Chapter

Introduction

Author(s):
International Monetary Fund. Monetary and Capital Markets Department
Published Date:
October 2010
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This volume (the 60th edition) of the Annual Report on Exchange Arrangements and Exchange Restrictions (AREAER) provides a description of the foreign exchange arrangements, exchange and trade systems, and capital controls of all IMF member countries.1 The AREAER reports on restrictions in force under Article XIV, Section 2, of the IMF’s Articles of Agreement in accordance with Section 3 of Article XIV, which mandates annual reports on the restrictions in force under Article XIV, Section 2. It also provides information related to Paragraph 16 of the 2007 Surveillance Decision, which restates the obligation under the IMF’s Articles of Agreement of each member country to notify the IMF of the exchange arrangement it intends to apply and of any changes in this arrangement.

The AREAER attempts to provide a comprehensive description of exchange and trade systems, going beyond exchange restrictions or exchange controls. It includes information related to restrictions on current international payments and transfers and multiple currency practices (MCPs) subject to the IMF’s jurisdiction in accordance with Article VIII of the IMF’s Articles of Agreement or maintained under Article XIV.2 The report also provides information on the operation of the foreign exchange markets and controls on international trade. It describes controls on capital transactions and measures implemented in the financial sector, including prudential measures. In addition, it reports on exchange measures imposed by members for security reasons, including those reported to the IMF in compliance with relevant decisions by the IMF Executive Board.3

The AREAER aims to provide timely information. In general, the report describes the exchange and trade systems as of end-2008. However, to ensure that it is as up to date as possible, changes in member countries’ exchange rate arrangements are reflected as of end-April 2009, and in some cases, reference is made to significant developments that occurred through end-August 2009.

This report presents information on countries’ exchange rate arrangements according to a revised methodology. As in 2008, the report provides detailed information on the de jure and de facto exchange rate arrangements of member countries. The de jure arrangements are reported as described by the countries. The de facto exchange rate arrangements are classified into 10 categories.4 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. Effective February 2, 2009, the classification methodology was revised to allow for greater consistency and objectivity of classifications across countries and to improve transparency in the context of the IMF’s bilateral and multilateral surveillance.

The country tables show the classification of the exchange rate arrangement according to the revised methodology. Table 1 reports the De Facto Classification of Exchange Rate Arrangements and Monetary Policy Frameworks. This table provides summary information on the main features of the exchange rate arrangements in member countries. Table 2 details the changes in countries’ exchange rate arrangements during the reporting period and the resulting reclassifications. To facilitate comparison of exchange rate arrangements with the previous year, Table 3 shows the changes in the classification of countries’ exchange rate arrangements as a result of the February 2009 revision of the methodology. It is intended to extend the classification series backward in time based on the revised methodology. The Appendix to this Introduction discusses the new classification methodology in more detail, and the Compilation Guide includes definitions and explanations for the consistent application and interpretation of the categories and reflects the changes introduced this year to the AREAER database.

Table 1.De Facto Classification of Exchange Rate Arrangements and Monetary Policy Frameworks, End-April 2009
The classification system is based on IMF members’ actual, de facto arrangements, as identified by IMF staff, which may differ from their officially announced, de jure arrangements. The system classifies exchange rate arrangements primarily on the basis of the degree to which the exchange rate is determined by the market rather than by official action, with market-determined rates being on the whole more flexible. It distinguishes between hard pegs (such as exchange arrangements with no separate legal tender and currency board arrangements); soft pegs, including conventional pegged arrangements, pegged exchange rates within horizontal bands, crawling pegs, stabilized arrangements, and crawl-like arrangements; floating regimes, such as floating and free floating; and a residual category, other managed. The table presents members’ exchange rate arrangements 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 buys or sell foreign exchange to maintain the exchange rate at its predetermined level or within a range. The exchange rate thus serves as the nominal anchor or intermediate target of monetary policy. These frameworks are associated with exchange rate arrangements with no separate legal tender, currency board arrangements, pegs (or stabilized arrangements) with or without
bands, crawling pegs (or crawl-like arrangements), and other managed arrangements.



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.



Inflation-targeting framework



This involves the public announcement of numerical targets for inflation, with an institutional commitment by the monetary authorities to achieve these targets, typically over a medium-term horizon. Additional key features normally 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 achieving its inflation objectives. Monetary policy decisions are often 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.



Other



The country has no explicitly stated nominal anchor, but instead monitors various indicators in conducting monetary policy. This category is also used when no relevant information on the country is available.
Monetary Policy Framework
Exchange rate arrangement (number of countries)Exchange rate anchorMonetary aggregate targetInflation-targeting frameworkOther1
U.S. dollar (54)Euro (27)Composite (14)Other (8)(25)(29)(31)
No separate legal tender (10)Ecuador

El Salvador

Marshall Islands

Micronesia, Fed. States of
Palau

Panama

Timor-Leste
Montenegro

San Marino
Kiribati
Currency board (13)ECCU

Antigua and Barbuda

Dominica

Grenada

St. Kitts and Nevis

St. Lucia

St. vincent and the Grenadines
Djibouti

Hong Kong SAR
Bosnia and Herzegovina

Bulgaria

Estonia2

Lithuania2
Brunei Darussalam
Conventional peg(42)Aruba

Bahamas, The

Bahrain

Barbados

Belize

Eritrea

Jordan

Maldives

Netherlands Antilles
Oman

Qatar

Saudi Arabia

Turkmenistan

United Arab Emirates

Venezuela
Cape Verde

Comoros

Denmark2

Latvia



WAEMU

Benin

Burkina Faso

Cote d’Ivoire

Guinea-Bissau

Mali

Niger

Senegal

Togo



CAEMC

Cameroon

Central African Rep.

Chad

Congo, Rep. of

Equatorial Guinea

Gabon
Fiji

Libya

Morocco

Samoa
Bhutan

Lesotho

Namibia

Nepal

Swaziland
Stabilized ArrangementsAngola

Azerbaijan (06/08)

Bangladesh

China (06/08)

Guyana

Honduras
Lebanon

Malawi

Suriname

Trinidad and Tobago

Yemen, Rep. of
Macedonia, FYR

São Tomé and Príncipe (06/08)
Crawling peg(5)Bolivia

Iraq
Nicaragua

Uzbekistan
Botswana
Crawl-like arrangement (1)Ethiopia
Pegged exchange rate within horizontal bands (4)Kazakhstan (02/09)Belarus (01/09)

Syrian Arab Rep.

Tonga
Other managed arrangement (21)Costa Rica

Georgia (03/09)

Kyrgyz Rep.

Liberia (03/09)
Myanmar

Solomon Islands (06/08)

Vietnam (11/08)
Croatia (01/09)Iran, I.R. of (03/08)

Kuwait

Russian Fed. (11/08)

Vanuatu
ZimbabweNigeria (01/09)

Rwanda (12/08)

Tajikistan (01/09)

Ukraine
Dominican Republic

Egypt

Lao P.D.R.

Mauritania
Floating (46)Algeria

Singapore
Afghanistan, I.R. of

Argenita (10/08)

Burundi

Gambia, The

Guinea

Jamaica

Kenya

Madagascar

moldova

Mongolia (03/09)

Mozambique

Papua New Guinea

Paraguay

Seychelles (11/08)

Sierra Leone (11/08)

Sudan

Tanzania

Tunisia (01/08)

Uganda

Zambia
Albania

Armenia3 (03/09)

Brazil

Colombia

Ghana

Guatemala

Hungary (03/09)

Indonesia

Mexico (10/08)

Peru

Phillipines

Romania

Serbia

South Africa

Thailand

Turkey (10/08)

Uruguay3
Cambodia

Haiti

Iceland (10/08)

India

Malaysia

Pakistan

Sri Lanka
Free floating (33)Congo, Dem. Rep. ofAustralia

Canada

Chile

Czech Rep.

Israel

Korea, Rep. of

New Zealand

Norway

Poland

Sweden

Switzerland

United Kingdom
Japan

Mauritius

Somalia

United States



EMU

Austria

Belgium

Cyprus

Finland

France

Germany

Greece

Ireland

Italy

Luxembourg

Malta

Netherlands

Portugal

Slovak Rep. (01/09)

