto exchange rate arrangement has been changed, effective January 1, 2006, from managed floating with no predetermined path for the exchange rate to independently floating.||Managed floating with no predetermined path for the exchange rate||Independently floating|
|Denmark||The Danish krone has fluctuated in a narrow band of less than 2%. As a result, effective April 1, 2007, the classification of the de facto exchange rate arrangement has been changed from a pegged exchange rate within horizontal bands to a conventional pegged arrangement.||Pegged exchange rate within horizontal bands||Conventional pegged arrangement|
|Egypt||The pound has appreciated by about 4% vis-à-vis the U.S. dollar since August 2007. As a result, the de facto exchange rate arrangement has been reclassified, effective August 1, 2007, from a conventional pegged arrangement to managed floating with no predetermined path for the exchange rate.||Conventional pegged arrangement||Managed floating with no predetermined path for the exchange rate|
|Ethiopia||The exchange rate of the birr vis-à-vis the U.S. dollar was very stable through late 2007, but has regularly depreciated since then. Hence, the classification of the de facto exchange rate arrangement has been changed, effective February 2, 2008, from a conventional pegged arrangement to a crawling peg.||Conventional pegged arrangement||Crawling peg|
|Hungary||The central parity and the exchange rate band of the Hungarian forint were abolished February 26, 2008. As a result, effective this date the exchange rate arrangement has been reclassified from a pegged exchange rate within horizontal bands to independently floating.||Pegged exchange rate within horizontal bands||Independently floating|
|Iran, Islamic Republic of||Starting in November 2007, the rial gradually depreciated against a composite of currencies, including the euro, the U.S. dollar, and the yen. Thus, effective January 4, 2008, the classification of the de facto exchange rate arrangement has been changed from a conventional pegged arrangement to a crawling peg.||Conventional pegged arrangement||Crawling peg|
|Kazakhstan||The tenge has remained within a 2% band as a result of offcial actions. Thus, effective October 1, 2007, the classification of the de facto exchange rate arrangement has been changed from managed floating with no predetermined path for the exchange rate to a conventional pegged arrangement.||Managed floating with no predetermined path for the exchange rate||Conventional pegged arrangement|
|Kuwait||On May 20, 2007, the dinar was pegged to an undisclosed basket of currencies reflecting Kuwait’s foreign trade and fnancial relationships. As a result, effective August 1, 2007, the de facto exchange rate arrangement has been changed from a conventional pegged arrangement to a single currency to a conventional pegged arrangement to a composite.||Conventional pegged arrangement (to a single currency)||Conventional pegged arrangement (to a composite)|
|Kyrgyz Republic||Despite strong appreciation pressures, the som remained very stable vis-à-vis the U.S. dollar from March 2007 to September 2007. As a result, effective March 1, 2007, the exchange rate arrangement has been reclassified from managed floating with no predetermined path for the exchange rate to a conventional pegged arrangement.||Managed floating with no predetermined path for the exchange rate||Conventional pegged arrangement*|
|Kyrgyz Republic||During September-November, 2007, the som appreciated by about 10% against the U.S. dollar. Thus, effective October 1, 2007, the exchange rate arrangement has been reclassified to managed floating with no predetermined path for the exchange rate.||Managed floating with no predetermined path for the exchange rate|
|Lao P.D.R.||From December 2006 through November 2007, the exchange rate remained stable vis-à-vis the U.S. dollar. Thus, effective January 1, 2007, the de facto exchange rate arrangement has been reclassified from managed floating with no predetermined path for the exchange rate to a conventional pegged arrangement.||Managed floating with no predetermined path for the exchange rate||Conventional pegged arrangement*|
|Lao P.D.R.||Since November 2007, the kip has appreciated, resulting in a change in the classification of the de facto exchange rate arrangement, effective December 1, 2007, from a conventional pegged arrangement to managed floating with no predetermined path for the exchange rate.||Managed floating with no predetermined path for the exchange rate|
|Malawi||The exchange rate has experienced little volatility against the backdrop of direct and indirect interventions of the central bank. Thus, the classification of the de facto exchange rate arrangement has been changed from managed floating with no predetermined path for the exchange rate to a conventional pegged arrangement, effective January 1, 2006.||Managed floating with no predetermined path for the exchange rate||Conventional pegged arrangement|
|Malta||Effective January 1, 2008, Malta participates in a currency union (EMU) with 14 other members of the EU and has no separate legal tender. Previously, Malta participated in the ERM П and the lira was pegged to the euro. As a result, effective January 1, 2008, the de facto exchange rate arrangement of Malta has been reclassified from a conventional pegged arrangement to independently floating.||Conventional pegged arrangement||Independently floating|
|Mauritania||On January 25, 2007, a new foreign exchange market opened with a market-determined exchange rate based on supply and demand. After remaining essentially unchanged over the frst few months of 2007, the exchange rate of the ouguiya vis-à-vis the U.S. dollar appreciated from UM 268.5 per $1 on April 25 to UM 251.0 per $1 at end-December 2007. Thus, the de facto classification of the exchange rate arrangement has been changed from a conventional pegged arrangement to managed floating with no predetermined path for the exchange rate effective May 1, 2007.||Conventional pegged arrangement||Managed floating with no predetermined path for the exchange rate|
|Pakistan||Following a period of stability, the exchange rate has shown consistently more fexibility since January 15, 2008. Thus, effective that date, the classification of the de facto exchange rate arrangement has been changed from a conventional pegged arrangement to managed floating with no predetermined path for the exchange rate.||Conventional pegged arrangement||Managed floating with no predetermined path for the exchange rate|
|Russian Federation||The Central Bank of the Russian Federation intervenes in both interbank currency exchanges and the over-the-counter interbank market to limit fuctuations in the exchange rate of the ruble against a basket of the euro and the U.S. dollar in the short run. The U.S. dollar is the main intervention currency. Asa result of the stability of the ruble against a composite, the classification of the de facto exchange rate arrangement of the Russian Federation has been changed, with a starting date of March 1, 2006, from managed floating with no predetermined path for the exchange rate to a conventional pegged arrangement to a composite.||Managed floating with no predetermined path for the exchange rate||Conventional pegged arrangement (to a composite)|
|Seychelles||From October 2006 to October 2007, the rupee was gradually devalued to SR 1 per $8; hence, on January 1, 2007, the de facto exchange rate arrangement was reclassified retroactively, effective October 9, 2006, to a crawling peg from a conventional pegged arrangement.||Conventional pegged arrangement||Crawling peg*|
|Seychelles||Since October 5, 2007, the rupee has remained at a stable level relative to the U.S. dollar. As a result, the classification of the de facto exchange rate arrangement has been changed, effective October 5, 2007, from a crawling peg to a conventional pegged arrangement to a single currency.||Conventional pegged arrangement (to a single currency)|
|Sierra Leone||The foreign exchange auctions of the Bank of Sierra Leone have resulted in a stable exchange rate commonly used by market participants as a reference for other foreign exchange transactions. Thus, effective December 1, 2006, the classification of the de facto exchange rate arrangement has been changed from a crawling peg to a conventional pegged arrangement.||Crawling peg||Conventional pegged arrangement|
|Sri Lanka||The rupee remained within a ±2% band as a result of interventions; hence, the classification of the de facto exchange rate arrangement has been changed from managed foat-ing with no predetermined path for the exchange rate to a conventional pegged arrangement, effective December 5, 2007.||Managed floating with no predetermined path for the exchange rate||Conventional pegged arrangement|
|Syrian Arab Republic||Since August 2007, the offcial rate has been pegged to the SDR with a wide margin. Thus, the classification of the de facto exchange rate arrangement has been changed, effective September 1, 2007, from a conventional pegged arrangement to a pegged exchange rate within horizontal bands.||Conventional pegged arrangement||Pegged exchange rate within horizontal bands|
|Tajikistan||As a result of interventions by the National Bank of Tajikistan, the somoni exchange rate was very stable during the preceding 18 months. Thus, the classification of the de facto exchange rate arrangement has been changed, effective January 1, 2007, from managed foat-ing with no predetermined path for the exchange rate to a conventional pegged arrangement.||Managed floating with no predetermined path for the exchange rate||Conventional pegged arrangement|
|Tunisia||The dinar has been very stable against a euro/U.S. dollar composite. Thus, effective May 1, 2006, the classification of the de facto exchange rate arrangement has been changed from managed floating with no predetermined path for the exchange rate to a conventional pegged arrangement.||Managed floating with no predetermined path for the exchange rate||Conventional pegged arrangement|
|Ukraine||Although the hryvnia previously remained within a very narrow band vis-à-vis the U.S. dollar as a result of interventions, more recently it has shown increased fexibility. Thus, the classification of the de facto exchange rate arrangement has been changed, effective April 30, 2008, from a conventional pegged arrangement to managed floating with no predetermined path for the exchange rate.||Conventional pegged arrangement||Managed floating with no predetermined path for the exchange rate|
|Uzbekistan||Since April 2007, the sum has been depreciating vis-à-vis the U.S. dollar within a 2% crawling band, while the Central Bank of Uzbekistan’s one-sided interventions have resulted in steady reserve accumulation. As a result, the exchange rate arrangement has been reclassified, effective April 1, 2007, from a conventional pegged arrangement to a crawling peg.||Conventional pegged arrangement||Crawling peg|
|Vanuatu||The vatu has shown significant volatility against possible||Conventional composites. As a result, effective April 30, 2007, the classi- pegged arrangement fcation of the de facto exchange rate arrangement has been changed from a conventional pegged arrangement to managed floating with no predetermined path for the exchange rate.||Managed floating with no predetermined path for the exchange rate|
|Zambia||Reflecting the practice of the Bank of Zambia to intervene only in exceptional circumstances, the classification of the de facto exchange rate arrangement has been changed, effective January 1, 2008, from managed floating with no predetermined path for the exchange rate to independently floating.||Managed floating with no predetermined path for the exchange rate||Independently floating|
This report documents a continuing trend toward liberalization of controls on current and capital account transactions during 2006 and through mid-July 2007, and toward a strengthening of prudential rules. Overall, few countries introduced new controls or limitations on foreign exchange transactions during this period. The major trends and significant developments documented in the report are the following:
Unlike in previous years, when changes in exchange rate arrangements often leaned toward more fixity, this year changes tilt toward more adjustability. To cope with ongoing appreciation pressures and the depreciation of the U.S. dollar in the context of pegs or heavily managed floats, the role of intermediate regimes such as crawling bands and pegs has become more important, and the role of the euro has been enhanced. Policy responses have included increasing flexibility of floating regimes, leading to more independent floaters, although the overall share of the more flexible exchange rate arrangements remained the same.
The exchange rate remained the key anchor of the majority of members’ monetary frameworks, despite some increase in the flexibility of exchange rate arrangements.
Other changes, including rules for the operation of markets and taxes levied on exchange transactions, moved generally in the direction of liberalization, including by simplifying the exchange rate structure, allowing a greater role for market forces in currency trading, and relaxing controls on forward exchange markets.
The number of countries maintaining exchange restrictions or MCPs, other than those imposed solely for security reasons, increased slightly; however, the number of countries that have accepted Article VIII obligations and maintain exchange restrictions or MCPs has decreased to 21. Overall, 35 countries reported exchange restrictions and/or MCPs at end-2007.
The trend toward greater current account liberalization continued. Both trade-related measures and controls on invisible transactions were liberalized to a significant extent during the reporting period.
Most changes introduced with regard to capital account transactions aimed at liberalizing controls; only a few controls were tightened. Controls were eased mainly on capital outflows, reflecting countries’ attempts to mitigate the effect of increased capital inflows by liberalizing capital outflows against the backdrop of comfortable foreign exchange reserve positions.
The majority of measures implemented in the financial sector were of a prudential nature, with only some changes to capital controls. Overall, both prudential measures and capital controls were liberalized, although prudential measures affecting commercial banks were tightened.
The sections below highlight developments in the major areas covered in this edition of the AREAER. Details of the exchange arrangements and regulatory frameworks for current and capital transactions in member countries are presented in the individual country chapters.
Developments in Exchange Rate Arrangements4
The large categories of de facto exchange rate arrangements remained broadly stable in the reporting period (Table 3).5 Since May 1, 2007, the proportion of hard pegs, soft pegs, and floating arrangements remained constant as a percentage of the membership as a whole. Floating arrangements and soft pegs, in equal proportions, accounted for about 90% of the membership. Most of the changes observed occurred within these two large categories. Table 2 details the changes in individual countries’ exchange rate arrangements, which exhibit the following broad trends:
(As a percent of the IMF membership)*
|No separate legal tender||5.32||5.32|
|Pegged within horizontal bands||2.66||1.60|
Among soft pegs, conventional pegs and band systems decreased somewhat, in favor of arrangements that may allow more flexibility for dealing with risks related to macroeconomic and external shocks. Although the number of countries pegging to a basket remained constant, three countries exited this category (the Islamic Republic of Iran, Seychelles, and Vanuatu) and three countries entered (Kuwait, the Russian Federation, and Tunisia). An increased number of countries opted for crawling pegs and bands, in particular with reference to a basket, including the Islamic Republic of Iran and Azerbaijan.
The number of independently floating arrangements increased, a tendency toward increased flexibility, which may be a response by some countries to continued appreciation pressures. Five countries implemented independently floating exchange rate arrangements in the past 12 months; the currencies of two central European countries (the Czech Republic and Hungary) became independently floating, the latter by the elimination of the exchange rate band for the forint; Zambia decreased interventions and allowed the kwacha to float, and Cyprus and Malta adopted the euro.
Overall, the exchange rate remains the single most important monetary anchor. More than 60% of IMF members use the exchange rate as a nominal anchor, including about 25% of members with floating arrangements that use the exchange rate as a reference to manage their float.
Several countries—even independent floaters—at times intervened in the foreign exchange market to dampen strong exchange rate pressures and build reserves. For example, interventions increased foreign exchange reserves by about 60% in Brazil and about 50% in the Philippines.
The U.S. dollar continued to be the most widely used exchange rate anchor, followed by the euro. Against the backdrop of U.S. dollar depreciation, the euro’s role as an anchor increased in importance, particularly regarding its weight in the composition of the exchange rate baskets (e.g., Azerbaijan, the Islamic Republic of Iran, Kuwait, the Russian Federation, and Tunisia).6
The number of inflation-targeting regimes increased. The flexibility of this framework and the sometimes poor results of alternative anchors have encouraged many authorities to target inflation directly. The effectiveness of this framework has, however, varied considerably.
The overwhelming majority of countries report some kind of spot foreign exchange market; the share of countries with a forward market is only 63% (Table 5). More than half of IMF members report an interbank foreign exchange market.7 About 9% operate auctions for foreign exchange, either in addition to the interbank market (e.g., Nigeria) or as the sole foreign exchange market (e.g., Honduras).8 Mexico and Turkey, both with independently floating exchange rate arrangements, also used an auction as a transparent operational framework for managing reserves. Fewer than 5% implement exchange rate fixing. However, Mauritania recently introduced a rate-fixing session as a first step toward developing an interbank market. Other members have abandoned or are moving toward abandoning their fixing sessions (e.g., Serbia).
|Spot exchange market||74.5|
|Operated by the central bank*||18.6|
|Forward exchange market||63.3|
Many foreign exchange market measures introduced during the reporting period seem directed toward facilitating foreign exchange operations (see Table 4):
|Change||Type of change|
|Angola||Effective August 6, 2007, the exchange rate structure became multiple because of the multiplicity of the spot exchange rates in the Bank of Angola’s currency auction, the interbank market, and the retail foreign exchange market.||Tightening of controls|
|Argentina||Effective May 17, 2007, the requirement that exporters who fail to sell their export proceeds within the prescribed period of time surrender the proceeds to the Central Bank of the Argentine Republic at the reference rate on the date of sale or the reference rate on the date the sale should have taken place, whichever was less favorable, was suspended.||Easing of controls|
|Azerbaijan||Effective January 1, 2007, old manat banknotes, in use before the new manat banknotes were introduced, are no longer in circulation.||Neutral|
|Belarus||Since January 1, 2008, the National Bank of the Republic of Belarus has been maintaining the exchange rate of the Belarusian rubel within a symmetrical horizontal band vis-à-vis the U.S. dollar (±2.5%) relative to the exchange rate of the Belarusian rubel against the U.S. dollar at the start of the year. Before that date, in addition to the U.S. dollar, the Belarusian rubel maintained a de jure target vis-à-vis the Russian ruble within a horizontal band of ±4%.||Neutral|
|Bolivia||Effective October 1, 2007, the Central Bank of Bolivia (CBB) introduced a 1% commission on all transfers of foreign exchange to the private sector, except for export transactions taking place through the CBB.||Tightening of controls|
|Bolivia||Effective January 2, 2008, the CBB introduced a 1% service charge on transfers from abroad to the fnancial system through the CBB, except (1) operations through the CBB for exporters and remittances equal to or less than $1,000, and (2) operations through the fnancial system for diplomatic corps, cooperation agencies, and international organizations, and remittances equal to or less than $1,000.||Tightening of controls|
|Botswana||Effective August 8, 2007, the previous multiple currency practice relating to exchange rate guarantees on one loan was eliminated with the conversion of the outstanding loan under the Foreign Exchange Risk Sharing scheme to a pula loan.||Easing of controls|
|Brazil||Effective January 1, January 3, and March 13, 2008, Decrees 6.339, 6.345, and 6.391 increased the rate of tax and adjusted the situations in which tax is applied to foreign exchange transactions.||Tightening of controls|
|Burundi||Effective December 28, 2007, the exchange rate structure has been re-classified to dual. Previously, the exchange rate structure was multiple because, in addition to the potential deviation of the offcial rate and the market rate, the exchange rates on foreign exchange auctions could differ by more than 2%. However, the auction rules were changed to limit the potential variation of the rates.||Easing of controls|
|China||As of January 15, 2007, The number of market-maker banks increased to 22 from 21.||Neutral|
|China||Effective May 21, 2007, the band around the daily trading price of the renminbi against the U.S. dollar in the interbank foreign exchange spot market was widened from ±0.3% to ±0.5%.||Easing of controls|
|Colombia||Effective May 6, 2007, the overall gross exposure of each participant in the foreign exchange derivative market may not exceed 500% of a participant’s total capital.||Tightening of controls|
|Costa Rica||Effective January 31, 2007, the foor for the colón’s crawl was changed to C 519.16 per $1 (previously, 514.78) and the ceiling to C 540.55 per $1 (previously, 530.22). No central parity was defned.||Easing of controls|
|Costa Rica||Effective November 22, 2007, the foor of the crawling band was reduced by 4% to C 498.39 per $1 and the ceiling to C 562.83 per $1. The crawl of the band’s foor was modifed from zero to a negative daily adjustment of C 0.06, allowing for a 3% nominal annual appreciation of the colón, and the rate of crawl of the band’s ceiling was reduced to C 0.06 a business day, resulting in a change of 3% a year. These changes widened the band to 13%||Easing of controls .|
|Costa Rica||Effective August 30, 2007, authorized agents were required to transfer to the monetary authority 25% of the margin of all foreign exchange intermediation activity, provided that the amount is positive.||Tightening of controls|
|Cyprus||Effective January 1, 2008, Cyprus adopted the euro as its offcial currency.||Neutral|
|Ecuador||Effective January 1, 2008, a 0.5% tax was introduced on remittances abroad, with the following exceptions: import payments, proft repatriation, debt service, credit card transactions, and reinsurance premiums.||Tightening of controls|
|Eritrea||Effective January 1, 2007, the exchange rate structure has been reclassi-fed from unitary to dual because, despite the unifcation of the exchange rate, the parallel market rate deviates significantly from the offcial exchange rate.||Tightening of controls|
|Ghana||Effective July 1, 2007, Ghana redenominated the cedi by eliminating four zeros and thereby revaluing 10,000 cedis to 1 cedi and 100 pesewas to 1 pesewa.||Neutral|
|Honduras||Effective November 26, 2007, the maximum daily amounts that may be acquired at auction were increased from $600,000 to the equivalent of $1,200,000 for legal entities and from $30,000 to $100,000 for exchange bureaus.||Easing of controls|
|India||Effective October 29, 2007, resident individuals with foreign exchange exposures out of actual or anticipated remittances were permitted to book forward contracts without production of underlying documents, based on self-declaration.||Easing of controls|
|India||Effective October 29, 2007, small and medium-size enterprises with direct or indirect foreign exchange risk were permitted to book forward contracts without production of underlying documents.||Easing of controls|
|India||Effective February 8, 2008, authorized dealers may allow foreign institutional investors to cancel and rebook forward contracts up to 2% of the market value of their entire investment in equity and/or debt in India.||Easing of controls|
|Lao P.D.R.||Effective February 8, 2007, commercial banks were required to adjust their buying and selling rates not exceeding ±0.25% of the daily reference rate of the Bank of the Lao P.D.R. for the U.S. dollar. For the other currencies, commercial banks may adjust the margin between the buying and selling rates not exceeding 0.5%. Previously, margins between the buying and selling rates not exceeding 1.15% for the U.S. dollar applied.||Tightening of controls|
|Malaysia||Effective April, 1, 2007, residents are allowed to hedge foreign currency loan repayment up to the full amount of the underlying commitment. Under the previous policy, hedging for foreign currency loan repayment was allowed only for a commitment of up to 24 months.||Easing of controls|
|Malaysia||Effective April 1, 2007, licensed onshore banks are allowed to appoint overseas branches of their banking group as a vehicle to facilitate the settlement of ringgit assets of their nonresident clients under certain conditions.||Easing of controls|
|Malaysia||Effective April 1, 2007, the requirement for a nonresident to reinvest within seven working days the proceeds arising from the sale of ringgit assets prior to the maturity of the forward foreign exchange contract was abolished.||Easing of controls|
|Malta||Effective January 1, 2008, Malta adopted the euro as its offcial currency.||Neutral|
|Mauritania||On January 25, 2007, the frst rate-fxing session opened.||Neutral|
|Mozambique||Effective July, 1, 2007, the band in the interbank foreign exchange market has been eliminated.||Easing of controls|
|Nigeria||Effective January 1, 2008, the Central Bank of Nigeria (CBN) announces the amount on offer on the day of the auction, and the auction results are released the same day. Funds purchased through the CBN are now eligible for trading in the interbank market.||Easing of controls|
|Paraguay||Effective April 30, 2007, separate limits for forward operations were eliminated and combined with the foreign currency cash position.||Easing of controls|
|Romania||Effective September 14, 2007, foreign exchange offces are allowed to perform transactions in foreign currencies, even if the foreign currencies are not quoted.||Easing of controls|
|Rwanda||Effective June 25, 2007, the National Bank of Rwanda (NBR) has abolished the foreign exchange auction system.||Tightening of controls|
|Rwanda||Effective July 30, 2007, the NBR started to sell foreign exchange directly to banks based on a predetermined reference price (based on price data from the interbank market, retail prices, and the previous day’s reference price).||Neutral|
|Rwanda||Effective August 1, 2007, the NBR introduced an adjustment factor to the price formula that ensures a gradual appreciation of the exchange rate.||Neutral|
|São Tomé and Príncipe||Effective December 5, 2007, the exchange rate structure is classified as multiple as a result of the existence of multiple exchange rates, including the offcial exchange rate, the auction rate, commercial bank rates, exchange bureau rates, and parallel market rates. Previously, the exchange rate structure was dual because of the potential deviation of the exchange rates applied by the commercial banks and the Banco Central de São Tomé and Príncipe reference rate between auctions.||Tightening of controls|
|Serbia||Effective January 1, 2007, according to the 2007 Policy Program of the National Bank of Serbia (NBS), the NBS may intervene in the foreign exchange market for the purposes of limiting daily volatility, but not in order to resist cumulative pressure over a longer period; containing potential threats to fnancial and price stability; and safeguarding an adequate level of international reserves.||Neutral|
|Serbia||Effective January 1, 2007, the NBS discontinued foreign exchange operations with resident and nonresident natural persons at its foreign offces and automated teller machines in order to decrease its foreign cash operations. Effective March 5, 2007, the NBS discontinued trade in foreign cash currencies other than euros, U.S. dollars, and francs with banks and licensed foreign offces.||Neutral|
|Serbia||Effective January 1, 2007, the incentive fee paid by the NBS to foreign exchange dealers was reduced to 0.5% from 0.7%. The incentive fee was further lowered to 0.3% from 0.5% and, effective January 1, 2008, was reduced to zero.||Neutral|
|Serbia||Effective March 5, 2007, the offcial middle exchange rate of the dinar against the euro is set at the start of each business day as the weighted average of the exchange rates applied in all individual interbank spot transactions in the foreign exchange market outside the fxing session and at the fxing session on the previous day. This rate applies on the day of calculation.||Neutral|
|Serbia||Effective June 4, 2007, the NBS discontinued organizing daily fxing sessions and holds fxing sessions only on as-needed basis, when the NBS considers them necessary in order to stabilize the foreign exchange market. With the elimination of the daily fxing sessions, the NBS started to participate in the interbank foreign exchange market, through the Reuters Dealing System, by selling specifc amounts of foreign exchange at the best quoted rate without the intention of infuencing the market exchange rate.||Easing of controls|
|Serbia||Effective September 1, 2007, the NBS closed the units in charge of exchange transactions at 33 locations in Serbia. The NBS now deals with licensed exchange bureaus only at fve branch offces.||Neutral|
|Serbia||Effective January 1, 2008, the NBS has not renewed its agreements with exchange dealers, unless they have already concluded agreements on the performance of exchange transactions with one or more commercial banks.||Neutral|
|Slovak Republic||Effective March 19, 2007, the European Central Bank and the National Bank of Slovakia established the new central rate of the Slovak koruna at Sk 35.4424 per €1.||Neutral|
|Slovenia||Effective January 1, 2007, Slovenia adopted the euro as its offcial currency.||Neutral|
|Sudan||Effective June 4, 2007, the exchange rate was reclassified from unitary to dual because of the introduction by the Central Bank of Sudan of a cash margin requirement on letters of credit and import credit. The margin requirement was abolished December 30, 2007.||Tightening of controls|
|Sudan||Effective July 1, 2007, the Sudanese dinar has been replaced by the Sudanese guinea.||Neutral|
|Sudan||Effective January 1, 2008, the spread between the buying and selling rates was set as a percentage instead of a fixed amount.||Easing of controls|
|Syrian Arab Republic||Effective January 1, 2007, the public sector and the free market rates were unifed, and thus the exchange rate structure was reclassified to the category dual from the category multiple.||Easing of controls|
|Thailand||Effective March 3, 2008, domestic fnancial institutions are allowed to purchase foreign currencies against Baht for value same day or value next day without prior permission from the Bank of Thailand. For transactions without underlying trade or investment in Thailand, the total outstanding balance of each fnancial institution must not exceed B 300 million for each group of nonresidents.||Easing of controls|