Slovenia

Spain
Source: IMF staff.Note: If the member country’s de facto exchange rate arrangement has been reclassified during the reporting period, the date of change is indicated in parentheses.
Table 2.Reclassified Exchange Rate Arrangements, January 2008 through End-April 2009
Change RecordedArrangement in the 2008 AREAER1Arrangement in the 2009 AREAER
AlbaniaEffective February 15, 2009, the classification of the de facto exchange rate arrangement has been changed from free floating to floating because of the Bank of Albania’s interventions in the foreign exchange market to deal with rapid changes in the lek exchange rate.Free floatingFloating
ArgentinaThe peso has been more volatile since September 2008; it depreciated by 21% from September 2008 to April 2009. As a result, the exchange rate arrangement has been reclassified to floating from a stabilized arrangement, as of October 1, 2008.Stabilized arrangementFloating
ArmeniaEffective July 1, 2008, the exchange rate arrangement was reclassified to a stabilized arrangement from floating. This classification was a result of the dram’s stability within a ±1% band since July 2008.FloatingStabilized arrangement
Armenia2The Central Bank of Armenia decided to limit its role as a supplier in the foreign exchange market, thus returning to a de facto floating exchange rate regime. Therefore, effective March 3, 2009, the exchange rate arrangement has been reclassified to floating from a stabilized arrangement.Floating
AzerbaijanThe authorities have held the manat stable against the U.S. dollar. Therefore, effective June 1, 2009, the exchange rate arrangement has been reclassified to a stabilized arrangement from the category other managed arrangement.Other managed arrangementStabilized arrangement
BelarusThe actual value of the foreign currency basket has remained within the established ±5% band relative to its initial value. Therefore, effective January 5, 2009, the classification of the de facto exchange rate arrangement has been changed to a pegged exchange rate within horizontal bands from a stabilized arrangement.Stabilized arrangementPegged exchange rate within horizontal bands
ChinaSince mid-2008, the renminbi has shown the characteristics of a stabilized arrangement. Therefore, effective June 1, 2008, the classification of the de facto exchange rate arrangement has been changed to a stabilized arrangement from a crawl-like arrangement.Crawl-like arrangementStabilized arrangement
CroatiaThe kuna depreciated by approximately 3% from December 2008 to January 2009. Therefore, effective January 1, 2009, the classification of the de facto exchange rate arrangement has been changed to the category other managed arrangement from stabilized arrangement.Stabilized arrangementOther managed arrangement
GeorgiaBecause of the stability of the exchange rate, effective September 1, 2008, the classification of the de facto exchange rate arrangement was changed to a stabilized arrangement from floating.FloatingStabilized arrangement
Georgia2Effective March 6, 2009, the exchange rate arrangement has been reclassified to the category other managed arrangement from a stabilized arrangement because the authorities introduced a foreign exchange auction and phased out their direct intervention to base the pricing of the lari on the market.Other managed arrangement
HungaryEffective March 1, 2009, the de facto exchange rate arrangement has been reclassified to floating from free floating because of discretionary intervention on the foreign exchange market by the Magyar Nemzeti Bank.Free floatingFloating
IcelandEffective October 15, 2008, the classification of the de facto exchange rate arrangement has been changed to floating from free floating because of central bank foreign exchange intervention.Free floatingFloating
Iran, Islamic Republic of2Although the authorities remain in control of the exchange rate, the rial’s volatility against the U.S. dollar, the euro, and the yen has increased. Therefore, effective March 1, 2008, the de facto exchange rate arrangement was reclassified to managed floating with no predetermined path for the exchange rate from a crawling peg arrangement.Crawling pegOther managed arrangement (managed floating with no predetermined path for the exchange rate)
KazakhstanFollowing the change in the tenge trading band, effective February 4, 2009, the classification of the de facto exchange rate arrangement has been changed to a pegged exchange rate within horizontal bands from a stabilized arrangement.Stabilized arrangementPegged exchange rate within horizontal bands
KuwaitBecause the observed exchange rate movements do not confirm any constant weights of the currency composite, effective January 1, 2009, the de facto classification of the exchange rate arrangement has been changed to the category other managed arrangement from a conventional peg.Conventional pegOther managed arrangement
Liberia3Effective January 1, 2008, the de facto exchange rate arrangement was reclassified to a conventional pegged arrangement from managed floating with no predetermined path for the exchange rate because the exchange rate remained stable.Managed floating with no predetermined path for the exchange rateStabilizedarrangement(conventionalpeggedarrangement)
Liberia2Since the beginning of 2009, the Liberian dollar has fluctuated more against the U.S. dollar. As a result, effective March 1, 2009, the exchange rate arrangement has been reclassified to the category other managed arrangement from a stabilized arrangement.Other managed arrangement
MauritiusThe Central Bank of Mauritius did not intervene in the foreign exchange market from December2008 through April 2009. As a result, effective November 1, 2008, the de facto exchange rate arrangement has been reclassified to free floating from floating.FloatingFree floating
MexicoA new intervention policy was implemented in October 2008, aimed at reducing daily exchange rate volatility, which had increased because of the global financial crisis. As a result, effective October 9, 2008, the de facto exchange rate arrangement has been reclassified to floating from free floating. The authorities expressed their intention to phase out this type of intervention during the second half of 2009.Free floatingFloating
MongoliaAgainst the backdrop of a rapid devaluation of the togrog, effective November 1, 2008, the classification of the de facto exchange rate arrangement was changed to the category other managed arrangement from a stabilized arrangement.Stabilized arrangementOther managed arrangement
Mongolia2The Bank of Mongolia implemented a foreign exchange auction and allowed the market to largely determine the exchange rate. Therefore, effective March 24, 2009, the classification of the de facto exchange rate arrangement has been changed to floating from the category other managed arrangement.Floating
Nigeria3Effective April 1, 2008, the de facto exchange rate arrangement was reclassified retroactively to a conventional pegged arrangement from managed floating with no predetermined path for the exchange rate because of the stability of the naira against the U.S. dollar.Managed floating with no predetermined path for the exchange rateStabilized arrangement (conventional pegged arrangement)
Nigeria2The de facto exchange rate arrangement has been reclassified from a stabilized arrangement to the category other managed arrangement, effective January 1, 2009, because of the increased volatility of the naira at the end of 2008.Other managed arrangement
Russian FederationAs a result of frequent changes in the parameters of the exchange rate arrangement and the continued control of the Bank of Russia over exchange rate determination, effective November 1, 2008, the classification of the de facto exchange rate arrangement has been changed to the category other managed arrangement from a stabilized arrangement.Stabilized arrangementOther managed arrangement
RwandaThe price formula used for determining the exchange rate ensured a gradual appreciation of the exchange rate until July 2008, at which point the direction of the exchange rate path reversed, with the pace of depreciation accelerating in January 2009. Therefore, effective December 1, 2008, the de facto exchange rate arrangement has been changed to the category other managed arrangement from a stabilized arrangement.Stabilized arrangementOther managed arrangement
São Tomé and PríncipeEffective June 1, 2008, the de facto exchange rate arrangement has been reclassified to a stabilized arrangement from the category other managed arrangement because of the stability of the dobra against the U.S. dollar. Since February 2009, the exchange rate has been stable against the euro.Other managed arrangementStabilized arrangement
SeychellesThe exchange rate of the rupee is determined by market forces, with the Central Bank of Seychelles intervening only to smooth exchange rate volatility and manage liquidity. Therefore, effective November 1, 2008, the classification of the de facto exchange rate arrangement has been changed to floating from a stabilized arrangement.Stabilized arrangementFloating
Sierra LeoneThe leone started experiencing a pronounced depreciation in the third quarter of 2008, which continued thereafter. Therefore, effective November 1, 2008, the de facto exchange rate arrangement has been reclassified to floating from a stabilized arrangement.Stabilized arrangementFloating
Slovak Republic3Effective January 1, 2009, the de facto exchange rate arrangement of the Slovak Republic has been reclassified to independently floating from a pegged exchange rate within horizontal bands, following the adoption of the euro.Pegged exchange rate within horizontal bandsFree floating (independently floating)
Solomon IslandsEven though the method of exchange rate calculation has not changed, because of daily intervention by the Central Bank of the Solomon Islands, the Solomon Islands dollar has depreciated against the U.S. dollar since June 2008. Therefore, effective June 1, 2008, the de facto exchange rate arrangement has been reclassified to the category other managed arrangement from a conventional peg.Conventional pegOther managed arrangement
Sri LankaEffective January 1, 2009, the classification of the de facto exchange rate arrangement has been changed from a stabilized arrangement to floating because of the rapid depreciation that has taken place since mid-December 2008.Stabilized arrangementFloating
TajikistanThe exchange rate depreciated by 14% from January 1, 2009, to April 30, 2009, and the National Bank of Tajikistan announced a flexible foreign exchange arrangement. As a result, effective January 1, 2009, the de facto exchange rate arrangement has been reclassified to the category other managed arrangement from a stabilized arrangement.Stabilized arrangementOther managed arrangement
Tunisia3The dinar has been more flexible against the euro and the U.S. dollar. Therefore, effective January 1, 2008, the de facto exchange rate arrangement has been reclassified to managed floating with no predetermined path for the exchange rate from a conventional pegged arrangement.Conventional pegged arrangementOther managed arrangement (managed floating with no predetermined path for the exchange rate)
TurkeyDaily selling auctions to provide U.S. dollars to the market were held October 24–30, 2008 (a total of $100 million was sold) and then again March 10-April 2, 2009, for $50 million each day. As a result, effective October 24, 2008, the de facto exchange rate arrangement has been reclassified to floating from free floating.Free floatingFloating
Ukraine3The hryvnia exchange rate was kept within a very narrow range in relation to the U.S. dollar as a result of interventions; there has recently been greater flexibility in the exchange rate. In light of this, the classification of the de facto exchange rate arrangement was changed from a conventional pegged arrangement to managed floating with no predetermined path for the exchange rate as of April 30, 2008.Conventional pegged arrangementOther managed arrangement (managed floating with no predetermined path for the exchange rate)
VietnamExchange rate fluctuations increased in 2008 as a result of the enlargement of the trading band. Therefore, effective November 8, 2008, the classification of the de facto exchange rate arrangement has been changed to the category other managed arrangement from a stabilized arrangement.Stabilized arrangementOther managed arrangement
Zimbabwe3Effective April 30, 2008, the classification of the de facto exchange rate arrangement was changed from a conventional pegged arrangement to managed floating with no predetermined path for the exchange rate as a result of the coexistence of different currencies in Zimbabwe and frequent changes in policy regarding the Zimbabwe dollar.Conventional pegged arrangementOther managed arrangement (managed floating with no predetermined path for the exchange rate)
Table 3.Reclassifications Because of Methodological Changes at End-April 20081
Change RecordedCountries (Number)
Conventional peg to stabilized arrangementAngolaMongolia
ArgentinaNigeria
BangladeshRussian Federation
BelarusRwanda
CroatiaSeychelles
GuyanaSierra Leone
HondurasSri Lanka
KazakhstanSuriname
LebanonTajikistan
LiberiaTrinidad and Tobago
Macedonia, FYRVietnam
MalawiYemen, Rep. of
Crawling peg to crawl-like arrangementChinaEthiopia
Crawling band to other managed arrangementAzerbaijanCosta Rica
Managed floating with no predetermined path for the exchange rate to other managed arrangementDominican RepublicMyanmar
EgyptSão Tomé and Príncipe
Iran, Islamic Rep. ofUkraine
Kyrgyz RepublicVanuatu
Lao P.D.R.Zimbabwe
Mauritania
Managed floating with no predetermined path for the exchange rate to floatingAfghanistan, Islamic Rep. ofMalaysia Mauritius
AlgeriaMoldova
ArmeniaMozambique
BurundiPakistan
CambodiaPapua New Guinea
ColombiaParaguay
Gambia, ThePeru
GeorgiaRomania
GhanaSerbia
GuatemalaSingapore
GuineaSudan
HaitiTanzania
IndiaThailand
IndonesiaTunisia
JamaicaUganda
KenyaUruguay
Madagascar
Independently floating to floatingBrazilSouth Africa
PhilippinesZambia
Independently floating to free floatingAlbaniaMexico
AustraliaNew Zealand
CanadaNorway
ChilePoland
Congo, Dem. Rep. ofSomalia
Czech RepublicSweden
Euro area (16)Switzerland
HungaryTurkey
IcelandUnited Kingdom
IsraelUnited States
Japan
Korea, Rep. of
Source: IMF staff analysis.

The table on Summary Features of Exchange Arrangements and Regulatory Frameworks for Current and Capital Transactions in Member Countries provides an overview of the characteristics of the exchange and trade systems of IMF member countries. The Country Table Matrix includes a complete listing of the categories used in the database.

Beginning this year, the AREAER is available on the Internet as an online database. This format provides users easy access to the report’s data. In addition to the exchange and trade systems of IMF member countries in 2008, the online version contains historical data published in previous editions of the AREAER. The database is searchable by year, country, and category of measure and allows cross-country comparisons.

Overall Developments

Developments during the reporting period suggest a continuing trend toward liberalization of controls on current and capital account transactions and an increase in the flexibility of exchange rate arrangements, despite the effects of the global financial crisis. Overall, few countries introduced new controls or limitations on foreign exchange transactions during this period; even the previously observed tendency to strengthen prudential rules has become more balanced. The major trends and significant developments documented in the report are the following:

  • The global financial crisis thus far does not appear to have reversed the general liberalization trend of member countries’ foreign exchange regimes. The relaxation of controls continued uninterrupted in all areas of the foreign exchange and trade regimes included in this report.

  • There is slightly more flexibility in exchange rate arrangements, although the frequency and the volume of interventions increased. Even though managed arrangements (hard and soft pegs) continue to represent the majority of exchange rate arrangements, changes during the reporting period resulted generally in slightly more flexibility. Significant volatility in exchange rates and large depreciation pressures triggered more active participation by authorities in foreign exchange markets, leading to a decrease in the number of free floaters. Policy responses also included less predictable management of exchange rates, which increased the number of countries classified as having “other managed” arrangements.

  • The exchange rate remains the key anchor for the majority of member countries’ monetary frameworks. However, its share among monetary anchors and, in particular, the role of the U.S. dollar as anchor currency have decreased.

  • Foreign exchange auctions gained in importance, facilitating the implementation of more flexible exchange rate arrangements and providing a transparent framework for central banks’ regular foreign exchange transactions.

  • Other changes moved generally in the direction of liberalization, including lower taxes on exchange transactions, simplification of exchange rate structures, and relaxed controls on forward exchange markets.

  • Member countries moved toward less restricted foreign exchange regimes by eliminating exchange restrictions and MCPs. Only a few new restrictions have been introduced to address balance of payments difficulties triggered by the global crisis, and all except one had been eliminated by end-2008.

  • 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 were aimed at liberalizing controls; only a few controls were tightened. Controls were eased mainly on foreign borrowing, reflecting countries’ attempts to ease tight liquidity conditions in domestic financial markets and to boost domestic lending.

  • As in 2007, most measures implemented in the financial sector were of a prudential nature, with only some changes to capital controls. In particular, there has been significant liberalization of capital controls applicable to institutional investors. Prudential measures were tightened in the first half of the reporting period, mostly in response to the challenges of the global financial crisis, followed by a tendency toward easing during the final months of 2008 and in early 2009.

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 Arrangements

This section describes developments in the area of exchange arrangements. It also documents major changes and trends in exchange rate regimes, interventions, and the operation and structure of foreign exchange markets, and reports on significant developments with respect to exchange taxes, exchange rate structures, and national currencies (see Table 4).