|Tunisia||Effective December 18, 2007, authorized intermediaries were authorized to list foreign currency/dinar exchange options for their resident customers to enable them to hedge against the exchange risk generated by commercial operations involving goods and services and fnancial transactions. Authorized intermediaries may engage among themselves in foreign currency/dinar exchange option transactions to hedge against the exchange risk associated with their customers’ transactions. The maturity of the exchange option must be based on the settlement date for the underlying commercial or fnancial transaction, up to a limit of three years. The exercise price for the option as well as the premium may be freely negotiated between authorized intermediaries and their customers.||Easing of controls|
|Tunisia||Effective March 3, 2008, the performance of nonelectronic foreign exchange operations by ADs with exchange bureaus is regulated.||Neutral|
|Turkey||The rules applicable to forward transactions have been amended as of February 8, 2008.||Neutral|
|Turkey||Effective March 10, 2008, the daily fixed amount of foreign exchange to be purchased by the Central Bank of the Republic of Turkey was reduced to $15 million from $30 million.||Neutral|
|Turkmenistan||Effective April 20, 2007, the exchange rate structure has been reclassified to dual from unitary as a result of the significant spread between the offcial and the parallel market rates. Since the unifcation of the exchange rate, the spread has diminished.||Tightening of controls|
|Turkmenistan||Effective January 1, 2008, a commercial rate of manat 20,000 per $1 was introduced in addition to the offcial exchange rate. The offcial exchange rate was devalued to manat 6,250 per $1 from manat 5,200 per $1. No limits were set on purchases or sales of cash foreign currency by individuals.||Easing of controls|
|Turkmenistan||Effective May 1, 2008, the commercial rate and the offcial exchange rate were unifed, and the new exchange rate was pegged to the U.S. dollar at the rate of manat 14,250 per $1. A uniform exchange rate of manat 14,250 per $1 applies to all eligible transactions at the Interbank Currency Exchange.||Easing of controls|
|Ukraine||Effective January 1, 2007, the fee on purchases of noncash-foreign exchange used for government pension insurance was lowered to 1% from 1.3%.||Easing of controls|
|Ukraine||Effective January 1, 2008, the fee on purchases of noncash foreign exchange was lowered from 1% to 0.5% in the context of the budget for 2008.||Easing of controls|
|Uruguay||Effective September 18, 2007, the 2% tax on purchases of foreign exchange by public sector institutions, except the Central Bank of Uruguay (CBU) and offcial banks, was abolished.||Easing of controls|
|Uruguay||Effective December 21, 2007, the CBU effectively withdrew from the forward market.||Neutral|
|Uzbekistan||Effective January 1, 2008, the offcial exchange rate is determined on the basis of interbank trading sessions (ITS) relative to two currencies, the U.S. dollar and the euro. The offcial exchange rate of the CBU is determined once a week as the average ITS rate for the previous week and it remains in effect for one week.||Neutral|
|República Bolivariana de Venezuela||Effective January 1, 2008, exchange transactions and their value in bolívares must be reexpressed by dividing the amounts by 1,000. The number of decimal places for defning the value of the exchange rates is set by the Central Bank of Venezuela. According to the new methodology, the exchange rate of the bolívar is Bs 2,144.600.000 (buying) and Bs 2,150.000.000 (selling) per $1.||Neutral|
|Vietnam||The State Bank of Vietnam (SBV) widened the U.S. dollar-dong trading band, allowing banks to quote rates that vary up to ±0.5%, effective January 1, 2007, and up to ±0.75%, effective December 24, 2007, from the rate quoted by the SBV.||Easing of controls|
|Vietnam||Effective March 10, 2008, the SBV widened the U.S. dollar-dong trading band, allowing banks to quote rates that vary up to ±1% from the rate quoted by the SBV.||Easing of controls|
|Zimbabwe||Effective May 2, 2008, a new market-determined foreign exchange pricing framework was introduced. Authorized dealers may match buyers and sellers of foreign exchange according to a predetermined list of priorities and are required to submit to the Reserve Bank of Zimbabwe the details of the transactions they handle on a biweekly basis.||Easing of controls|
Limitations on foreign exchange trading were relaxed in China and Vietnam and tightened in Lao P.D.R. The widening of the trading bands in spot foreign exchange transactions allows a greater role for market forces.
Most changes in controls on forward transactions involved easing controls, although there was tightening in some cases. For example, controls were eased on forward transactions in India, Malaysia, and Tunisia, whereas in Colombia controls were tightened as part of the package of measures implemented to limit capital inflows. These steps seem to represent part of a gradual process of liberalization, allowing market participants more flexibility to hedge foreign exchange exposures.
Official actions, such as the introduction of official rates disconnected from the market, created dual or multiple exchange rate structures in some countries (e.g., Angola, Eritrea, and São Tomé and Príncipe). Botswana’s exchange rate structure became unitary with the elimination of the previous MCP. Turkmenistan unified its official and commercial exchange rates. Argentina and Burundi also took steps to eliminate MCPs that were created by surrender requirements or features of the auction mechanism.
No major changes were recorded in foreign exchange taxes. Such taxes were increased in Brazil and Bolivia, continued to decrease in Ukraine, and were abolished in Uruguay. Ecuador introduced a 0.5% tax on certain remittances abroad.
Finally, a series of neutral changes were recorded. Cyprus and Malta adopted the euro, and the Slovak Republic entered the ERM II. Ghana and the República Bolivariana de Venezuela changed the denomination of their currencies.
Member Countries’ Obligations and Status under Article VIII
This section provides a brief overview of those countries that have accepted the obligations of Article VIII of the IMF’s Articles of Agreement. It also describes recent developments in exchange measures, including exchange restrictions and MCPs subject to the provisions of Article VIII. In addition, this section covers the restrictions that countries impose to protect national and international security.
In accepting the obligations of Article VIII, Sections 2, 3, and 4, members commit to refrain from imposing restrictions on the making of payments and transfers for current international transactions and from engaging in discriminatory currency arrangements or MCPs, except with IMF approval. No member country has accepted Article VIII obligations since Montenegro became an IMF member in early 2007. As a result, 166 IMF member countries are in Article VIII status and 19 continue to avail themselves of the transitional arrangements of Article XIV.
Restrictions and/or multiple currency practices
|Article XIV Status||Article VIII Status||Total|
|Total number of restrictions maintained by members||43||43||86|
|Restrictions on payments for invisibles and other current transfers||28||23||51|
|Foreign exchange budgets||2||3||5|
|Limited foreign exchange allowances for:||15||9||24|
|Freezing of foreign exchange deposits or inconvertibility of other deposits for current payments||3||3||6|
|Tax clearance certifcation||3||3||6|
|Restrictions on payments for imports||4||3||7|
|Advance import deposits||…||3||3|
|Prior import payment requirements||4||…||4|
|Restrictions arising from bilateral or regional payment, clearing, or barter arrangements||2||2||4|
|Restrictions evidenced by external payment arrears||2||5||7|
|Arrears to commercial creditors||1||1||2|
|Arrears to offcial creditors||1||…||1|
|Arrears not specifed||…||4||4|
|Multiple currency practices||7||10||17|
|Average number of restrictions per member||3.3||2.0||2.5|
|Number of countries with restrictions||14||21||35|
(Based on information in published IMF staff reports)1
|Country||Restrictions and/or Multiple Currency Practices|
|Albania||The IMF staff report for the third review under the three-year arrangement under the Poverty Reduction and Growth Facility states that, as of June 22, 2007, Albania’s exchange rate arrangement was free of exchange restrictions and multiple currency practices subject to IMF jurisdiction under Article VIII. However, the country still availed itself of the transitional arrangements under Article XIV and maintained exchange restrictions in the form of outstanding debit balances on inoperative bilateral payment agreements, which were in place before Albania became an IMF member. These relate primarily to debt in nonconvertible and formerly nonconvertible currencies, which the authorities were working to resolve by end-2007. (Country Report No. 07/244)|
|Angola||The IMF staff report for the 2007 Article IV consultation with Angola states that, as of August 6, 2007, Angola maintained exchange restrictions and multiple currency practices subject to approval under Article VIII, Sections 2 and 3. The identifed exchange restrictions include a limit on the remittance of dividends and profts from foreign investments of up to $100,000 and the need for prior approval on business-related current invisible transactions. Multiple currency practices arise from the differential in spot exchange rates among the Bank of Angola’s currency auction, interbank market, and retail foreign exchange market. A foreign exchange stamp tax applicable to electronic remittances constitutes both an exchange restriction and a multiple currency practice. (Country Report No. 07/354)|
|Aruba||The IMF staff report for the 2005 Article IV consultation with the Kingdom of the Netherlands—Aruba states that, as of April 11, 2005, Aruba maintained a foreign exchange restriction arising from the foreign exchange tax on payments by residents to nonresidents. This tax, which amounts to 1.3% of the transaction value, was introduced when Aruba was part of the Netherlands Antilles to generate revenue for the government. Aruba adopted it after gaining autonomy in 1986. Since then, it has served as a source of general tax revenue for the central government of Aruba. (Country Report No. 05/204)|
|Bangladesh||The IMF staff report for the 2007 Article IV consultation with Bangladesh states that, as of May 31, 2007, Bangladesh maintained a restriction on the convertibility and transferability of proceeds of current international transactions in nonresident taka accounts. (Country Report No. 07/234)|
|Bhutan||The IMF staff report for the 2007 Article IV consultation with Bhutan states that, as of September 20, 2007, Bhutan maintained exchange restrictions in connection with: (1) the availability of foreign exchange fortravel, invisibles, and private transfers; (2) foreign exchange balancing requirements on remittances of income from foreign direct investment; and (3) the availability of foreign exchange for importers who have not provided evidence that goods for which payments have been made were actually imported. Changes to Bhutan’s import licensing rules in 2005, which introduced new foreign exchange balancing requirements for certain imports, gave rise to exchange restrictions subject to IMF approval under Article VIII, Section 2(a). (Country Report No. 07/350)|
|Bosnia||The IMF staff report for the 2007 Article IV consultation with Bosnia and Herzegovina states that, as of June 29, 2007, Bosnia and Herzegovina maintained restrictions on payments and transfers for current international transactions resulting from measures taken with respect to frozen foreign currency deposits. (Country Report No. 07/268)|
|Burundi||The IMF staff report for the sixth review under the arrangement under the Poverty Reduction and Growth Facility with Burundi states that, as of December 28, 2007, Burundi maintained one multiple currency practice (MCP) inconsistent with Article VIII, Section 2(a): the exchange rate used for government transactions [takes place at a rate that] may differ by more than 2% from market exchange rates. (Country Report No. 08/27) An MCP inconsistent with Article VIII, Section 3, previously arose from or in connection with the Dutch auction system and an exchange restriction resulted from the central bank having discretion to refuse authorization for the sale of foreign exchange for reasons other than in connection with verifying the bona fde nature of the transaction. These were eliminated July 7, 2006, and December 6, 2006, respectively.|
|Colombia||The IMF staff report for the 2007 Article IV consultation with Colombia states that, as of December 26, 2007, Colombia maintained two exchange measures subject to Fund approval under Article VIII: (1) a multiple currency practice and an exchange restriction arising from a tax on outward remittances of nonresident profts that were earned before 2007 and have been retained in the country for less than fve years; and (2) an exchange restriction arising from the special regime for the hydrocarbon sector. Branches of foreign corporations are required either to surrender their export proceeds or to agree to a government limitation on their access to the foreign exchange market. While Colombia is free under the Articles to impose surrender requirements and to exempt the application of those requirements, conditioning such exemptions on the acceptance of limitations on the availability of foreign exchange for the making of payments and transfers for current international transactions is inconsistent with Article VIII, Section 2(a). (Country Report No. 08/31)|
|Congo, Dem. Rep. of||The IMF staff report for the 2007 Article IV consultation with the Democratic Republic of the Congo states that, as of August 15, 2007, the Democratic Republic of the Congo maintained measures that give rise to one restriction and one multiple currency practice (MCP) subject to IMF approval under Article VIII. The exchange restriction involves an outstanding net debit position vis-à-vis other contracting members under the inoperative regional payments agreement with the CEPGL. The MCP involves a fixed exchange rate set on a quarterly basis applying to transactions through the bilateral payments agreement with Zimbabwe. (Country Report No. 07/327)|
|Ecuador||The IMF staff report for the 2005 Article IV consultation with Ecuador states that, as of January 5, 2006, Ecuador maintains an exchange restriction subject to IMF approval under Article VIII, Section 2(a), in the form of a freeze on demand and savings deposits held in closed banks managed by the Deposit Guarantee Agency. (Country Report No. 06/98)|
|Ethiopia||The IMF staff report for the 2007 Article IV consultation with Ethiopia states that, as of May 18, 2007, Ethiopia maintained four restrictions on payments and transfers for current international transactions, which relate to (1) the tax certifcation requirement for repatriation of dividend and other investment income; (2) restrictions on repayment of legal external loans and supplies and foreign partner credits; (3) rules for issuance of import permits by commercial banks; and (4) the requirement to provide a clearance certifcate from NBE to obtain import permits. (Country Report No. 07/247)|
|Guinea||The IMF staff report for the 2006 Article IV consultation with Guinea states that, as of December 7, 2007, Guinea continues to have a multiple currency practice (MCP) arising from the absence of a mechanism to prevent a potential deviation of the exchange rate used by the central bank in its foreign exchange transactions from the exchange rates used by the commercial banks in transactions with their customers. (Country Report No. 08/33)|
|India||The IMF staff report for the 2007 Article IV consultation with India states that, as of December 27, 2007, India maintained the following restrictions on the making of payments and transfers for current international transactions, which are subject to IMF approval under Article VIII, Section 2(a): (1) restrictions related to the nontransferability of balances under the India-Russia debt agreement, (2) restrictions arising from unsettled balances under inoperative bilateral payments arrangements with two Eastern European countries, and (3) a restriction on the transfer of amortization payments on loans by nonresident relatives. (Country Report No. 08/51)|
|Iran, Islamic Republic o||The IMF staff report for the 2006 Article IV consultation with the Islamic Republic of Iran states f that, as of February 1, 2007, Iran maintains one exchange restriction and two multiple currency practices (MCPs) subject to IMF jurisdiction under Article VIII, Sections 2(a) and 3. The exchange restriction arises from limitations set out in the by-laws adopted to implement the Foreign Investment Promotion and Protection Act on the transferability of (periodic) rial profts from certain foreign direct investments. The MCPs arise from (1) budget subsidies for foreign exchange purchases in connection with payments of certain letters of credit opened prior to March 21, 2002, under the previous multiple exchange rate system and (2) obligations of entities that had received allocations of foreign exchange at subsidized “allocated rates” under the previous multiple exchange rate system to surrender unused allocations to the Central Bank of Iran at the allocation rate. (Country Report No. 07/100)|
|Lao P.D.R.||The IMF staff report for the 2007 Article IV consultation with the Lao People’s Democratic Republic states that, as of July 20, 2007, Lao P.D.R. maintained a restriction subject to IMF approval under Article VIII: tax payment certifcates are required for some current account transactions. (Country Report No. 07/360)|
|Macedonia FYR||The IMF staff report for the second review under the Stand-By Arrangement with the former Yugoslav Republic of Macedonia states that, as of April 11, 2007, FYR Macedonia maintained an exchange restriction subject to IMF approval under Article VIII, Section 2(a), arising from restrictions imposed on the transferability of proceeds from current international transactions contained in former frozen foreign currency saving deposits. (Country Report No. 07/257)|
|Malawi||The IMF staff report for the 2006 Article IV consultation states that, as of February 1, 2007, Malawi maintained a multiple currency practice (MCP) under Article VIII. As the authorities have ceased the informal rationing of foreign exchange and there is no longer a backlog of arrears on import payments, the exchange restriction evidenced by these arrears has been eliminated. IMF staff is assessing whether the offcial action that gave rise to the MCP has ceased. (Country Report No. 07/147)|
|Mozambique||The IMF staff report for the frst review under the Policy Support Instrument with the Republic of Mozambique states that, as of December 3, 2007, Mozambique maintained restrictions on the making of payments and transfers for current international transactions subject to IMF approval under Article VIII, as evidenced by (1) discretionary prior approval for remittances of family living expenses, (2) authorization requirements for the purchase of foreign exchange in excess of US$5,000 for certain transactions; (3) prohibition on the conversion of balances of nonresidents’ domestic currency accounts into foreign currency and their transfer abroad, (4) prohibition of advance payments for services, and (5) prohibition of advance payments for the importation of goods. (Country Report No. 08/15)|
|Myanmar||The IMF staff report for the 2007 Article IV consultation with Myanmar states that, as of November 5, 2007, Myanmar maintained exchange restrictions and multiple currency practices subject to IMF approval under Article VIII arising from (1) limits on the purchase of foreign exchange by residents for foreign travel and by nonresidents for the remittable portion of wages, as well as for payments and transfers relating to invisible and other current international transactions, and (2) the divergence between the offcial exchange rate used for transactions of the public sector and the parallel market-determined foreign exchange certifcate (FEC) rate.|
|São Tomé and Principe||The IMF staff report for the ffth review of the Three-Year Arrangement with São Tomé and Príncipe states that, as of December 5, 2007, São Tomé and Príncipe maintained an exchange restriction on transfers abroad of dividends and multiple currency practices related to the occasional shortage of foreign exchange in the formal market that results from the rationing by the central bank of foreign exchange sold at auctions, and the existence of multiple exchange markets (i.e., the offcial rate, the auction rate, commercial bank rates, exchange bureau rates, and the rates of the parallel market) in the absence of a mechanism to ensure that spreads among rates for spot transactions in these markets do not diverge by more than 2% at any given time. (Country Report No. 08/95)|
|Sri Lanka||The IMF staff report for the 2007 Article IV consultation with Sri Lanka states that, as of November 7, 2007, all import margin requirements (50%) with respect to certain goods (which are a “normal short term banking and credit facility” under Article XXX(d)), introduced in October 2006, were removed in May 2007, but that the 100% margin requirements on the import of certain vehicles remained in place. (Country Report No. 07/373)|
|Sudan||The IMF staff report for the 2007 Article IV consultation with Sudan states that, as of August 7, 2007, Sudan had (until June 2007) maintained an exchange system free of restrictions on the making of payments and transfers for current international transactions. On June 4, 2007, the Central Bank of Sudan (CBOS) introduced a cash margin requirement for letters of credit and import credit that constitutes an exchange restriction and multiple currency practice under Article VIII, Sections 2(a) and 3. (Country Report No. 07/343)|
|Suriname||The IMF staff report for the 2007 Article IV consultation with Suriname states that, as of March 6, 2007, Suriname maintained multiple currency practices subject to IMF approval. The multiple currency practices arise from the potential for the spread to exceed 2% between the offcial and the commercial exchange rates and from the existence of a special exchange rate for imports of baby milk. (Country Report No. 07/180)|
|Swaziland||The IMF staff report for the 2007 Article IV consultation with Swaziland states that, as of January 16, 2007, Swaziland maintained an exchange restriction arising from a 33.33% limit on advance payments for imports of capital goods. (Country Report No. 07/132)|
|Syrian Arab Republic||The IMF staff report for the 2007 Article IV consultation with the Syrian Arab Republic states that, as of July 13, 2007, Syria maintained, under Article XIV, restrictions on payments and transfers for current international transactions, including administrative allocation of foreign exchange. Syria also maintained exchange measures that are subject to IMF approval under Article VIII: (1) prohibition against purchases by private parties of foreign exchange from the banking system for some current international transactions; (2) a multiple currency practice resulting from divergences of more than 2% between the offcial exchange rate and officially recognized market exchange rates; (3) a non-interest-bearing advance import deposit requirement of 75–100% for public sector imports; and (4) an exchange restriction arising from the net debt under inoperative bilateral payments arrangements with the Islamic Republic of Iran and Sri Lanka. (Country Report No. 07/288)|
|Tonga||The IMF staff report for the 2007 Article IV consultation with Tonga states that, as of July 10, 2007, Tonga imposed an exchange restriction subject to approval under Article VIII, Section 2(a), in the form of a tax certifcation requirement imposed on certain current international transactions. (Country Report No. 07/297)|
|Tunisia||The IMF staff report for the 2007 Article IV consultation with Tunisia states that, as of July 13, 2007, Tunisia maintained a multiple currency practice resulting from honoring exchange rate guarantees extended prior to August 1988 to development banks, which will automatically expire after maturity of existing commitments. (Country Report No. 07/302)|
|Zambia||The IMF staff report for the 2007 Article IV consultation with Zambia states that, as of November 21, 2007, Zambia maintained an exchange restriction evidenced by the accumulation of external payments arrears, which is subject to IMF approval under Article VIII. (Country Report No. 08/41)|
The number of countries that maintain restrictions on the making of payments and transfers for current international transactions and/or MCPs increased to 35 in 2007, from 34 in 2006.
Among countries that maintain some type of exchange restriction,9 the majority (21) have already accepted the obligations of Article VIII, and the remaining countries (14) avail themselves of the transitional arrangements of Article XIV.
The number of exchange restrictions increased slightly among both Article VIII and Article XIV countries. Against the increase of restrictions by 1 for both groups of countries, restrictions decreased mostly in the area of foreign exchange allowances for travel, education, and medical expenses, while restrictions increased with respect to imports and in other areas.
The types of exchange restrictions vary across countries. The most widely used restrictions are quantitative limits on the making of payments and transfers for current invisible transactions. In total, 51 restrictions are retained on payments for invisibles and other current transfers in the form of quantitative limits (e.g., Angola, Bhutan, and the Syrian Arab Republic) and documentary requirements on foreign exchange allowances for certain current international transactions, including payments for travel and profit remittances (e.g., Ethiopia and Tonga require tax certification for these transactions).
Other types of exchange restrictions include limits on advance payments for certain imports (e.g., Swaziland), restrictions arising from the accumulation of private external payments arrears (e.g., Zambia), and restrictions arising from bilateral or regional payments agreements (e.g., Albania, India, and the Democratic Republic of the Congo).
A number of countries (17) also maintained measures that give rise to MCPs, subject to IMF approval under Article VIII. In most cases (e.g., Angola, Burundi, Guinea, São Tomé and Príncipe, Suriname, and the Syrian Arab Republic), the MCPs result primarily from multiple exchange markets and exchange rates (the official rate, the auction rate, commercial bank rates, exchange bureau rates, and the rates of the parallel market) that may lead to divergences of more than 2% between the official exchange rate and the rates for spot transactions in these markets.
The average number of exchange restrictions is significantly lower in countries that have accepted Article VIII obligations than in countries with Article XIV status. On average, the number of exchange restrictions per member is only 2 for countries with Article VIII status compared with 3.3 for those with Article XIV status.
As in 2006, a number of countries eliminated exchange restrictions during 2007 in order to gain the benefits of liberalization.10 Three member countries (Botswana, Pakistan, and the Russian Federation) eliminated exchange restrictions/MCPs and are described in the relevant IMF staff reports as maintaining exchange systems free of restrictions on payments and transfers for current international transactions. In addition, Burundi eliminated one exchange restriction resulting from the central bank having discretion to refuse authorization for the sale of foreign exchange for reasons other than in connection with verifying the bona fide nature of the transaction and an MCP related to the foreign exchange auction system. Colombia removed a restriction related to the tax on remittances of nonresident profits earned in 2007 and beyond, and Malawi eliminated an exchange restriction by eliminating the informal rationing of foreign exchange, which previously resulted in a backlog of arrears.
For six countries, there was not enough information available in 2007 to assess the existence of exchange restrictions.11
One country (Sudan) introduced a cash margin requirement for letters of credit and import credit that constitutes an exchange restriction and MCP under the provisions of Article VIII of the IMF’s Articles of Agreement.
Restrictions maintained for security reasons
Member countries continued to notify the IMF of restrictions introduced for national and international security reasons during the current reporting period. Exchange restrictions must be reported to the IMF, regardless of their purpose.12 In total, 24 country authorities fulfilled the obligation during 2007 and early 2008 in notifying the IMF of security-related restrictions. All these countries (mostly advanced economies) reported that they imposed financial sanctions and restrictions to combat financial terrorism, in accordance with relevant UN Security Council resolutions or EU regulations.
Regulatory Framework for Foreign Exchange Transactions
This section documents major developments in arrangements for payments and receipts, trade-related (export/import) measures, payments for invisible transactions and current transfers, regulations on resident and nonresident accounts, and international capital transactions. The following are the broad features of these measures in three major categories: trade-related measures, current invisible transactions, and capital controls.
Exchange and trade restrictions on exports and imports are covered under the category of trade-related measures. In general, the trend toward liberalization of trade-related measures continued in the current reporting period. Out of 102 measures reported by countries in the category of imports and import payments, the majority (65) were aimed at liberalization of controls, including removal of import bans on certain goods, reductions in tariff rates, and elimination of documentation requirements for certain types of imports. In addition, some countries (e.g., Sri Lanka) abolished certain margin requirements on imports. Tightening measures on imports and import payments included mostly import prohibitions and increases in import duty rates on certain goods.
A similar easing of controls was observed in measures governing exports and export proceeds. Only 53 changes were reported in this category. The fact that there were so many fewer changes for exports than imports reflects generally less restrictive regulation of exports. Out of the 53 changes, 28 involved liberalization of export controls, including reduction or removal of repatriation and surrender requirements for export proceeds. For example, Brazil allowed exporters to retain abroad all proceeds received from their shipments and services rendered abroad. Serbia eliminated the repatriation requirement for profits by legal entities operating abroad. Measures that tightened regulation on exports included the imposition of licensing requirements and increases in export duty rates on certain goods. For example, in response to the current global surge in food and energy prices, some countries increased the export duty on fuels (e.g., Argentina) and some have prohibited exports of certain food items (e.g., Bolivia).