Table 4.Changes in Exchange Arrangements, 2008–09
ChangeType
BelarusEffective January 1, 2008, the National Bank of the Republic of Belarus (NBRB) officially began maintaining the exchange rate of the Belarusian rubel within a ±2.5% horizontal band vis-à-vis the U.S. dollar relative to the exchange rate of the Belarusian rubel against the U.S. dollar as of January 1, 2008.Neutral
BelarusEffective January 2, 2009, the authorities depreciated the Belarusian rubel by about 21% vis-à-vis the U.S. dollar and euro, and by about 17% vis-à-vis the Russian ruble.Neutral
BelarusEffective January 5, 2009, in application of the Monetary Policy Guidelines for 2009, the reference for the peg regime became a basket of currencies (Russian ruble, U.S. dollar, and euro), and the fluctuation band around the central parity was widened to ±5%.Easing of controls
BelarusEffective June 22, 2009, the NBRB further widened the fluctuation band to ±10%.Easing of controls
BoliviaEffective January 2, 2008, the Central Bank of Bolivia (CBB) introduced a 1% service charge on transfers from abroad to the financial system through the CBB, except for (1) operations through the CBB for exporters; (2) remittances equal to or less than $1,000; and (3) operations through the financial system for the diplomatic corps, cooperation agencies, and international organizations.Tightening of controls
BoliviaEffective January 2, 2009, the fee on inward funds transfers by the financial system through the CBB was decreased from 1.0% to 0.6%.Easing of controls
BoliviaEffective January 2, 2009, the fee on outward funds transfers by the financial system through the CBB was increased from 0.2% to 0.6%.Tightening of controls
BrazilEffective January 3, 2008, the tax on inflows related to external loans with a minimum maturity of up to 90 days and the tax on remittances related to obligations of credit card administration companies to pay for purchases by their clients was increased to 5.38% from 5% and to 2.38% from 2%, respectively.Tightening of controls
BrazilEffective January 3, January 4, March 13, May 12, September 15, October 22, November 20, and December 11, 2008, Decrees 6339, 6345, 6391, 6453, 6566, 6613, 6655, and 6691 increased the rate of tax and adjusted the situations in which tax is applied to foreign exchange transactions.Tightening of controls
ChileEffective March 27, 2009, the Central Bank of Chile introduced a foreign exchange auction to sell foreign exchange on the Treasury’s account.Neutral
ColombiaEffective May 12, 2008, the upper limit of gross risk exposure in the foreign exchange derivatives market for exchange market intermediaries was changed from 500% to 550% of capital and reserves.Easing of controls
ColombiaEffective June 23, 2008, direct purchase auctions were established as a mechanism for intervention on the foreign exchange market.Neutral
ColombiaEffective June 24, 2008, the prescribed volatility of the exchange rate triggering the holding of option auctions to control volatility, and on exercising such options, was increased from 2% to 5% above or below the average peso-dollar rate representative of the market of the previous 20 days.Easing of controls
ColombiaEffective September 19, 2008, entities supervised by the Financial Superintendency (SF) of Colombia became eligible to carry out credit default swaps with foreign agents that engage in such operations professionally, provided the operations are carried out solely to provide cover and with SF authorization.Easing of controls
Costa RicaEffective June 25, 2008, the Regulations on Exchange Derivative Operations were amended to (1) simplify the regulations and ensure that the standards and specific requirements that supervised institutions must meet are issued by each superintendency in conformity with the conditions specific to its supervised institutions, (2) allow brokerage firms to participate in the creation and development of an exchange derivatives market, and (3) allow authorized institutions to operate as intermediaries by offering spread and futures contracts. The penalties for noncompliance with the provisions of the Organic Law of the Central Bank and these regulations were also specified.Easing of controls
Costa RicaEffective July 16, 2008, the intervention buying rate (floor of the band) was increased from C 488.73 to C 500.00 per $1, and the intervention selling rate (ceiling of the band) was lowered from C 572.49 to C 555.37 per $1. The floor was fixed and the ceiling of the band increased every business day by C 0.06 (2.7% on an annualized basis). This meant a discrete increase of 2.3% in the lower limit and a reduction of 3.0% in the upper limit of the exchange band.Neutral
Costa RicaEffective November 26, 2008, the following changes have been implemented for derivative transactions: (1) In nonstandardized contracts (forwards), clients may request that the dealer settle through actual delivery based on the final exchange rate agreed to in the contract. (2) “Client” is defined as the individual or legal entity conducting transactions with a derivative market intermediary for the purpose of hedging risk or investments. (3) Financial structures that are, in reality, equivalent to exchange derivatives became subject to the same regulatory treatment as derivatives.Neutral
Costa RicaEffective January 16, 2009, the number of participants (individuals and legal entities) that can trade in foreign currencies on the exchange market (MONEX) through the central direct service was increased. A total of 500 available slots (for technical reasons related to the system) were auctioned, and the slots were awarded on January 16, 2009.Neutral
Costa RicaEffective January 22, 2009, the lower and upper crawling limits were changed to C 500 (previously, 498.39) and C 563.25 (previously, 562.83) per $1, respectively, establishing a band range of 12.6%. The intervention buying rate was fixed, but the intervention selling rate was increased from C 0.06 to C 0.20 a business day, representing an annualized exchange adjustment rate of about 9%.Neutral
Costa RicaEffective March 25, 2009, the Regulations on Spot Exchange Operations were amended to (1) incorporate a definition of spot exchange operations; (2) allow brokerage firms to conduct spot repo operations in foreign currencies on their own account and at their own risk, in addition to the operations they conduct on behalf of third parties; and (3) specify penalties for noncompliance with the rules and the Organic Law of the Central Bank.Easing of controls
CyprusEffective January 1, 2008, Cyprus adopted the euro as its official currency.Neutral
EcuadorEffective January 1, 2008, a 0.5% tax was introduced on remittances abroad, with the following exceptions: import payments, profit repatriation, debt service, credit card transactions, and reinsurance premiums.Tightening of controls
EcuadorEffective December 30, 2008, import payments’ exemption from the remittance tax was eliminated, and the tax was raised to 1%.Tightening of controls
EcuadorEffective January 1, 2009, the 0.5% tax on remittances abroad was increased to 1%.Tightening of controls
FijiEffective April 15, 2009, the Fiji dollar was devalued by 20%.Neutral
GeorgiaEffective August 7, 2008, the authorities announced that the lari-U.S. dollar exchange rate would be kept stable when the conflict with Russia started.Neutral
GeorgiaAfter several weeks of pegging the exchange rate at lari 1.65 per $1, the authorities formally adopted a floating exchange rate arrangement as of November 10, 2008.Easing of controls
GeorgiaEffective March 6, 2009, the authorities introduced a foreign exchange auction and phased out daily foreign exchange market interventions by end-May 2009.Easing of controls
GuatemalaEffective June 11, 2008, the Bank of Guatemala (BOG) was permitted to buy/sell foreign currency up to $8 million at auctions, should the reference exchange rate be equal to or less than the moving average of reference exchange rates for the five previous business days, plus or minus a fluctuation margin of 0.5%.Neutral
GuatemalaEffective December 23, 2008, the fluctuation margin triggering auctions was increased to 0.75%.Easing of controls
GuatemalaEffective February 25, 2009, the BOG was permitted to intervene in the foreign exchange market by buying or selling foreign currency whenever the nominal exchange rate shows unusual volatility.Tightening of controls
HondurasEffective May 8, 2008, the Central Bank of Honduras introduced an operational band that restricts the daily depreciation of the exchange rate by a maximum of 0.075% of the moving average of the exchange rate of the previous seven days.Tightening of controls
HungaryEffective February 26, 2008, the central parity and the exchange rate band of the Hungarian forint were abolished.Easing of controls
IcelandEffective October 15, 2008, the Central Bank of Iceland (CBI) started operating a daily auction to sell foreign exchange to commercial banks.Neutral
IcelandEffective December 3, 2008, the CBI stopped organizing daily auctions to sell foreign exchange; the market reverted to previous practices, with the CBI intervening directly with market participants.Neutral
IndiaEffective August 5, 2008, directives for the introduction of exchange-traded currency futures were issued.Easing of controls
IndiaThe trading of currency futures started on the National Stock Exchange as of August 29, 2008, on the Bombay Stock Exchange as of October 1, 2008, and on the Multi Commodity Exchange—Stock Exchange as of October 7, 2008.Easing of controls
IndonesiaEffective December 1, 2008, the purchase of foreign currency against rupiah through banks exceeding $100,000 a month became subject to verification of supporting documents on the underlying transaction.Tightening of controls
IndonesiaEffective December 16, 2008, foreign exchange transactions were required to be settled in full, except in case of force majeure and for the rollover of hedging operations of economic activities in Indonesia.Tightening of controls
KazakhstanEffective February 4, 2009, the tenge was devalued by 18% and, in accordance with the National Bank of Kazakhstan’s announcement, a trading band was established vis-à-vis the U.S. dollar at ±3%.Easing of controls
MadagascarEffective January 12, 2009, the foreign exchange market handles spot and forward operations on a continuous basis.Neutral
MaltaEffective January 1, 2008, Malta adopted the euro as its official currency.Neutral
MexicoEffective August 1, 2008, the rules-based auction mechanism to prevent reserves accumulation was discontinued.Neutral
MexicoEffective October 8, 2008, the Bank of Mexico (BOM) sold through five unscheduled auctions (extraordinary auctions) an aggregate of US$11 billion to meet exceptional foreign exchange demand arising mainly from distressed corporate derivatives, starting on October 8, 2008. Auctions were announced on the same day they were held and were open to all local banking institutions.Neutral
MexicoEffective October 9, 2008, the BOM implemented a daily U.S. dollar competitive multiprice auction open to all local banking institutions offering US$400 million every day.Neutral
MexicoEffective February 4, 2009, the BOM started a series of six discretionary interventions through direct sales to individual participants in the market for an aggregate amount of US$1.8 billion to fend off intense speculative activity.Neutral
MexicoEffective March 5, 2009, the BOM announced a daily competitive auction of US$100 million to establish a mechanism that guarantees that a significant portion of the projected international reserve accumulation is sold in the foreign exchange market.Neutral
MexicoEffective March 9, 2009, the daily amount offered for sale at the auction introduced October 9, 2008, was reduced to US$300 million.Neutral
MongoliaEffective March 24, 2009, the Bank of Mongolia (BOM) introduced a two-way multiple-price foreign exchange auction.Neutral
MongoliaEffective June 1, 2009, the BOM stopped rationing foreign exchange for import transactions at the auctions.Easing of controls
NepalEffective September 3, 2008, the Nepal Rastra Bank started to sell cash to ADs in foreign currencies other than dollars.Neutral
NigeriaEffective January 1, 2008, the Central Bank of Nigeria (CBN) began to announce the amount of foreign exchange offered on the day of the auction and to release auction results the same day. Funds purchased through the CBN became eligible for trading in the interbank market.Easing of controls
NigeriaEffective January 19, 2009, the CBN’s wholesale auction system, the WDAS, was replaced with a retail Dutch auction system (RDAS), under which bids need to be accompanied by supporting documentation to prove that the funds are for eligible transactions. Funds purchased through the RDAS became ineligible for trading in the interbank market.Tightening of controls
NigeriaEffective February 9, 2009, the CBN announced a ±3% band for the naira around the official rate recorded on that date (N 145.85 to $1).Easing of controls
NigeriaEffective February 9, 2009, the buying and selling rates of ADs and the exchange bureaus that buy foreign exchange from the CBN were limited to ±1% and ±2%, respectively, around the CBN rates.Tightening of controls
NigeriaEffective February 9, 2009, unutilized foreign exchange funds were required to be returned to the CBN within five working days.Tightening of controls
NigeriaEffective February 26, 2009, oil and oil service companies and government agencies were required to sell their foreign exchange to the CBN.Tightening of controls
NigeriaEffective May 22, 2009, limits on the buying and selling rates of ADs were eliminated.Easing of controls
NigeriaEffective May 22, 2009, foreign exchange acquired from sources other than CBN auctions is exempt from the mandatory five-working-day sale requirement and can be used for interbank transactions.Easing of controls
NigeriaEffective May 22, 2009, oil, oil service companies, and government agencies were allowed to sell their foreign exchange in the interbank market.Easing of controls
NigeriaEffective July 13, 2009, the RDAS was replaced with a wholesale Dutch auction system. Funds purchased through CBN auctions became eligible for trading in the interbank market.Easing of controls
NigeriaEffective August 3, 2009, funds purchased through CBN auctions became ineligible for trading in the interbank market.Tightening of controls
PakistanEffective April 29, 2008, exchange companies (ECs) were required to bring a minimum of 25% of foreign currencies exported by them into their FCAs maintained with banks in Pakistan and to sell at least 10% of the amount that was brought in on the interbank market.Tightening of controls
PakistanEffective May 9, 2008, all ECs were required to close all their existing nostro accounts with banks abroad and bring the balances held in those accounts back into FCAs in Pakistan by May 31, 2008.Tightening of controls
PakistanEffective May 9, 2008, outward remittances by ECs on behalf of bona fide customers for permissible transactions were limited to 75% of the home remittances through the company during the preceding month. All ECs were required to report the remittances in the prescribed format by the fifth day of every month.Tightening of controls
PakistanEffective July 8, 2008, forward booking against all types of imports was suspended.Tightening of controls
Russian FederationEffective January 23, 2009, the upper boundary of permissible fluctuation in the market value of the bi-currency basket was set at Rub 41 and the lower boundary at Rub 26.Easing of controls
RwandaEffective November 10, 2008, the National Bank of Rwanda’s (NBR’s) reference rate began to be calculated daily as the weighted mean of five-day moving averages of commercial bank rates and the NBR’s rate for the previous day’s operations to which a fixed margin of ±0.6% was applied to derive the selling and buying rates.Neutral
RwandaEffective January 16, 2009, the average reference rate began to be calculated as a 10-day weighted average.Neutral
SamoaEffective April 28, 2008, the Fiji dollar was officially removed from the currency basket; the new basket consists of the U.S. dollar, Australian dollar, New Zealand dollar, and euro.Neutral
SamoaEffective March 30, 2009, the methodology for calculation of the weights in the currency basket was modified. The calculation of weights is now based on trade flows and tourism income flows; previously, it included private remittances.Neutral
São Tomé and PríncipeEffective February 1, 2009, the authorities replaced the U.S. dollar with the euro as the nominal anchor.Neutral
SerbiaEffective January 1, 2008, the 0.3% incentive fee previously paid by the National Bank of Serbia (NBS) to foreign exchange dealers was reduced to zero. Furthermore, the NBS has not renewed its agreements with exchange dealers, unless they had already concluded agreements on the performance of exchange transactions with one or more commercial banks.Neutral
SerbiaEffective July 1, 2008, the NBS started publishing information on the indicative exchange rate of the dinar against the euro based on banks’ reported data on direct spot trade, spot sale, and purchase of foreign exchange (euros) to or from other banks, including spot trade within swap deals concluded by 12:30 p.m.Neutral
SerbiaEffective July 1, 2008, the NBS started publishing information on the official middle rate of the dinar against the euro by 6:00 p.m., to be effective at 8:00 a.m. on the following business day.Neutral
SerbiaEffective December 4, 2008, the NBS started to intervene by organizing IFEM (fixing) sessions. Neutral
SerbiaEffective September 1, 2008, banks were required to report to the NBS exchange trade with residents and nonresidents as separate items (previously, only the total volume of trade with all clients was reported without regard to the residency status of clients). Tightening of controls
SerbiaEffective January 1, 2009, the NBS started purchasing foreign currency from licensed exchange dealers in the amount determined by the NBS in line with supply and demand conditions in the foreign exchange market. Neutral
SerbiaEffective May 7, 2009, the NBS started providing banks with access to additional sources of dinars and foreign currency liquidity as special measures of support under the Financial Sector Support Program. Easing of controls
SerbiaEffective May 18, 2009, the NBS introduced swap auction sales and purchases of foreign currency for dinars twice a week. Easing of controls
SeychellesEffective November 1, 2008, commercial banks and exchange bureaus were allowed to freely set exchange rates with their clients. Easing of controls
SeychellesEffective November 1, 2008, the foreign exchange allocation system was abolished and commercial banks were allowed to accommodate transactions in foreign currencies with their clients. Easing of controls
SeychellesEffective November 1, 2008, a temporary multiple-price foreign exchange auction facility was introduced to facilitate price discovery. Easing of controls
SeychellesEffective March 18, 2009, the convention guiding the operation of the interbank market became operational. Neutral
Sierra LeoneEffective November 1, 2008, the exclusion rule at the auction was lifted. Easing of controls
Slovak RepublicEffective January 1, 2009, the Slovak Republic adopted the euro as its legal tender, increasing the number of countries in the euro area to 16. Neutral
Sri LankaEffective October 1, 2008, temporary restrictions were imposed limiting the period for forward contracts in payments and receipts in foreign exchange for trade in goods and services other than share trading, investment in government securities, interbank forward contracts, and forward contracts, where one foreign currency is purchased with another foreign currency, up to 180 days. A 100% margin deposit is required. Tightening of controls
SudanEffective January 7, 2008, the spread between the buying and selling rates was set as a percentage instead of a fixed amount. Neutral
SudanEffective November 4, 2008, the exchange rate structure was reclassified from dual to unitary because the multiple currency practice resulting from a measure that imposed a floor on cash margins for LCs and import credit was removed. Easing of controls
SwitzerlandEffective March 12, 2009, the Swiss National Bank announced its intention to act in order to prevent any further appreciation of the Swiss franc against the euro and to intervene in the foreign exchange market to this effect. Tightening of controls
ThailandEffective March 3, 2008, financial institutions were allowed to purchase foreign currencies against baht for value same day or value tomorrow without permission from the Bank of Thailand.Easing of controls
Trinidad and TobagoEffective July 1, 2008, the Central Bank of Trinidad and Tobago (CBTT) changed its peg for the Trinidad and Tobago dollar to a basket of currencies. Although the exchange rate classification hasn’t changed, the anchor currency, with respect to which the exchange rate is stabilized, was changed to a composite from the U.S. dollar. Neutral
Trinidad and TobagoEffective September 1, 2008, the CBTT reverted to a peg to the U.S. dollar. Although the exchange rate classification hasn’t changed, the anchor currency, with respect to which the exchange rate is stabilized, was changed to the U.S. dollar from a composite. Neutral
TunisiaEffective March 3, 2008, new regulations were introduced governing the performance by ADs of manual, nonelectronic foreign exchange operations with exchange bureaus. Neutral
TurkeyEffective February 8, 2008, the rules governing forward transactions were amended. Neutral
TurkeyEffective March 10, 2008, the daily fixed amount of foreign exchange to be purchased by the Central Bank of the Republic of Turkey (CBRT) was reduced to $15 million from $30 million. Neutral
TurkeyEffective October 16, 2008, the CBRT suspended its daily buying auctions. Neutral
TurkeyEffective October 30, 2008, the CBRT suspended its foreign exchange selling auctions. Neutral
TurkeyEffective January 1, 2009, the Turkish lira replaced the new Turkish lira as the currency of Turkey. The new Turkish lira was used during a transitional period from January 1, 2005, through December 31, 2008. Neutral
TurkeyEffective March 10, 2009, banks were allowed to freely trade all foreign currencies. Easing of controls
TurkeyEffective March 10, 2009, the CBRT started to conduct $50 million daily foreign exchange selling auctions. Neutral
TurkeyEffective April 2, 2009, the CBRT suspended its foreign exchange selling auctions. Neutral
TurkeyEffective August 4, 2009, the CBRT resumed its foreign exchange buying auctions. Neutral
TurkmenistanEffective January 1, 2008, a commercial rate of old manat-TMM 20,000 per $1 was introduced in addition to the official exchange rate. The official exchange rate was devalued to TMM 6,250 per $1 from TMM 5,200 per $1. Easing of controls
TurkmenistanEffective January 1, 2008, applications for foreign exchange at the Interbank Currency Exchange may be submitted for foreign currency at the official exchange rate or at the commercial rate, depending on the type of transaction. No limits are placed on the purchase or sale of cash foreign currency by individuals. Easing of controls
TurkmenistanEffective May 1, 2008, the exchange rate structure became unitary with the unification of the manat exchange rate. Easing of controls
TurkmenistanEffective May 1, 2008, the official and the commercial exchange rates were unified at the rate of TMM 14,250 per $1. Easing of controls
TurkmenistanEffective January 1, 2009, following the redenomination of the currency, the exchange rate became new Turkmen manat-TMT 2.85 per $1. Neutral
TurkmenistanEffective January 1, 2009, the currency of Turkmenistan became the TMT. The currency was redenominated at TMT 1 per TMM 5,000. Neutral
UkraineEffective January 1, 2008, the fee on purchases of noncash foreign exchange for mandatory government pension insurance was reduced from 1% to 0.5% in the context of the 2008 budget. Easing of controls
UkraineEffective November 4, 2008, the operating hours of the Agreement Confirmation System were set at 2:00 p.m. to 4:00 p.m. Neutral
UkraineEffective November 4, 2008, all purchase/sale transactions involving foreign currency were required to be performed through the National Bank of Ukraine’s (NBU’s) System for the Confirmation of Agreements on the Interbank Foreign Exchange Market of Ukraine. Tightening of controls
UkraineEffective November 4, 2008, banks were required to offer foreign currency for purchase or sale exclusively in the amount and at the exchange rate specified by the customer. Tightening of controls
UkraineEffective November 19, 2008, multiple-price foreign exchange auctions were introduced on a weekly basis to sell U.S. dollars. Neutral
UkraineEffective December 4, 2008, banks were permitted to perform transactions involving the exchange of foreign currency only within the same classification group, except for import payments and transactions in the international markets. Tightening of controls
UkraineEffective December 22, 2008, the requirement that banks offer foreign currency for purchase or sale exclusively in the amount and at the exchange rate specified by the customer was abolished. Easing of controls
UkraineEffective December 22, 2008, banks were permitted to trade in foreign currency with their customers at an exchange rate agreed to with the customer. Easing of controls
UkraineEffective December 22, 2008, banks were not allowed to trade as a buyer and a seller of the same type of foreign currency when performing transactions with other banks. Tightening of controls
UkraineEffective December 29, 2008, the NBU fixed the official exchange rate of the hryvnia against the U.S. dollar at HRV 7.7 per $1 and resorted to interventions with the aim of keeping the market exchange rate close to the official rate. Tightening of controls
UkraineEffective January 1, 2009, the fee on purchases of noncash foreign exchange for government pension insurance was lowered to 0.2% from 0.5% in the context of the 2009 budget.Easing of controls
UkraineEffective January 12, 2009, the operating hours of the Agreement Confirmation System were lengthened to 10:00 a.m. to 4:00 p.m.Neutral
UkraineEffective February 27, 2009, the NBU started to hold targeted foreign currency auctions at a single exchange rate to sell foreign exchange to residents to repay foreign currency debt on credits obtained from Ukrainian banks before October 15, 2008.Neutral
United Arab EmiratesEffective December 24, 2008, the United Arab Emirates Central Bank (UAECB) introduced the following two U.S. dollar funding facilities with tenors of one week and one and three months: (1) against central bank certificates of deposit for conventional banks and (2) against U.A.E. dirhams for Islamic banks. The facilities have requirements on the size and the use of the U.S. dollars obtained. In addition, the UAECB introduced a facility for U.A.E. dirham funding against U.S. dollars via swaps with tenors of one week and one, two, three, six, nine, and twelve months.Neutral
UzbekistanEffective March 13, 2008, euro operations were included in the interbank trading session.Easing of controls
VenezuelaEffective January 1, 2008, a monetary reconversion process was carried out in Venezuela, which eliminated three zeros from the national currency. The exchange rate for the bolívar was set at Bs 2.14 (buying) and Bs 2.15 (selling) per $1.Neutral
VenezuelaEffective January 31, 2008, National Foreign Exchange Administration Commission—CADIVI—Providencia No. 085 established an additional requirement for imports channeled through the Reciprocal Payments and Credit Agreement between central bank members of LAIA—namely, that the CADIVI will grant the corresponding authorization for the purchase of foreign exchange, as long as the good originates in one of the other LAIA member countries and is in compliance with the nationally established trade policy.Tightening of controls
VietnamEffective March 10, 2008, the State Bank of Vietnam (SBV) widened the dong-dollar trading band, allowing banks to quote rates that vary up to ±1% from the rate quoted by the SBV.Easing of controls
VietnamEffective November 7, 2008, the SBV widened the dong-dollar trading band, allowing banks to quote rates that vary up to ±3% from the rate quoted by the SBV.Easing of controls
ZimbabweEffective May 2, 2008, the support price of Z$700 billion a kilogram on gold deliveries was eliminated. The new pricing structure is based on the previous day’s London gold afternoon fix price, calculated at the prevailing interbank exchange rate.Neutral
ZimbabweEffective May 2, 2008, a new market-determined foreign exchange pricing framework was introduced. ADs 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.Tightening of controls
ZimbabweEffective August 1, 2008, the Zimbabwe dollar was redenominated at a rate of 1:10,000,000,000.Neutral
ZimbabweEffective February 2, 2009, restrictions on exchange rate determination were removed.Easing of controls
ZimbabweEffective February 3, 2009, the foreign exchange market was deregulated and the rate was initially pegged at Z$2 (revalued; 2 trillion Zimbabwe dollars before revaluation) per R 1 and Z$20 (revalued; Z$20 trillion before revaluation) per US$1.Easing of controls
Source: AREAER database.Note: Covers changes from January 2008 through July 2009.