Current Invisible Transactions
Overall, exchange controls on current invisible transactions declined during the reporting period. Of the 35 liberalization measures in this category, the majority were either to abolish or raise the quantitative limits on the availability of foreign exchange for making payments for invisible transactions and current transfers. A number of countries also relaxed the documentation and/or approval requirements for these transactions. For example, China increased the limit on foreign exchange purchases by residents for current transactions, and the Syrian Arab Republic adopted a new investment regulation that allows free transfer of all profits and dividends. With respect to regulations related to resident and nonresident accounts, the majority of countries moved toward liberalizing controls, allowing residents and nonresidents more access to foreign currency accounts to facilitate their current international transactions. For example, the Russian Federation eliminated the prior registration requirement for residents opening accounts abroad. In Tunisia, residents are now allowed to open travel allowance accounts in convertible dinars to hold foreign exchange issued for travel purposes and not used abroad.
The observed trend toward liberalization of controls on international capital transactions over the past few years continued during the current reporting period. Member countries reported 205 changes in various categories of capital controls, including controls on capital and money market instruments, credit operations, foreign direct investment (FDI), real estate, and personal capital transactions. Of these changes, a large majority liberalized capital controls in general and eased controls on capital and money market and derivative instruments, in particular. For example, Thailand eliminated the 30% unremunerated reserve requirement for investment in debt securities and unit trusts introduced in late 2006. Malaysia now allows residents to issue foreign currency bonds locally. Controls on FDI were mostly eased, with an emphasis on the liberalization of capital outflows (out of 32 FDI liberalization measures, 19 affected outflows and 13 inflows). For example, the Philippines and Thailand raised the limit on outward investment and eliminated the prior approval requirement up to that limit. Controls on FDI inflows were also liberalized in several member countries. For example, India increased the limit on FDI inflows in certain sectors.
Other capital control measures also tended toward liberalization. Many countries reported easing controls on real estate transactions, allowing residents (nonresidents) to acquire real estate abroad (domestically). For example, India and the Republic of Korea raised the limit on purchases of real estate abroad by residents. In Bulgaria, nonresidents (from EU member countries) are now allowed to purchase or own land locally. Similarly, the majority of changes reported by countries for credit operations and personal capital transactions were also in the direction of greater easing. Barbados, China, India, and Thailand raised limits on personal capital transactions. Azerbaijan and Poland eliminated the approval requirements for the transfer of assets and gifts. In the area of portfolio investments, China increased the limit on purchases of shares by a group of foreign institutional investors. Among the tightening measures, the majority entailed the introduction of limits and approval requirements, mainly on credit operations. For example, Thailand reduced the limit that nonresidents may lend to domestic financial institutions from 50 million baht to 10 million baht, regardless of maturities. Belarus introduced permission requirements (changed from notification) for certain credit operations between residents and nonresidents.
Provisions Specific to Commercial Banks and Institutional Investors
This section reviews developments in provisions specific to commercial banks and institutional investors, with a focus on prudential measures that are in the nature of capital controls.13 The section “Provisions Specific to the Financial Sector” covers monetary, prudential, and foreign exchange controls.14 It includes, among other things, borrowing abroad, lending to nonresidents, purchases of locally issued securities denominated in foreign exchange, and investment regulations. These provisions may be similar or identical to the entries under the respective categories of controls on capital and money market instruments, credit operations, and direct investments, if the same regulations apply to commercial banks as to other residents. In such cases, the entry also appears in the relevant category in the section “Capital Transactions.”
The principal changes in this category during 2007 and through end-July 2008 are presented in Table 8 and may be summarized as follows:
|Type of Control|
|Provisions Specific to the Financial Sector||Prudential||Capital|
|Commercial banks and other credit institutions||23||33||13||16||12||8|
For provisions specific to commercial banks and other credit institutions, the majority of the changes reported were prudential-type controls (69 of 105 measures in this category could be categorized as prudential controls). Although most countries moved toward liberalizing capital controls in this category, prudential regulations were generally tightened. The most important types of tightening included increases in reserve requirements for commercial banks and other credit institutions (e.g., India, Peru, and Seychelles) and tighter limits on foreign exchange positions (e.g., Brazil and Mongolia). To mitigate the indirect exchange rate risk of the financial sector, some countries tightened prudential regulations to limit lending in foreign exchange to residents (e.g., the Republic of Korea and Vietnam). On the other hand, liberalization of provisions for commercial banks and other credit institutions included relaxation or removal of foreign exchange exposure limits (e.g., Malaysia and Pakistan); reduction or unification of reserve requirements in domestic and foreign currency deposits (e.g., Cyprus, Haiti, Georgia, Mozambique, and Slovenia); and higher limits on foreign currency lending by banks (e.g., the Syrian Arab Republic).
Changes in capital controls in the banking sector were in line with trends in other sectors. Out of the 30 measures introduced during the reporting period, 16 changes were toward liberalization and only 12 toward tightening. The majority of liberalizing measures involved relaxation of regulations allowing resident banks to extend loans in foreign currency to residents or to invest abroad. For example, the Syrian Arab Republic now allows banks to lend in foreign exchange to residents to finance investment projects. In Tunisia, resident banks may now extend short-term dinar loans to nonresident firms. Tighter measures for banks included the introduction of reserve requirements for foreign currency borrowing by banks (e.g., Ukraine) and limits on the sale in foreign currency of shares by banks to nonresidents (e.g., Tajikistan).
Unlike changes in the provisions specific to commercial banks and other credit institutions, the majority of changes in the provisions specific to nonbank financial institutions were related to changes in capital controls (16 of 38 measures were related to prudential regulations). In addition, the direction of changes in these measures was different from those in commercial banks and credit institutions, with 23 measures (8 prudential controls and 15 capital controls) moving toward an easing of controls. The most notable of these was the easing of controls on insurance companies, pension funds, and unit trust management companies, allowing them to invest abroad a larger proportion of the assets under their management. For example, Peru increased the operational limit on investment abroad by private pension funds to 17% from 12%. Similarly, Malaysia increased the amount resident institutional investors may invest in foreign currency assets.
A number of reported changes in the provisions specific to the financial sector could not be linked directly to the easing or tightening of rules. These changes were made mainly to allow the creation or development of prudential oversight instruments and institutions. As a result, these changes are recorded as neutral and institutional changes. They include most of the changes to methods for calculating net open positions of banks, amending procedures for the prevention of money laundering, and establishing prescriptions for determining the technical provisions of insurance companies. Some other measures simply reflect new circumstances, most notably changes in the remuneration of reserves (except when remuneration was eliminated, which is considered tightening). During the reporting period, the number of such neutral and institutional financial sector measures was higher than during the reporting period for the 2007 AREAER.
Annex: Foreign Exchange Markets
Deep and liquid financial markets help absorb external shocks, facilitate the conduct of monetary policy, and ensure efficient financing of the budget. They provide participants with a variety of means to conduct their operations and develop products for better risk management. Nonfinancial economic agents benefit from alternatives to bank financing and from being able to achieve a better risk-return trade-off on their investments.
The foreign exchange market is often the first financial market to develop, and is sometimes the only financial market in a country. This annex provides some background information on the organization of foreign exchange markets.
The Role of Foreign Exchange Markets
A well-functioning foreign exchange market contributes to economic development by facilitating international trade, payments, and investment. The organization and operation of the foreign exchange market are largely dependent on the size of the financial system, regulatory and institutional arrangements, and the overall development of the economy.15
One of the functions of a foreign exchange market is price discovery. This function is often constrained by regulation or by the nature of the exchange rate arrangement. Market imperfections are also common, for example when prices are distorted by the actions of a dominant market participant, or by collusion among dealers.
Regulation is one of the main determinants of foreign exchange market microstructure in developing economies.16 Regulation affects who may participate in the market, the sources and permitted uses of foreign exchange, and trading conditions. For example, the authorities may limit the margin that dealers may apply in their quotes. Regulation may also prevent the development of certain market segments or instruments, and controls on forward and other derivative transactions are commonly used.
The prevailing exchange rate arrangement also has an effect on the operation of the market, although, in practice, different trading mechanisms can be found in various exchange rate arrangements. Even though de facto floating arrangements may be more conducive to interbank market development, many countries with de jure or de facto pegs have active interbank foreign exchange markets.
Types of Foreign Exchange Markets
Spot and forward markets
Spot markets are the first foreign exchange markets to develop. Spot transactions involve the purchase and sale of foreign exchange for immediate delivery, which in practice means settlement in two days. In many countries, regulations permit the purchase of spot foreign exchange only for payments for legitimate international transactions. In some countries, the predominant market is the cash market, which is by nature a spot market. The predominance of cash transactions may result from the inability of local banks to provide adequate services, a lack of confidence in the banking sector, or government policies. Often, foreign exchange bureaus are the main intermediaries in foreign exchange transactions in countries where the cash market is prevalent.
Forward foreign exchange markets involve contracts for the delivery or receipt of foreign exchange at some specified future date. These markets are useful for hedging exchange rate risk in international transactions. Forward markets are less widespread than spot markets. As noted above, the development of forward markets is often constrained by regulation. There may be an explicit prohibition against forward foreign exchange transactions, or a requirement that forward contracts cover only risk related to legitimate foreign exchange transactions, for example, export or import transactions. In some countries, the terms of forward contracts are set by regulation—for example, the interest rate used to price the forward contract. Even in the absence of regulatory constraints on forward transactions, the authorities’ explicit or implicit commitment to a specific exchange rate level may give markets the impression that there is an implicit exchange rate guarantee; this perception tends to reduce incentives to hedge exchange rate risk. Development of forward foreign exchange markets may also be impeded by shallow domestic money markets and by the absence of an interest rate yield curve on which to base the pricing of forward contracts, particularly at longer terms.
Offshore and onshore markets
At the early stages of market development, the foreign exchange market usually operates onshore, that is, subject to the domestic jurisdiction of the country. In the context of limited currency convertibility, regulations usually prohibit the trading of domestic currency and the holding of foreign currency accounts abroad. These regulations are often complemented by limitations on exports and imports of domestic banknotes. As a result, the domestic currency is unavailable outside the country, and its trading takes place only in the domestic foreign exchange market. Despite these prohibitions, cash markets often develop offshore, in particular in neighboring countries, with domestic currency supplied by tourists. Prohibitions against forward transactions may lead to the emergence of an offshore nondeliverable forward market.17 These markets allow foreign investors in a country to hedge their exchange rate risk. At times, they have also allowed speculators to take positions against pegged exchange rate regimes perceived to be unsustainable.
Unified and dual markets
Foreign exchange markets may be either unified or segmented. Advantages of a unified market include greater liquidity, improved price discovery, lower short-run exchange rate volatility, and more reliable access to foreign exchange. Dual or multiple official markets can be found in countries with dual or multiple exchange rates. For example, a country may have a foreign exchange market for current transactions and another market at a different exchange rate for capital transactions. In other cases, an official exchange rate set by the central bank may apply to certain transactions, mainly transactions with the government or public enterprises, and a market exchange rate determined by market participants may apply to other transactions, effectively segmenting the market. Often, a parallel market exists in addition to the official market(s). If the parallel market operates largely at the same price as the official market, the existence of a parallel market may be a sign of market dysfunction, including high fees or taxes on foreign exchange transactions through commercial banks, or an insufficient number of locations (foreign exchange bureaus or bank branches) where foreign currency can be exchanged. A parallel market with a significant premium over the official exchange rate may signal distortions in the official foreign exchange market, for example, a scarcity of foreign exchange at the official exchange rate.
The role of the central bank
Central banks may play various roles in the foreign exchange market. At one extreme, the central bank may intermediate all or almost all foreign exchange flows. The dominance of the central bank may result from structural factors or may reflect a policy choice. Central banks may intermediate a significant portion of foreign exchange inflows for structural reasons when, for example, the major source of foreign exchange in a country is foreign aid, or when oil exports by a public company are channeled through the central bank. Policy choices may include a general surrender requirement to the central bank, which effectively centralizes all foreign exchange inflows subject to surrender in the central bank and requires the redistribution of foreign exchange to the market. At the other end of the spectrum, the central bank may not participate in the foreign exchange market at all, and transactions and price-setting may be the exclusive province of dealers, including commercial banks and exchange bureaus.
The development of the foreign exchange market entails the partial or complete withdrawal of the central bank from intermediating foreign exchange flows. However, even as it reduces its own intermediation, the central bank still has a role to play in facilitating the development of the market, usually through measures aimed at enhancing confidence in market participants and market mechanisms, for example, the establishment of a clear legal and supervisory framework for foreign exchange payments and settlements. Even once a well-functioning interbank foreign exchange market has developed, the central bank will often continue to conduct foreign exchange market operations aimed at implementing a particular exchange rate policy or arrangement, such as a conventional pegged arrangement or managed floating.
Several types of trading mechanisms can be distinguished based on the extent and nature of central bank participation. These include allocation, auction, fixing, and an interbank market, and are discussed below.
Allocation involves redistribution of foreign exchange inflows by the central bank to market participants for international transactions. Central banks sometimes intermediate all or almost all foreign exchange flows. This function may be supported by a general surrender requirement, obligating foreign exchange earners to sell their foreign exchange receipts to the central bank directly or through commercial banks. The foreign exchange thus centralized is in turn allocated by the central bank to finance international transactions by the public and private sectors. Requests to buy foreign exchange must be submitted to the central bank or to commercial banks, and the central bank determines the amounts to be sold based on these requests. In an allocation system, companies and individuals will often transact directly with the central bank, and commercial banks may usually buy foreign exchange only for their clients’ underlying international transactions. Purchases of foreign exchange for the banks’ own purposes, which are sometimes referred to as “speculative,” are typically not permitted.
Auctions are frequently conducted by central banks to supply or purchase foreign exchange in the market.18 The auction is often the main source of foreign exchange in the economy as a result of a general surrender requirement or the structure of inflows. The characteristics of auctions vary significantly across countries. The authorities may opt for a multiple-price auction (all accepted bidders pay the price they offered) or a single-price auction (all bidders pay the same price, which is usually the market-clearing price).19 The authorities may exercise discretion in accepting or rejecting offers, and often a floor price is determined in advance, below which offers are not accepted. Auctions may be the predominant form of the market, or they may supplement a well-functioning interbank market. Some countries use auctions to manage their foreign exchange reserves, for example, by buying or selling foreign exchange in predetermined quantities at regular intervals. When auctions are conducted in a transparent manner, they increase the predictability of foreign exchange flows and can thus help reduce volatility in a shallow market. The frequency of auctions depends mainly on the amount or availability of foreign exchange to be auctioned and on the role the auction plays in the foreign exchange market. In pure auction markets, the frequency of auctions may have a discernible effect on the volatility of the exchange rate. A major drawback of auctions is their susceptibility to collusion by market participants.
Fixing sessions are often organized at the early stages of market development, when the interbank market is shallow and segmented. To enhance interbank market development, and to facilitate interbank transactions and market-based determination of the exchange rate, central banks may conduct fixing sessions. These sessions help commercial banks to gain experience with exchange rate determination, while the central bank continues to monitor the market closely. In a fixing arrangement, trading takes place in fixing sessions managed by the central bank. Often, central banks actively participate in price formation by selling or buying during the session to achieve a certain exchange rate target. Typically, a fixing session is based on the submission of bids and offers before the opening of the session. The organizer determines the opening rate based on the buying and selling orders. During the fixing session, live quotes are received, which move the exchange rate up and down, reflecting the disequilibrium of demand and supply. Finally, a market-clearing rate is established as a midpoint rate; the buying and selling rates are then determined by applying the specified margins. Outside of the fixing sessions, banks may usually trade at freely determined prices.
The continuously operating interbank market is generally considered the most developed form of foreign exchange market. The interbank market ideally operates with minimal central bank participation. However, at the early stages of development, the central bank may need to play the role of a market maker to build up confidence in the market. A market maker is required to provide continuous two-way quotes for a specified amount of foreign exchange to other market participants, thus ensuring that a certain level of liquidity is always available in the market. Sometimes, the central bank sets minimum criteria for market-making performance and encourages this activity by ensuring that only market makers participate in central bank market operations. As soon as the number of market makers is sufficient to ensure the continuous operation of the market, central banks can and usually do withdraw from this form of participation in the interbank market. Developed interbank markets are self-governing institutions and have their own code of conduct.
In the past, many interbank markets also operated with voice brokers, who intermediated among market participants by matching foreign exchange supply and demand. Voice brokers may offer firm two-way quotes based on the orders they receive. However, they do not take positions themselves. Most interbank markets these days use electronic brokering systems that match purchase and sale orders electronically. Because foreign exchange trading involves credit to counterparties in the transactions, dealers must open bilateral credit lines with each other before participating in the electronic brokering system. The system automatically ensures that bids and offers are matched only up to the amount of the approved credit line.
In addition to the 185 IMF member countries, the report includes Hong Kong SAR (People’s Republic of China) as well as Aruba and the Netherlands Antilles (both Netherlands).
If countries implement changes to these restrictions after the relevant IMF document is issued, these changes will be reflected in a subsequent edition of the AREAER, covering the year during which the IMF staff report that includes information on such changes is issued.
The information on exchange measures imposed for security reasons is based solely on information provided by country authorities.
The exchange rate arrangements maintained by IMF members are classified into eight categories: (1) hard pegs comprising (a) exchange arrangements with no separate legal tender, and (b) currency board arrangements; (2) soft pegs consisting of (a) conventional pegged arrangements, (b) pegged exchange rates within horizontal bands, (c) crawling pegs, and (d) crawling bands; and (3) floating regimes characterized as (a) managed floating with no predetermined path for the exchange rate, and (b) independently floating. These categories are based on the flexibility of the arrangement and how it operates in practice—that is, the de facto regime is described, rather than the de jure or official description of the arrangement. The individual categories are defined in detail in the Compilation Guide.
The AREAER covers developments in exchange rate arrangements through end-April 2008.
Tunisia does not publish currency composite weights; hence, the weights in the composition of the exchange rate basket have been estimated by the IMF staff.
In fact, this number is higher, because some countries that obviously have an interbank market did not report that they have one.
The special topic in the Annex provides a brief description of the various foreign exchange market structures.
The information on exchange restrictions and MCPs in the 2008 AREAER is based on the relevant IMF staff report issued before December 31, 2007. However, the AREAER does not indicate whether such exchange restrictions or MCPs have been approved by the IMF.
See “Article VIII Acceptance by IMF Members—Recent Trends and Implications for the Fund,” May 16, 2006, www.imf.org.
A standard review of the exchange systems of some of these countries was under way in 2007.
A member should notify the IMF before imposing such measures. The notifications are immediately distributed to the Board. The member may assume that the IMF has no objection unless the IMF informs the member otherwise within 30 days of the notification. The IMF’s approval of an exchange restriction pursuant to Decision No. 144-(52/51) is granted for an unlimited period of time.
Capital controls and prudential measures are highly intertwined owing to their overlapping application. For example, some prudential measures (e.g., different reserve requirements for deposit accounts held by residents and nonresidents) can actually be regarded as capital controls because they distinguish between transactions with residents and nonresidents and hence influence capital flows.
Inclusion of an entry in this category does not necessarily indicate that the aim of the measure is to control the flow of capital.
For a more detailed discussion of the issues related to financial markets and in particular foreign exchange markets in small developing countries, see Hervé Ferhani, Mark Stone, Anna Nordstrom, and Seichii Shimizu, Developing Essential Financial Markets in Smaller Economies: Stylized Facts and Policy Options, IMF occasional paper, forthcoming, 2008.
Canales-Kriljenko, Jorge, 2004, “Foreign Exchange Market Organization in Selected Developing and Transition Economies: Evidence from a Survey,” IMF Working Paper 04/4.
For a more detailed discussion on the development of offshore nondeliverable forward markets, see Ma, Guonan, Corrinne Ho, and Robert N. McCauley, 2004, “The markets for non-deliverable forwards in Asian Currencies,” BIS Quarterly Review, June 2004.
Kovanen, Arto, 1994, “Foreign Exchange Auctions and Fixing: A Review of Performance,” IMF Working Paper 94/119.
Multiple-price auctions may give rise to a multiple currency practice if the spread between the exchange rates at which foreign exchange is sold to the winning bidders is more than 2%.
Following a standardized approach, the description of each system is broken down into similar categories, and the coverage for each country includes a final section that lists chronologically the significant changes during 2007 and, in the case of some countries, those that occurred through end-July 2008. The Compilation Guide provides the definitions and methodology used to bring together information under each heading.
The report is presented in a tabular format that enhances transparency and uniformity of treatment of information across countries and includes coverage on the regulatory framework. The information serves to update the exchange arrangements and exchange restrictions database maintained by IMF staff.1 The country chapters present an abstract of the relevant information that is available to the IMF.
|Status Under IMF Articles of Agreement|
|Article VIII||The member country has accepted the obligations of Article VIII, Sections 2, 3, and 4, of the IMF’s Articles of Agreement.|
|Article XIV||The member country continues to avail itself of the transitional arrangements of Article XIV, Section 2.|
|Restrictions and/or multiple currency practices||Exchange restrictions and multiple currency practices maintained by a member country under Article VIII, Sections 2, 3, and 4, or under Article XIV, Section 2, of the IMF’s Articles of Agreement, as specified in the latest IMF staff reports issued as of December 31, 2006.|
|Exchange measures imposed for security reasons||Exchange measures on payments and transfers in connection with international transactions imposed by member countries for reasons of national or international security.|
|In accordance with IMF Executive Board Decision No. 144-(52/51)||Security restrictions on current international payments and transfers on the basis of IMF Executive Board Decision No. 144-(52/51), which establishes the obligation of members to notify the IMF before imposing such restrictions, or, if circumstances preclude advance notification, as promptly as possible.|
|Other security restrictions||Other restrictions imposed for security reasons (e.g., in accordance with UN or EU regulations) but not notified to the IMF under Board Decision 144-(52/51).|
|References to legal instruments and hyperlinks||Specific references to the underlying legal materials and hyperlinks to the legal texts. The category is included at the end of each section.|
|Currency||The official legal tender of the country.|
|Other legal tender||The existence of another currency that is officially allowed to be used in the country.|
|Exchange rate structure||If there is one exchange rate, the system is called unitary; if there is more than one exchange rate that may be used simultaneously for different purposes and/or by different entities, and these exchange rates give rise to multiple currency practices or differing rates for current and capital transactions, the system is called dual or multiple. Different effective exchange rates resulting from exchange taxes or subsidies, excessive exchange rate spreads between buying and selling rates, bilateral payments agreements, and broken cross rates are not included in this category.|
|Classification||Describes and classifies the de jure and the de facto exchange rate arrangements.|
|IMF staff classifies the de facto exchange rate arrangements according to the categories below. As the de facto methodology for classification of exchange rate regimes is based on a backward-looking approach that relies on past exchange rate movement and historical data, some countries are reclassified retroactively to a date when the behavior of the exchange rates changed and matched the criteria for reclassification to the appropriate category. For these countries, if the retroactive date of reclassification is prior to the period covered in this report, then the effective date of change to be entered in the country chapter and the changes section is deemed to be the first day of the year in which the decision of reclassification took place.|
|The description (as required by Paragraph 16 of Decision No. 13919-(07/51), the 2007 Surveillance Decision) and effective dates of the de jure exchange rate arrangements are provided by the authorities. The description includes officially announced or estimated parameters of the exchange arrangement (e.g., parity, bands, weights, rate of crawl, and other indicators used to manage the exchange rate). It also provides information on the computation of the exchange rate and the use of the official exchange rate. Whenever possible, country authorities are also requested to identify which of the existing categories of exchange rate arrangement below most closely corresponds to the de jure arrangement currently in effect.|
|Exchange arrangement with no separate legal tender||The currency of another country circulates as the sole legal tender (formal dollarization). Adopting such regimes implies the complete surrender of the monetary authorities’ control over domestic monetary policy. Effective January 1, 2007, exchange rate arrangements of the countries that belong to a monetary or currency union in which the same legal tender is shared by the members of the union are classified under the arrangement governing the joint currency. The new classification is based on the behavior of the common currency, whereas the previous classification was based on the lack of a separate legal tender. The classification thus reflects only a definitional change, and is not based on a judgment that there has been a substantive change in the exchange regime or other policies of the currency union or its members.|
|Currency board arrangement||A monetary regime based on an explicit legislative commitment to exchange domestic currency for a specified foreign currency at a fixed exchange rate, combined with restrictions on the issuing authority to ensure the fulfillment of its legal obligation. This implies that domestic currency will be issued only against foreign exchange and that it remains fully backed by foreign assets, eliminating traditional central bank functions such as monetary control and lender-of-last-resort, and leaving little scope for discretionary monetary policy. Some flexibility may still be afforded, depending on the strictness of the banking rules of the currency board arrangement.|
|Conventional pegged arrangement||The country (formally or de facto) pegs its currency at a fixed rate to another currency or a basket of currencies, where the basket is formed from the currencies of major trading or financial partners and weights reflect the geographic distribution of trade, services, or capital flows. The currency composites can also be standardized, as in the case of the SDR. There is no commitment to irrevocably keep the parity. The exchange rate may fluctuate within narrow margins of less than ±1% around a central rate—or the maximum and minimum value of the exchange rate may remain within a narrow margin of 2%—for at least three months. The monetary authority stands ready to maintain the fixed parity through direct intervention (i.e., via sale or purchase of foreign exchange in the market) or indirect intervention (e.g., via aggressive use of interest rate policy, imposition of foreign exchange regulations, exercise of moral suasion that constrains foreign exchange activity, or intervention by other public institutions). The flexibility of monetary policy, though limited, is greater than in the case of exchange arrangements with no separate legal tender and currency boards because traditional central banking functions are still possible, and the monetary authority can adjust the level of the exchange rate, although relatively infrequently.|
|Pegged exchange rate within horizontal bands||The value of the currency is maintained within certain margins of fluctuation of at least ±1% around a fixed central rate, or the margin between the maximum and minimum value of the exchange rate exceeds 2%. It also includes arrangements of countries in the ERM of the European Monetary System (EMS), which was replaced with the ERM II on January 1, 1999. There is a limited degree of monetary policy discretion, depending on the width of the band.|
|Crawling peg||The currency is adjusted periodically in small amounts at a fixed rate or in response to changes in selective quantitative indicators, such as past inflation differentials vis-à-vis major trading partners or differentials between the inflation target and expected inflation in major trading partners. The rate of crawl can be set to generate inflation-adjusted changes in the exchange rate (backward looking) or set at a predetermined fixed rate and/or below the projected inflation differentials (forward looking). Maintaining a crawling peg imposes constraints on monetary policy in a manner similar to a fixed peg system.|
|Crawling band||The currency is maintained within certain fluctuation margins of at least ±1% around a central rate—or the margin between the maximum and minimum value of the exchange rate exceeds 2%—and the central rate or margin is adjusted periodically at a fixed rate or in response to changes in selective quantitative indicators. The degree of exchange rate flexibility is a function of the width of the band. Bands either are symmetric around a crawling central parity or widen gradually with an asymmetric choice of the crawl of upper and lower bands (in the latter case, there may be no predetermined central rate). The commitment to maintain the exchange rate within the band imposes constraints on monetary policy, with the degree of policy independence being a function of the width of the band.|
|Managed floating with no predetermined path for the exchange rate||The monetary authority attempts to influence the exchange rate without having a specific exchange rate path or target. Indicators for managing the rate are broadly judgmental (e.g., balance of payments position, international reserves, parallel market developments), and adjustments may not be automatic. Intervention may be direct or indirect.|
|Independently floating||The exchange rate is market determined, with any official foreign exchange market intervention aimed at moderating the rate of change and preventing undue fluctuations in the exchange rate, rather than establishing a level for it.|
|Exchange tax||Foreign exchange transactions are subject to a special tax. Bank commissions charged on foreign exchange transactions are not included in this category; rather, they are listed under the exchange arrangement classification.|
|Exchange subsidy||Foreign exchange transactions are subsidized by using separate, non-market exchange rates.|
|Foreign exchange market||The existence of a foreign exchange market.|