Exchange Rate Arrangements

The challenges of the global financial crisis prompted many authorities to deal with increased volatility and depreciation pressures through more active participation in the foreign exchange markets. The global financial crisis spilled over to most foreign exchange markets and created significant exchange rate volatility (Figure 1). Consequently, the authorities’ interventions in the foreign exchange market have increased substantially. This has resulted in (1) a decrease in the number of free-floating arrangements by three, with a corresponding increase in the floating category, and (2) a decrease in stabilized arrangements and conventional pegs to the benefit of the category other managed arrangements. Most of the reclassifications took place between September 2008 and January 2009, in the midst of the global financial turmoil.

Figure 1.Monthly Volatility on Selected Foreign Exchange Markets, 1925–20081

Source: Reuters; and Bloomberg Financial Markets.

1Monthly volatility is calculated as the variation coefficient of the exchange rate (standard deviation of the exchange rate to the average exchange rate) on a 30-day basis.

Despite increased interventions, overall changes in exchange rate arrangements suggest a shift toward more flexibility. This development interrupted the trend of the past five years, which generally showed an increase in less flexible exchange rate arrangements. Until mid-2008, exchange rate policies focused mostly on stabilizing the exchange rate and building up reserves against the backdrop of appreciation pressures. Although floating exchange rate arrangements, in which the exchange rates are market determined, remain less prevalent than managed arrangements, such as hard pegs and soft pegs, their number increased somewhat from April 2008 to April 2009.

Developments reported this year reflect both changes in exchange rate policy and the application of the revised methodology. To facilitate understanding of the underlying trends, the reclassifications are decomposed. Table 3 shows the reclassifications as a result of changes in the methodology. These reclassifications do not reflect any changes in the respective policies of member countries. Table 2 provides explanations for the reclassifications during the reporting period as a result of changes in the de facto exchange rate arrangements, and Table 5 illustrates the relative proportions of each de facto exchange rate arrangement in the IMF membership according to the old and new methodologies.