|Spot exchange market||Institutional setting of the foreign exchange market for spot transactions and market participants. Existence and significance of the parallel market.|
|1. Operated by the central bank||The role of the central bank in providing access to foreign exchange to market participants: allocation of foreign exchange to authorized dealers or other legal and private persons, management of buy or sell auctions or fixing sessions. Price determination and frequency of central bank operations.|
|2. Interbank market||The operation of the interbank market; interventions.|
|Forward exchange market||The existence of a forward exchange market; institutional arrangement and market participants.|
|Official cover of forward operations||Official coverage of forward operations refers to the case in which an official entity (the central bank or the government) assumes the exchange risk of certain foreign exchange transactions.|
|Arrangements for Payments and Receipts|
|Prescription of currency requirements||The official requirements affecting the selection of currency and the method of settlement for transactions with other countries. When a country has payments agreements with other countries, the terms of these agreements often lead to a prescription of currency for specified categories of payments to, and receipts from, the countries concerned. This category includes information on the use of domestic currency in transactions between residents and nonresidents, both domestically and abroad; it also indicates any restrictions on the use of foreign currency among residents.|
|Bilateral payments arrangements||Two countries have an agreement to prescribe specific rules for payments to each other, including cases in which private parties are also obligated to use specific currencies. These agreements can be either operative or inoperative.|
|Regional arrangements||More than two parties participate in a payments agreement.|
|Clearing agreements||The official bodies of two or more countries agree to offset with some regularity the balances that arise from payments to each other as a result of the exchange of goods, services, or—less often—capital.|
|Barter agreements and open accounts||The official bodies of two or more countries agree to offset exports of goods and services to one country with imports of goods and services from the same country, without payment.|
|Administration of control||The authorities’ division of responsibility for monitoring policy, administering exchange controls, and determining the extent of delegation of powers to outside agencies (banks are often authorized to effect foreign exchange transactions).|
|Payments arrears||Official or private residents of a member country default on their payments or transfers in foreign exchange to nonresidents. This category includes only the situation in which domestic currency is available for residents to settle their debts, but they are unable to obtain foreign exchange—for example, because of the presence of an officially announced or unofficial queuing system; it does not cover nonpayment by private parties owing to bankruptcy of the party concerned.|
|Controls on trade in gold (coins and/or bullion)||Separate rules for trading in gold domestically and with foreign countries.|
|Controls on exports and imports of banknotes||Regulations governing the physical movement of means of payment between countries. Where information is available, the category distinguishes between separate limits for the (1) export and import of banknotes by travelers and (2) export and import of banknotes by banks and other authorized financial institutions.|
|Indicates whether resident accounts that are maintained in the national currency or in foreign currency, locally or abroad, are allowed and describes how they are treated and the facilities and limitations attached to such accounts. When there is more than one type of resident account, the nature and operation of the various types of accounts are also described; for example, whether residents are allowed to open foreign exchange accounts with or without approval from the exchange control authority, whether these accounts may be held domestically or abroad, and whether the balances on accounts held by residents in domestic currency may be converted into foreign currency.|
|Indicates whether local nonresident accounts maintained in the national currency or in foreign currency are allowed and describes how they are treated and the facilities and limitations attached to such accounts. When there is more than one type of nonresident account, the nature and operation of the various types of accounts are also described.|
|Blocked accounts||Accounts of nonresidents, usually in domestic currency. Regulations prohibit or limit the conversion and/or transfer of the balances of such accounts.|
|Imports and Import Payments|
|Describes the nature and extent of exchange and trade restrictions on imports.|
|Foreign exchange budget||Information on the existence of a foreign exchange plan, that is, prior allocation of a certain amount of foreign exchange, usually on an annual basis, for the importation of specific types of goods and/or services; in some cases, also differentiating among individual importers.|
|Financing requirements for imports||Information on specific import-financing regulations limiting the rights of residents to enter into private contracts in which the financing options differ from those in the official regulations.|
|Documentation requirements for release of foreign exchange for imports|
|Domiciliation requirements||The obligation to domicile the transactions with a specified (usually domestic) financial institution.|
|Preshipment inspection||Most often a compulsory government measure aimed at establishing the veracity of the import contract in terms of volume, quality, and price.|
|Letters of credit||Parties are obligated to use letters of credit (LCs) as a form of payment for their imports.|
|Import licenses used as exchange licenses||Import licenses are used not for trade purposes but to restrict the availability of foreign exchange for legitimate trade.|
|Import licenses and other nontariff measures|
|Positive list||A list of goods that may be imported.|
|Negative list||A list of goods that may not be imported.|
|Open general licenses||Indicates arrangements whereby certain imports or other international transactions are exempt from the restrictive application of licensing requirements.|
|Licenses with quotas||Refers to situations in which a license for the importation of a certain good is granted, but a specific limit is imposed on the amount to be imported.|
|Other nontariff measures||May include prohibitions on imports of certain goods from all countries or of all goods from a certain country. Several other nontariff measures are used by countries (e.g., phytosanitary examinations, setting of standards), but these are not covered fully in the report.|
|Import taxes and/or tariffs||A brief description of the import tax and tariff system, including taxes levied on the foreign exchange made available for imports.|
|Taxes collected through the exchange system||Indicates if any taxes apply to the exchange side of an import transaction.|
|State import monopoly||Private parties are not allowed to engage in the importation of certain products, or they are limited in their activity.|
|Exports and Export Proceeds|
|Describes restrictions on the use of export proceeds, as well as regulations on exports.|
|Repatriation requirements||The obligation of exporters to repatriate export proceeds.|
|Surrender to the central bank||Regulations requiring the recipient of repatriated export proceeds to sell, sometimes at a specified exchange rate, any foreign exchange proceeds in return for local currency to the central bank.|
|Surrender to authorized dealers||Regulations requiring the recipient of repatriated export proceeds to sell, sometimes at a specified exchange rate, any foreign exchange proceeds in return for local currency to commercial banks, or exchange dealers authorized for this purpose or on a foreign exchange market.|
|Financing requirements||Information on specific export-financing regulations limiting the rights of residents to enter into private contracts in which the financing options differ from those in the official regulations.|
|Documentation requirements||The same categories as in the case of imports are used.|
|Export licenses||Restrictions on the right of residents to export goods. These restrictions may take the form of quotas (where a certain quantity of shipment abroad is allowed) or the absence of quotas (where the licenses are issued at the discretion of the foreign trade control authority).|
|Export taxes||A brief description of the export tax system, including any taxes that are levied on foreign exchange earned by exporters.|
|Payments for Invisible Transactions and Current Transfers|
|Describes the procedures for effecting payments abroad in connection with current transactions in invisibles, with reference to prior approval requirements, the existence of quantitative and indicative limits, and/or bona fide tests. Detailed information on the most common categories of transactions is provided only when regulations differ for the various categories. Indicative limits establish maximum amounts up to which the purchase of foreign exchange is allowed upon declaration of the nature of the transaction, mainly for statistical purposes. Amounts above those limits are granted if the bona fide nature of the transaction is established by the presentation of appropriate documentation. Bona fide tests also may be applied to transactions for which quantitative limits have not been established.|
|Trade-related payments||Includes freight and insurance (including possible regulations on non-trade-related insurance payments and transfers), unloading and storage costs, administrative expenses, commissions, and customs duties and fees.|
|Investment-related payments||Includes profits and dividends, interest payments (including interest on debentures, mortgages, etc.), amortization of loans or depreciation of foreign direct investments, and payments and transfers of rent.|
|Payments for travel||Includes international travel for business, tourism, etc.|
|Personal payments||Includes medical expenditures abroad, study expenses abroad, pensions (including regulations on payments and transfers of pensions by both state and private pension providers on behalf of nonresidents, as well as the transfer of pensions due to residents living abroad), and family maintenance and alimony (including regulations on payments and transfers abroad of family maintenance and alimony by residents).|
|Foreign workers’ wages||Transfer abroad of earnings by nonresidents working in the country.|
|Credit card use abroad||Use of credit and debit cards to pay for invisible transactions.|
|Other payments||Includes subscription and membership fees, authors’ royalties, consulting and legal fees, etc.|
|Proceeds from Invisible Transactions and Current Transfers|
|Describes regulations governing exchange receipts derived from transactions in invisibles—including descriptions of any limitations on their conversion into domestic currency—and the use of those receipts.|
|Repatriation requirements||The definitions of repatriation and surrender requirements are similar to those applied to export proceeds.|
|Surrender to the central bank|
|Surrender to authorized dealers|
|Restrictions on use of funds||Refers mainly to the limitations imposed on the use of receipts previously deposited in certain types of bank accounts.|
|Describes regulations influencing both inward and outward capital flows. The concept of controls on capital transactions is interpreted broadly. Thus, controls on capital transactions include prohibitions; need for prior approval, authorization, and notification; dual and multiple exchange rates; discriminatory taxes; and reserve requirements or interest penalties imposed by the authorities that regulate the conclusion or execution of transactions or transfers; or the holding of assets at home by nonresidents and abroad by residents. The coverage of the regulations applies to receipts as well as to payments and to actions initiated by nonresidents and residents. In addition, because of the close association with capital transactions, information is also provided on local financial operations conducted in foreign currency, describing specific regulations in force that limit residents’ and nonresidents’ issuance of securities denominated in foreign currency or, generally, limitations on contract agreements expressed in foreign exchange.|
|Repatriation requirements||The definitions of repatriation and surrender requirements are similar to those applied to export proceeds.|
|Surrender to the central bank|
|Surrender to authorized dealers|
|Controls on capital and money market instruments||Refers to public offerings or private placements on primary markets or their listing on secondary markets.|
|On capital market securities||Refers to shares and other securities of a participating nature, and bonds and other securities with an original maturity of more than one year.|
|Shares or other securities of a participating nature||Includes transactions involving shares and other securities of a participating nature if they are not effected for the purpose of acquiring a lasting economic interest in the management of the enterprise concerned. Investments for the purpose of acquiring a lasting economic interest are addressed under foreign direct investments.|
|Bonds or other debt securities||Refers to bonds and other securities with an original maturity of more than one year. The term “other securities” includes notes and debentures.|
|On money market instruments||Refers to securities with an original maturity of one year or less and includes short-term instruments, such as certificates of deposit and bills of exchange. The category also includes treasury bills and other short-term government paper, bankers’ acceptances, commercial paper, interbank deposits, and repurchase agreements.|
|On collective investment securities||Includes share certificates and registry entries or other evidence of investor interest in an institution for collective investment, such as mutual funds and unit and investment trusts.|
|Controls on derivatives and other instruments||Refers to operations in other negotiable instruments and nonsecured claims not covered under the above subsections. These may include operations in rights; warrants; financial options and futures; secondary market operations in other financial claims (including sovereign loans, mortgage loans, commercial credits, negotiable instruments originating as loans, receivables, and discounted bills of trade); forward operations (including those in foreign exchange); swaps of bonds and other debt securities; credits and loans; and other swaps (e.g., interest rate, debt/equity, equity/debt, foreign currency, and swaps of any of the instruments listed above). Controls on operations in foreign exchange without any other underlying transaction (spot or forward trading on the foreign exchange markets, forward cover operations, etc.) are also included.|
|Controls on credit operations|
|Commercial credits||Covers operations directly linked with international trade transactions or with the rendering of international services.|
|Financial credits||Includes credits other than commercial credits granted by all residents, including banks, to nonresidents, or vice versa.|
|Guarantees, sureties, and financial backup facilities||Includes guarantees, sureties, and financial backup facilities provided by residents to nonresidents and vice versa. It also includes securities pledged for payment or performance of a contract—such as warrants, performance bonds, and standby letters of credit—and financial backup facilities that are credit facilities used as a guarantee for independent financial operations.|
|Controls on direct investment||Refers to investments for the purpose of establishing lasting economic relations both abroad by residents and domestically by nonresidents. These investments are essentially for the purpose of producing goods and services, and, in particular, investments that allow investor participation in the management of the enterprise. The category includes the creation or extension of a wholly owned enterprise, subsidiary, or branch and the acquisition of full or partial ownership of a new or existing enterprise that results in effective influence over the operations of the enterprise.|
|Controls on liquidation of direct investment||Refers to the transfer of principal, including the initial capital and capital gains, of a foreign direct investment as defined above.|
|Controls on real estate transactions||Refers to the acquisition of real estate not associated with direct investment, including, for example, investments of a purely financial nature in real estate or the acquisition of real estate for personal use.|
|Controls on personal capital transactions||Covers transfers initiated on behalf of private persons and intended to benefit other private persons. It includes transactions involving property to which the promise of a return to the owner with payments of interest is attached (e.g., loans or settlements of debt in their country of origin by immigrants), and transfers effected free of charge to the beneficiary (e.g., gifts and endowments, loans, inheritances and legacies, or emigrants’ assets).|
|Provisions Specific to the Financial Sector|
|Provisions specific to commercial banks and other credit institutions||Describes regulations that are specific to these institutions, such as monetary, prudential, and foreign exchange controls. Inclusion of an entry in this category does not necessarily signify that the aim of the measure is to control the flow of capital. Some of these items (e.g., borrowing abroad, lending to nonresidents, purchase of locally issued securities denominated in foreign exchange, investment regulations) may be repetitions of the entries under respective categories of controls on capital and money market instruments, on credit operations, or on direct investments, when the same regulations apply to commercial banks as well as to other residents.|
|Open foreign exchange position limits||Describes regulations on certain commercial bank balance sheet items (including capital) and on limits covering commercial banks’ positions in foreign currencies (including gold).|
|Provisions specific to institutional investors||Describes controls specific to institutions, such as insurance companies, pension funds, investment firms (including brokers, dealers, or advisory firms), and other securities firms (including collective investment funds). Incorporates measures that impose limitations on the composition of the institutional investors’ foreign or foreign currency assets (reserves, accounts) and liabilities (e.g., investments in equity capital of institutional investors or borrowing from nonresidents) and/or that differentiate between residents and nonresidents. Examples of such controls are restrictions on investments because of rules regarding the technical, mathematical, security, or mandatory reserves; solvency margins; premium reserve stocks; or guarantee funds of nonbank financial institutions. Inclusion of an entry in this category does not necessarily signify that the aim of the measure is to control the flow of capital.|
|Investment firms and collective investment funds|
|Listing conventions used in the report are as follows:|
The exchange arrangements and exchange restrictions database includes all measures in this report.
Summary Features of Exchange Arrangements and Regulatory Frameworks for Current and Capital Transactions in Member Countries1
(As of date shown on first country page)2
|Total number of member countries with this feature||Afghanistan, I.R. of||Albania||Algeria||Angola||Antigua and Barbuda||Argentina||Armenia||Australia||Austria||Azerbaijan, Republic of||The Bahamas||Bahrain, Kingdom of||Bangladesh||Barbados||Belarus||Belgium||Belize||Benin||Bhutan||Bolivia||Bosnia and Herzegovina||Botswana|
|Status under IMF Articles of Agreement|
|Exchange rate arrangements|
|Exchange arrangement with no separate legal tender||10|
|Currency board arrangement||12||◊||▲|
|Conventional pegged arrangement||66||◊||◊||◊||◊||◊||◊||◊||◊||▲||✙|
|Pegged exchange rate within horizontal bands||3|
|Managed floating with no predetermined path for the exchange rate||44||●||●||●|
|Exchange rate structure|
|Dual exchange rates||12||●||●|
|Multiple exchange rates||5||●|
|Arrangements for payments and receipts|
|Bilateral payments arrangements||64||●||●||●||●||●||●||●||●||–||●||●||●||●|
|Controls on payments for invisible transactions and current transfers||91||●||●||●||●||●||●||●||●||●||●||●||●||●|
|Proceeds from exports and/or invisible transactions|
|Capital market securities||137||–||●||●||●||●||●||●||●||●||●||●||●||●||●||●||●||●||●||●||●|
|Money market instruments||113||●||●||–||●||●||●||●||●||●||–||●||●||●||●||●||●||●||●||●|
|Collective investment securities||113||–||●||●||●||●||●||●||●||●||●||●||●||●||●||●||●|
|Derivatives and other instruments||90||–||●||●||∎||●||●||●||∎||●||●||●||●||●||●||●||●|
|Guarantees, sureties, and financial backup facilities||81||–||●||●||●||●||●||●||●||●||●||●|
|Liquidation of direct investment||46||–||●||●||●||●||●||●||●|
|Real estate transactions||140||–||●||●||●||●||●||●||●||●||●||●||●||●||●||●||●||●||∎|
|Personal capital transactions||92||–||●||–||●||–||●||●||●||●||●||●||●||●||●||●||●|
|Provisions specific to:|
|Commercial banks and other credit institutions||159||●||●||●||●||●||●||●||●||●||●||●||●||●||●||●||●||●||●||●||●|
|Brazil||Brunei Darussalam||Bulgaria||Burkina Faso||Burundi||Cambodia||Cameroon||Canada||Cape Verde||Central African Republic||Chad||Chile||China, People’s Rep. of||Colombia||Comoros||Congo, Dem. Rep. of||Congo, Republic of||Costa Rica||Côte d’Ivoire||Croatia||Cyprus||Czech Republic||Denmark||Djibouti||Dominica||Dominican Republic||Ecuador||Egypt||El Salvador||Equatorial Guinea||Eritrea||Estonia||Ethiopia||Fiji||Finland|
|France||Gabon||Gambia, The||Georgia||Germany||Ghana||Greece||Grenada||Guatemala||Guinea||Guinea-Bissau||Guyana||Haiti||Honduras||Hungary||Iceland||India||Indonesia||Iran, I.R. of||Iraq||Ireland||Israel||Italy||Jamaica||Japan|
|Status under IMF Articles of Agreement|
|Exchange rate arrangements|
|Exchange arrangement with no separate legal tender|
|Currency board arrangement||◊|
|Conventional pegged arrangement||▲||▲||◊||◊|
|Pegged exchange rate within horizontal bands|
|Managed floating with no predetermined path for the exchange rate||●||●||●||●||●||●||●||●||●|
|Exchange rate structure|
|Dual exchange rates||●|
|Multiple exchange rates|
|Arrangements for payments and receipts|
|Bilateral payments arrangements||●||●||●||●||●||●||●|
|Controls on payments for invisible transactions and current transfers||●||●||●||●||●||●||●||●||●||●|
|Proceeds from exports and/or invisible transactions|
|Capital market securities||●||●||●||●||●||●||●||●||●||●||●||●||●||●||–||●||●|
|Money market instruments||●||●||●||●||●||●||●||●||●||●||●||●||●||–||●||●|
|Collective investment securities||●||●||●||●||●||●||●||●||●||●||●||●||●||●||–||●||●||●|
|Derivatives and other instruments||●||●||●||●||●||●||●||–||●||●||●||–||–||●||●|
|Guarantees, sureties, and financial backup facilities||●||–||●||●||●||●||●||●||●||–||●|
|Liquidation of direct investment||●||●||●||●||–|
|Real estate transactions||●||●||●||●||●||●||●||●||●||●||●||●||●||●||●|
|Personal capital movements||●||●||●||●||●||●||–||∎|
|Provisions specific to:|
|Commercial banks and other credit institutions||●||●||●||●||●||●||●||●||●||●||●||●||●||●||●||●||●||●||●|
|Jordan||Kazakhstan||Kenya||Kiribati||Korea, Republic of||Kuwait||Kyrgyz Republic||Lao People’s Dem. Rep.||Latvia||Lebanon||Lesotho||Liberia||Libyan Arab Jamahiriya||Lithuania||Luxembourg||Macedonia, fmr. Yugoslav Rep.||Madagascar||Malawi||Malaysia||Maldives||Mali||Malta||Marshall Islands, Rep. of the||Mauritania||Mauritius||Mexico||Micronesia, Fed. States of||Moldova||Mongolia||Montenegro, Rep. of||Morocco||Mozambique||Myanmar||Namibia||Nepal|
|Netherlands||New Zealand||Nicaragua||Niger||Nigeria||Norway||Oman||Pakistan||Palau||Panama||Papua New Guinea||Paraguay||Peru||Philippines||Poland||Portugal||Qatar||Romania||Russian Federation||Rwanda||St. Kitts and Nevis||St. Lucia||St. Vincent and the Grenadines||Samoa||San Marino|
|Status under IMF Articles of Agreement|
|Exchange rate arrangements|
|Exchange arrangement with no separate legal tender||◊||◊||▲|
|Currency board arrangement||◊||◊||◊|
|Conventional pegged arrangement||▲||◊||◊||✱||◊||✱|
|Pegged exchange rate within horizontal bands|
|Managed floating with no predetermined path for the exchange rate||●||●||●||●||●||●|
|Exchange rate structure|
|Dual exchange rates|
|Multiple exchange rates||●|
|Arrangements for payments and receipts|
|Bilateral payments arrangements||●||●||●||●||●||–||●||●|
|Controls on payments for invisible transactions and current transfers||●||●||●||●||●||●||●||●||●||●||●||●|
|Proceeds from exports and/or invisible transactions|
|Capital market securities||●||●||●||●||●||●||●||●||●||●||●||●||●||●||●||●||●|
|Money market instruments||●||●||●||●||●||●||●||●||●||●||●||●||●|
|Collective investment securities||●||●||●||●||●||●||●||●||●||●||●||●|
|Derivatives and other instruments||●||●||●||∎||●||●||●||∎||●||●||●|
|Guarantees, sureties, and financial backup facilities||●||●||●||●||●||●||●||●||–|
|Liquidation of direct investment||●||●||–||●|
|Real estate transactions||●||∎||●||●||●||●||●||●||●||●||●||●||●||●||●||●|
|Personal capital movements||●||●||●||●||●||●||●||●||●||●||●||–||●||●|
|Provisions specific to:|
|Commercial banks and other credit institutions||●||●||●||●||●||●||●||●||●||●||●||●||●||●||●||●||●||●||●||●|
|São Tomé and Príncipe||Saudi Arabia||Senegal||Serbia, Rep. of||Seychelles||Sierra Leone||Singapore||Slovak Republic||Slovenia||Solomon Islands||Somalia||South Africa||Spain||Sri Lanka||Sudan||Suriname||Swaziland||Sweden||Switzerland||Syrian Arab Republic||Tajikistan||Tanzania||Thailand||Timor-Leste, Dem. Rep. of||Togo||Tonga||Trinidad and Tobago||Tunisia||Turkey||Turkmenistan||Uganda||Ukraine||United Arab Emirates||United Kingdom||United States|
|Uruguay||Uzbekistan||Vanuatu||Venezuela, Rep. Bolivariana de||Vietnam||Yemen, Republic of||Zambia||Zimbabwe||Memorandum: Nonmembers||Aruba||China, P.R.: Hong Kong SAR||Netherlands Antilles|
|Status under IMF Articles of Agreement|
|Exchange rate arrangements|
|Exchange arrangement with no separate legal tender|
|Currency board arrangement||◊|
|Conventional pegged arrangement||◊||◊||◊||◊||◊||◊|
|Pegged exchange rate within horizontal bands|
|Managed floating with no predetermined path for the exchange rate||●||●|
|Exchange rate structure|
|Dual exchange rates||●|
|Multiple exchange rates||●|
|Arrangements for payments and receipts|
|Bilateral payments arrangements||●||∎||●||●||●|
|Controls on payments for invisible transactions and current transfers||●||∎||●||●||●||●||●|
|Proceeds from exports and/or invisible transactions|
|Capital market securities||●||∎||●||●||●||●||●|
|Money market instruments||∎||∎||●||●||●||●|
|Collective investment securities||●||∎||●||●||●||●||●|
|Derivatives and other instruments||∎||∎||∎||●||●||●||●||●||●|
|Guarantees, sureties, and financial backup facilities||●||∎||●||●||●||●|
|Liquidation of direct investment||●||∎||●||–||●||●||●|
|Real estate transactions||●||∎||●||●||●|
|Personal capital movements||●||∎||●||●||●||●||●|
|Provisions specific to:|
|Commercial banks and other credit institutions||●||●||∎||●||●||●||●||●||●||●||●|
Key and Footnotes
• Indicates that the specified practice is a feature of the exchange system.
– Indicates that data were not available at time of publication.
∎ Indicates that the specific practice is not regulated.
⊕ Indicates that the member participates in the euro area.
✱ Indicates that the country participates in the ERM II.
┷ Indicates that flexibility is limited vis-à-vis the U.S. dollar.
▴ Indicates that flexibility is limited vis-à-vis the euro.
✚ Indicates that flexibility is limited vis-à-vis another single currency.
⦿ Indicates that flexibility is limited vis-à-vis the SDR.
✱ Indicates that flexibility is limited vis-à-vis another basket of currencies.
1 The entries for Aruba, Hong Kong SAR, and the Netherlands Antilles are located at the end of the table.
2 Usually December 31, 2007.