Table 5.Exchange Rate Arrangements Based on Old and Revised Methodology

(Percent of IMF members)1

Exchange Rate ArrangementsOld Methodology, End-April 2008New Methodology, End-April 2008New Methodology, End-April 2009
Hard pegs12.212.212.2
No separate legal tender5.35.35.3
Currency board6.96.96.9
Soft pegs43.147.945.7
Conventional peg36.222.322.3
Stabilized arrangement0.012.86.9
Crawling peg4.32.72.7
Crawl-like arrangement0.01.10.5
Crawling band1.10.00.0
Pegged within horizontal bands1.61.12.1
Other managed0.08.011.2
Floating44.739.942.1
Managed floating with no predetermined path23.40.00.0
Independently floating21.30.00.0
Floating0.020.224.5
Free floating0.019.717.6
Source: AREAER database.

The overall share of hard pegs and soft pegs decreased slightly from April 2008 to April 2009. The number of hard pegs, including arrangements with no separate legal tender and currency board arrangements, remained unchanged. Soft pegs decreased by four by end-April 2009. This decline masks the following shifts between categories.

  • The new methodology reclassified 11 heavily managed exchange rate arrangements, previously classified as managed floating with no predetermined path for the exchange rate, to soft pegs, such as other managed arrangements.

  • The conventional peg category lost 26 members during the reporting period.

  • Ten countries were moved from conventional peg to stabilized arrangement because of the methodological change.

  • The exchange arrangements of two countries, Kazakhstan and Belarus, were reclassified to pegged exchange rate within a horizontal band, because these countries adopted a trading band of ±3% against the U.S. dollar and ±5% against a basket, respectively, after devaluating their currencies.

  • Eight countries were reclassified to the category other managed arrangement, reflecting a more active exchange rate policy for these countries, which had strictly control their exchange rate pricing. In the context of the global crisis, Russia, for instance, implemented a gradual depreciation before establishing a ceiling for the exchange rate. Kuwait pegged the dinar to an undisclosed basket and may have changed the central parity several times to improve its control over monetary developments. In all of these cases, the movements in the exchange rate were deemed to reflect official action (i.e., they were not determined by the market).

  • Six countries that previously had pegs adopted floating exchange rate arrangements. This includes two countries, Mongolia and Seychelles, that started to float their currencies in the context of IMF-supported programs. In Tunisia, the dinar was made more flexible vis-à-vis any possible euro–U.S. dollar composite.

  • The number of members in the category stabilized arrangement decreased by about half, with nine countries moved to the categories other managed and floating. Countries implementing stabilized arrangements can more easily switch to more flexible exchange rate arrangements than to hard pegs or conventional pegs because they do not have an official commitment to maintain the peg. However, their tendency to keep tight control over the exchange rate explains why only a minority of the nine countries implemented a floating arrangement. In the reporting period, three countries joined the stabilized category: China, Azerbaijan, and São Tomé and Príncipe. The first two stabilized their exchange rate from crawl-type arrangements as a response to reduced appreciation pressures on the exchange rate.

  • The crawling peg category lost two members: China and Ethiopia. Ethiopia officially pursued an other managed arrangement, but the currency has been gradually depreciating against the U.S. dollar. The arrangement has thus been classified as crawl-like, leaving Ethiopia the only member in the crawl-like category.

Other managed arrangements represented about 10% of members at end-April 2009. This category absorbed approximately one-quarter of the previous managed floating with no predetermined path category at end-April 2008. The significant increase since that date (6%) is a result of policies implemented to maintain control over the exchange rate in the context of a changing external environment. Under more benign external conditions, some of these countries may return to their previous stabilized arrangements.

  • Overall, the number of floating arrangements has increased by four, reflecting member countries’ approach to addressing unprecedented exchange rate volatility in foreign exchange markets. Within floaters, five countries were reclassified from free floating to floating because of increased intervention against the backdrop of the global financial crisis and its effects in foreign exchange markets.5 For example, to dampen exceptional exchange rate volatility, Mexico and Turkey, longtime free floaters, developed an intervention policy based on foreign exchange auctions, providing a transparent framework for their transactions with market participants. (The country chapters for each country with a floating arrangement describe the intervention policy and the method implemented to communicate with the market.)

Monetary Anchors

The global crisis eroded somewhat the share of countries with exchange rate anchors, especially those with the U.S. dollar as the anchor currency (Table 6). The number of countries implementing monetary frameworks with exchange rate anchors decreased significantly, although they remain the majority. The share of countries with exchange rate anchors that now use the euro as the anchor currency increased, reflecting that arrangements pegging to the euro are more frequently hard pegs, whereas pegs to the U.S. dollar are often stabilized arrangements, which are easier to exit in the absence of a formal commitment to the peg.

Table 6.Monetary Policy Frameworks Exchange Rate Anchor

(Percent of IMF members)1

U.S. dollarEuroCompositeMonetary aggregateInflation targetingOther currencyOther
200834.414.17.83.611.514.114.6
200928.714.47.44.313.315.416.5
Source: AREAER database.

The use of other monetary anchors—namely, monetary aggregate targets, inflation targeting, and multiple nominal anchors—is about evenly split among member countries. The first group includes mainly developing economies, often with quantitative monetary programming in IMF-supported programs. Monetary frameworks that aim to control inflation directly have gained in popularity during recent years. The last group includes economies whose central banks do not announce a specific nominal anchor, opting instead to pursue several objectives at the same time. This framework provides full discretion to the monetary authorities; however, it limits the transparency of monetary policy. This group includes the largest economies (Japan, United States) and some developing economies (India). It also includes the euro area, because the monetary policy pursued by the European Central Bank has two formal objectives: (1) an inflation rate below 2% and (2) moderate growth of M3, with the former being dominant in practice.

Intervention Policy under Floating Exchange Rate Arrangements

Slightly less than half of central banks implementing floating exchange rate arrangements reported publishing information on their interventions (38 central banks out of 79). However, this masks very different practices, ranging from publishing intervention data on a daily basis on their websites (Mexico, Peru) to disclosing only aggregated net transactions or foreign exchange stock changes in regular publications, such as quarterly or monthly bulletins. Some central banks disclose their intervention data with a substantial lag or in aggregate form, in part to maintain the credibility of their intervention policy by minimizing information on failed interventions. Others announce their interventions in advance in communiqués (Sweden) to increase their effect via the “signaling effect.” Some central banks publish data for some types of foreign exchange interventions but not for others. For instance, New Zealand and the Philippines publish their foreign exchange derivative transactions but not their spot transactions. Similarly, Mexico publishes the full details of its auctions but discloses only the weekly amount of its bilateral transactions.

Central banks typically retain the right to intervene in the foreign exchange market. However, under fixed exchange rate arrangements, central banks respond to market demand, whereas under floating exchange rate regimes, foreign exchange interventions take place mainly at the central bank’s discretion. Even free floaters tend to preserve full discretion over their interventions, but they intervene very rarely (e.g., ECB, U.S. Federal Reserve). The main reason for intervention is to preserve market functioning during extreme liquidity conditions. Other floaters generally seek to limit the volatility of the exchange rate during short periods, preventing exchange rate misalignment (Chile), or facilitating monetary policy (Poland). Only a few central banks (e.g., Albania) determine in detail the factors that trigger intervention.

The most frequently used intervention technique is direct spot bilateral transactions with authorized dealers. Some central banks also use verbal intervention and indirect intervention through market makers. The use of derivatives for intervention is rarely reported. Some countries use options that trigger a central bank intervention when the exchange rate volatility is above a predefined level (Guatemala, Colombia). Responsibility for the intervention and the resources involved are sometimes shared between the central bank and the Ministry of Finance (Japan, Korea).

Foreign Exchange Markets

Foreign Exchange Auctions

The share of foreign exchange auctions among market arrangements increased during the reporting period (Table 7). A total of 31 IMF member countries, 16.5% of the total, conduct foreign exchange auctions—with seven introducing such auctions during this reporting period. In half the cases, auctions facilitated the implementation of a more flexible exchange rate arrangement. In other cases, the authorities used auctions to stabilize the exchange rate (e.g., Democratic Republic of Congo, Croatia, Iceland). The remarkable increase in the use of auctions is in part as a result of the global financial crisis. Mongolia, Seychelles, and Ukraine, in the face of a balance of payments crisis, implemented auctions in reforming their tightly controlled foreign exchange system.

Table 7.Foreign Exchange Market Structure, End-April 2009
Percent of

IMF Members1
Spot exchange market96.3
Operated by the central bank244.7
Allocation15.4
Auction16.5
Fixing4.3
Interbank market73.9
Forward exchange market63.3
Sources: AREAER database and IMF staff analysis.

Auctions generally substitute for or complement the foreign exchange markets; however, occasionally, they are also used for interventions. For small economies with relatively underdeveloped financial markets, the auction is used as a framework to price the currency in the absence of an independent wholesale market. Central banks of large economies have operated auctions for reserves management in the context of a liquid foreign exchange market to provide a transparent way of channeling foreign exchange back to the market (Mexico) or building up foreign exchange reserves (Turkey, Colombia). Croatia implemented intervention through discretionary auctions to maintain the stability of the kuna. Colombia used derivatives auctions to limit excessive exchange rate volatility. Confronted with the global crisis, Turkey’s central bank suspended its buying foreign exchange auction and initiated selling auctions for three to four weeks in October 2008 and March 2009, and Mexico’s central bank suspended its previous auction system in August 2008 and replaced it with an auction reacting to the fluctuation of the peso in October 2008, at a time of unusually high volatility.

The salient features of member countries’ auction arrangements are these:

  • Bid selection: A total of 15 countries conduct multiple-price auctions; 4 conduct uniform price auctions. Colombia and Croatia explicitly make provisions for possible multiple- or single-price auctions; Ukraine has used both concurrently.

  • Auction purpose: Selling auctions have been organized by nine countries; two operate auctions to buy foreign exchange (including Turkey before October 2008 and after August 2009); and eight central banks alternate buying and selling auctions. Although most authorities organize auctions specifically for either selling or buying, some (e.g., Mongolia) leave open the option of buying and selling at the same time.

  • Bidding rule: Although the auctions’ price discovery function requires that participants freely determine their bid price, in about half the cases, the authorities impose limits on bids. Limits are sometimes set in terms of deviation between the bids (Burundi) or imposition of a floor (Honduras, Bolivia) to control exchange rate fluctuation during a day or a longer period.

  • Frequency: The frequency of the auctions depends on their purpose. When the auction substitutes for the market, it must often operate on a daily basis. Similarly, auctions are held frequently and for small amounts when the authorities want to minimize the impact of their transactions on the exchange rate (Mexico, Chile). In the context of developing an interbank market, auctions tend to be weekly or biweekly to allow authorized dealers to organize and develop the market on their own (Burundi, Liberia, Mongolia, Sierra Leone, Ukraine). Finally, central banks that organize auctions for intervention do so on an unscheduled basis (Brazil, Croatia, the option auctions in Colombia).

  • Preannounced quantities: To minimize the effect on the exchange rate, the authorities often announce in advance the amount to be auctioned and keep it fixed for an extended period (Chile, Mexico, and the buying auctions in Turkey). Some central banks in smaller markets do not preannounce the quantity in order to preserve their ability to deal with unexpected changes in market demand (e.g., Burundi).

  • Eligibility: Most of the auctions, in fact, operate as wholesale markets where authorized dealers purchase foreign exchange to finance their retail transactions with their clients. A few countries, however, require that participants submit detailed information on the purpose of the foreign exchange purchase (e.g., Angola, Turkmenistan, Ukraine). As such, access to the auction is generally limited to authorized dealers with accounts at the central bank to simplify the settlement of the transaction. In smaller markets, where bureaus play an important role and are not well integrated in the formal financial system, they are also allowed to participate in the auction to increase the competition if the banking system consists of only a few institutions (Burundi, Liberia, Sierra Leone, Rep. of Yemen).

Interbank market

Wholesale foreign exchange markets are generally based on the authorization by the central bank of foreign exchange traders, mostly banks, to deal among themselves in foreign exchange at freely determined rates. Member countries reported 20 cases of specialized institutions providing brokerage services to market participants; other interbank markets operate over the counter. The organization of the market is strengthened by the introduction of market-maker agreements in 53 instances. Such formal or informal agreements require market participants to quote firmly for minimum amounts and at a maximum spread. This type of arrangement is typical of larger markets (Canada); however, it is present as well in some small markets that intend to promote market development (Zambia).

The interbank market tends to be less active in countries with hard or soft pegs. Market participants’ incentive to deal in the interbank market is mostly trivial in countries with conventional pegs and currency boards—31 markets have been reported as inactive among a total of 52—because the central banks provide foreign exchange standing facilities to authorized dealers. In some cases, foreign exchange regulations constrain the ability of authorized dealers to freely price their transactions in the interbank market, reducing the incentive to deal in foreign exchange. For instance, the interbank spread might be limited (China, Vietnam, Lao P.D.R.) or interbank foreign exchange transactions might be prohibited altogether (WAEMU members).

The operation of the foreign exchange market is often constrained by exchange rate regulations affecting banks’ transactions with their clients. Twenty-six member countries reported central bank regulations regarding the spread or the commission of authorized dealers in foreign exchange transactions with their clients. The regulations mostly limit the bid-offer spread and the commission, calculated as a percentage of the transactions (Bhutan, Saudi Arabia). In other cases, regulations stipulate that authorized dealers must use the official rate for the reference currency in transactions with their clients (Belize, Cape Verde). Out of the reported 26 regulations on retail foreign exchange transactions, 21 are in effect in countries with pegged or stabilized exchange rate arrangements, 70% of which do not have an active interbank foreign exchange market.

Other Measures

The majority of measures introduced during the reporting period seem directed toward facilitating foreign exchange operations (see Table 4):

  • Most changes in controls on forward transactions involved easing controls (five), although there was tightening (three) in some cases. For example, controls were eased on forward transactions in India and Serbia, whereas in Sri Lanka controls were tightened to limit contract duration and impose a 100% margin deposit. Colombia relaxed controls that were previously introduced, as part of a package of measures to limit capital inflows.

  • The number of countries maintaining a dual or multiple exchange rate structure continued to decrease. Sudan’s exchange rate structure became unitary with the elimination of the previous MCP. Turkmenistan unified its official and commercial exchange rates. Currently, 15 countries are classified as having more than one exchange rate. These are mainly the result of specific exchange rates applied for certain transactions or actual or potential deviation of official and other exchange rates by more than 2%.

  • No major changes were reported in foreign exchange taxes. Such taxes were increased in Brazil and continued to decrease in Ukraine. The service fees on outward and inward transfers were unified in Bolivia by increasing the fee on outward transfers and decreasing it on inward transfers. Ecuador increased to 1% the tax on certain remittances abroad introduced previously at a rate of 0.5%.

  • Finally, a series of neutral changes were recorded. Following Cyprus and Malta, the Slovak Republic adopted the euro. Turkmenistan, Venezuela, and Zimbabwe changed the denomination of their currencies. Following a four-year transitional period, the name of the redenominated Turkish currency was changed from the new Turkish lira to the Turkish lira.

Member Countries’ Obligations and Status under Article VIII

This section provides a brief overview of countries that have accepted the obligations of Article VIII, sections 2(a), 3, and 4, of the IMF’s Articles of Agreement. It also describes recent developments in exchange measures, including exchange restrictions and MCPs subject to the IMF’s jurisdiction under Article VIII. In addition, this section covers exchange measures that countries impose for national and/or international security reasons.

In accepting the obligations of Article VIII, Sections 2(a), 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 under Article XIV.

Exchange Measures

Restrictions and/or multiple currency practices

Despite the global crisis, there was no discernible general trend of intensifying exchange restrictions or MCPs during the reporting period. Although some countries responded to balance of payments pressures with the introduction of measures limiting free payments and transfers for current transactions, there has not been widespread recourse to exchange restrictions and MCPs. The composition and main characteristics of exchange restrictions and MCPs in 2008 are outlined in Table 8 and provided in more detail in Table 9 and can be summarized as follows:

  • The number of countries that maintain restrictions on the making of payments and transfers for current international transactions and/or MCPs remained unchanged at 35. Nevertheless, the composition of the countries involved has changed, with three countries being replaced.

  • Among countries that maintain some type of exchange restriction, 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.6

Table 8.Exchange Restrictions and Multiple Currency Practices (MCPs), July 2009
Member under
Article XIV

status
Article VIII

status
Total
Total number of restrictions and MCPs maintained by IMF members1394180
Restrictions on payments for invisibles and other current transfers242145
Foreign exchange budgets224
Limited foreign exchange allowances for10818
Education011
Medical expenses011
Remittances336
Travel213
Other transfers527
Freezing of foreign exchange deposits or inconvertibility of other deposits for current payments325
Tax clearance certification336
Other restrictions6612
Restrictions on payments for imports448
Advance import deposits033
Prior import payment requirements415
Restrictions arising from bilateral or regional payment, clearing, or barter arrangements224
Restrictions evidenced by external payment arrears257
Arrears to commercial creditors112
Arrears to official creditors101
Arrears not specified044
Multiple currency practices7916
Memorandum items:
Average number of restrictions per member2.82.02.3
Number of countries with restrictions142135
Sources: AREAER database and IMF staff reports.
Table 9.Restrictions and/or Multiple Currency Practices, December 31, 2008
Country1Restrictions and/or Multiple Currency Practices2
AlbaniaThe IMF staff report for the 2008 Article IV consultation with Albania states that, as of July 14, 2008, 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 restrictions relate primarily to debt in nonconvertible and formerly nonconvertible currencies, which the authorities were working to resolve by end-2008. (Country Report No. 08/267)
AngolaThe 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 identified exchange restrictions include a limit on the remittance of dividends and profits 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)
ArubaThe IMF staff report for the 2007 Article IV consultation with the Kingdom of the Netherlands—Aruba states that 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. 08/78)
BangladeshThe IMF staff report for the 2008 Article IV consultation with Bangladesh states that, as of August 28, 2008, Bangladesh maintained a restriction on the convertibility and transferability of proceeds of current international transactions in nonresident taka accounts. (Country Report No. 08/334)
BhutanThe 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 for travel, 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)
BosniaThe IMF staff report for the 2008 Article IV consultation with Bosnia and Herzegovina states that, as of August 28, 2008, 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. 08/327)
BurundiThe IMF staff report for the 2008 Article IV consultation with Burundi states that, as of June 24, 2008, Burundi maintained one multiple currency practice 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. 08/282)
ColombiaThe IMF staff report for the 2008 Article IV consultation with Colombia states that, as of December 22, 2008, Colombia maintained two exchange measures subject to IMF approval under Article VIII: (1) a multiple currency practice and an exchange restriction arising from a tax on outward remittances of nonresident profits that were earned before 2007 and have been retained in the country for less than five 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. Though 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. 09/23)
EthiopiaThe IMF staff report for the 2008 Article IV consultation with Ethiopia states that, as of July 1, 2008, Ethiopia maintained four restrictions on payments and transfers for current international transactions, which relate to (1) the tax certification 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 certificate from the National Bank of Ethiopia to obtain import permits. (Country Report No. 08/264)
GuineaThe IMF staff report for the first review under the three-year arrangement as part of the Poverty Reduction and Growth Facility states that, as of June 30, 2008, Guinea continues to have a multiple currency practice 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. 08/275)
IndiaThe 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 ofThe IMF staff report for the 2008 Article IV consultation with the Islamic Republic of Iran states that, as of June 19, 2008, Iran maintains one exchange restriction and two multiple currency practices subject to IMF jurisdiction under Article VIII, Sections 2(a) and 3. The exchange restriction arises from limitations on the transferability of rial profits from certain investments under the Foreign Investment Promotion and Protection Act and from limitations on other investment-related current international payments under this act. The multiple currency practices 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. 08/284)
Lao P.D.R.The IMF staff report for the 2008 Article IV consultation with the Lao People’s Democratic Republic states that, as of July 08, 2008, Lao P.D.R. maintained a restriction subject to IMF approval under Article VIII (tax payment certificates are required for some transactions). (Country Report No. 08/350)
LatviaThe IMF staff report for the Request for a Stand-By Arrangement with Latvia states that, as of December 19, 2008, Latvia maintained an exchange restriction subject to IMF approval under Article VIII, Section 2(a), arising from a partial deposit freeze imposed by the government on one domestic bank. The authorities are taking steps to remove the deposit freeze as conditions stabilize and for clearance of private external arrears arising from this exchange control. (Country Report No. 09/3)
MalawiThe IMF staff report for the Request for a One-Year Arrangement under the Exogenous Shock Facility states that, as of November 20, 2008, Malawi maintained a multiple currency practice under Article VIII as evident by the significant spread between the commercial bank exchange rate and the rates at foreign exchange bureaus. (Country Report No. 09/16)
MozambiqueThe IMF staff report for the third review under the Policy Support Instrument with the Republic of Mozambique states that, as of December 23, 2008, 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 for the purchase of foreign exchange in excess of $5,000 for certain transactions, (3) prohibition for the conversion of balances of nonresidents’ domestic currency accounts into foreign currency or transfer abroad, (4) prohibition of advance payments for a service, and (5) prohibition of advance payments for the import of goods. (Country Report No. 08/220)
MyanmarThe 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 official exchange rate used for transactions of the public sector and the parallel market-determined foreign exchange certificate rate.
NigeriaThe IMF staff report for the 2007 Article IV consultation with Nigeria states that, as of January 22, 2008, the multiple prices, which are a technical characteristic of a Dutch auction system, give rise to a multiple currency practice. A comprehensive assessment by IMF staff was needed to identify the extent of remaining restrictions and multiple currency practices. (Country Report No. 08/64)
PakistanThe IMF staff report for the request for a Stand-By Arrangement with Pakistan states that, as of November 20, 2008, Pakistan maintained a restriction subject to IMF approval in the form of a 25% limit on advance payments for imports of goods. (Country Report No. 08/364)
São Tomé and PríncipeThe IMF staff report for the 2008 Article IV consultation with São Tomé and Príncipe states that, as of June 4, 2008, São Tomé and Príncipe maintained two measures subject to IMF approval: (1) a multiple currency practice and exchange restriction arise from the existence of multiple exchange markets with multiple effective exchange rates for spot transactions with no mechanism to ensure that the spreads among rates for spot transactions in these markets do not diverge by more than 2% at any given time; and (2) an exchange restriction arises from Article 23(b) of the Investment Code, which limits the amount of investment income than can be transferred abroad by nonresidents. (Country Report No. 08/307)
Sri LankaThe IMF staff report for the 2008 Article IV consultation with Sri Lanka states that, as of October 1, 2008, 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.
SurinameThe IMF staff report for the 2008 Article IV consultation with Suriname states that, as of May 2, 2008, Suriname maintained two multiple currency practices: one arising from the potential for the spread to exceed 2% between the official and the commercial exchange rates and from the existence of a special exchange rate for imports of baby milk. (Country Report No. 08/293)
SwazilandThe IMF staff report for the 2008 Article IV consultation with Swaziland states that, as of October 1, 2008, Swaziland maintained two exchange restrictions arising from limits on the provision of foreign exchange for advance payments for imports: (1) an overall limit of E 250,000, and (2) a 33.33% limit for the import of certain capital goods. (Country Report No. 08/356)
Syrian Arab RepublicThe IMF staff report for the 2008 Article IV consultation with the Syrian Arab Republic states that, as of December 19, 2008, 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 official 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. 09/55)
TongaThe IMF staff report for the 2008 Article IV consultation with Tonga states that, as of June 17, 2008, Tonga maintained an exchange restriction subject to approval under Article VIII, Section 2(a), in the form of a tax certification requirement imposed on the making of payments and transfers for certain current international transactions: (1) payments for oil imports; (2) airline ticket sales; (3) payments for specified charges/fees/services; (4) insurance payments; (5) lease payments; (6) payments for medical expenses incurred by residents; (7) transfers by nonresidents of profits and dividends abroad; (8) external loan payments; and (9) maintenance payments, including remittances for family living expenses. (Country Report No. 08/261)
TunisiaThe IMF staff report for the 2008 Article IV consultation with Tunisia states that, as of July 22, 2008, 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 (total loans covered by these guarantees amount to about $20 million). (Country Report No. 08/345)
ZambiaThe IMF staff report for the request for a three-year arrangement under the Poverty Reduction and Growth Facility with Zambia states that, as of May 9, 2008, 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. 08/187)
ZimbabweThe IMF staff report for the 2006 Article IV consultation with Zimbabwe states that, as of February 9, 2007, Zimbabwe has restrictions on the making of transfers and payments for current international transactions, and multiple currency practices (MCPs), inconsistent, respectively, with Article VIII Sections 2(a) and 3 of the IMF’s Articles of Agreement. Zimbabwe maintains MCPs resulting from the divergence of more than 2% between the exchange rate in the interbank and (1) the parallel market rate, (2) the exchange rates applicable for government and parastatal imports, (3) the exchange rate augmented with the gold support price for small-scale gold producers, and (4) the other rates in the exchange market, such as for tobacco sales. Since the last Article IV consultation, some changes have been made to MCPs, including the elimination of a different exchange rate for inward remittances and the introduction of the interbank rate replacing the former “auction” rate for some transactions. However, the parallel market premium is now much higher, indicating that the degree of restrictiveness of the exchange regime has increased sharply. Zimbabwe also maintains exchange restrictions arising from (1) limitations on the availability of foreign exchange, in the form of priority lists given to the banks by the Reserve Bank of Zimbabwe that limit the provision of foreign exchange for certain specified transactions; and (2) the existence of private sector external payment arrears inconsistent with Article VIII Section 2(a).
Source: Published IMF staff reports.
  • The number of exchange restrictions declined noticeably among both Article VIII and Article XIV countries. Unlike during the previous year, when restrictions increased slightly in both groups, Article XIV countries eliminated four restrictions and Article VIII countries eliminated two. Restrictions decreased mostly in the area of foreign exchange allowances for travel, education, and medical expenses and other transfers; they increased slightly with respect to imports and in other areas. However, the 18 changes in 2008 affected almost all types of restrictions and/or MCPs.

  • 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, 45 restrictions remain on payments for invisibles and other current transfers in the form of quantitative limits (e.g., Angola, Bhutan, Syrian Arab Republic) and documentary or foreign exchange balancing requirements on foreign exchange allowances for certain current international transactions, including payments for travel and profit remittances (e.g., Ethiopia and Tonga require tax clearance certification for these transactions; Bhutan imposes a foreign exchange balancing requirement).

  • Other types of exchange restrictions include limits on advance payments for certain imports (e.g., Swaziland), advance deposit requirements on import payments (e.g., Sri Lanka), taxes on current payments and transfers (e.g., Colombia), 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).

  • The number of countries maintaining measures that give rise to MCPs subject to IMF approval under Article VIII has decreased by 1 to 16. In most cases (e.g., Angola, Burundi, Guinea, São Tomé and Príncipe, Suriname, 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. In Nigeria, the MCP results from the foreign exchange auction, which is organized as a multiple-price auction.

  • The average number of exchange restrictions is significantly lower in countries that have accepted Article VIII obligations than in countries availing themselves of transitional arrangements under Article XIV. Members’ average number of exchange restrictions is only two for countries that have accepted their obligations under Article VIII, sections 2(a), 3, and 4, compared with 2.8 for those with Article XIV status. The average number of restrictions decreased by 0.2 to 2.3.

  • A number of countries eliminated exchange restrictions during 2008. Three member countries (Macedonia, FYR, Seychelles, Sudan) eliminated long-standing 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. The elimination of the exchange restrictions in Seychelles occurred in the context of comprehensive exchange system reform.

  • For five countries, there was not enough information available in 2008 to assess the existence of exchange restrictions.7

  • Two countries (Latvia, Pakistan) introduced exchange restrictions subject to IMF approval under the provisions of Article VIII. In Nigeria, the use of multiple prices, which are a technical characteristic of a Dutch auction system, gives rise to an MCP. Finally, in the face of a balance of payments crisis, Iceland temporarily introduced exchange restrictions on current payments and transfers but eliminated them by end-November 2008.

Exchange measures maintained for security reasons

Member countries continued to notify the IMF of exchange measures introduced for national and/or international security reasons during the current reporting period. Exchange restrictions must be reported to the IMF, regardless of their purpose.8 In total, 17 country authorities fulfilled this obligation during 2008 and early 2009 by notifying the IMF of security-related restrictions. Many of these countries (mostly advanced economies) reported financial sanctions and restrictions imposed to combat financial terrorism, as well as financial sanctions against certain governments and individuals around the world, 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 four major categories: trade-related measures, current invisible transactions, capital controls, and provisions specific to the financial sector.

Trade-Related Measures

In general, the trend toward liberalization of trade-related measures continued during the current reporting period despite concerns that the global recession might lead to an increased appetite for protectionism. The trade-related measures category covers exchange and trade controls on exports and imports. Out of 124 measures reported by countries in the imports and import payments category, the majority (78) were aimed at liberalization of controls, including removal of import bans on certain goods, reduction of tariff rates, and elimination of documentation requirements for certain types of imports. Some countries (e.g., Sri Lanka, Pakistan) that had previously introduced margin requirements on imports eliminated them during the reporting period. Several countries (Bangladesh, Belarus, Nepal, Syrian Arab Republic) raised limits on advance payments by importers or relaxed restrictions on the financing of imported goods. Tightened measures on imports and import payments included mostly import prohibitions and increases in import duty rates on certain goods; Fiji and Pakistan reduced the limits on advance payments for imports.

The easing of controls observed in measures governing exports and export proceeds in 2007 continued in 2008. Only 54 changes were reported in this category. Out of the 54 changes, 27 involved liberalization of export controls, including reduction or removal of repatriation and surrender requirements for export proceeds (8) and elimination of export bans (9). For example, Seychelles eliminated both the repatriation and surrender requirements completely; St. Kitts and Nevis, Turkey, and Zimbabwe lifted the surrender requirement and retained the requirement to repatriate export proceeds; and, Brazil, Lao P.D.R., and the Syrian Arab Republic eliminated the repatriation requirement but retained the surrender requirement. Overall, 88 countries impose some type of repatriation requirement (two less than in 2007), and 55 members require repatriated funds to be surrendered either to the central bank or to an authorized dealer. Kazakhstan lifted the export ban on certain food items, and Bolivia reversed its previous tightening measures. Measures that tightened regulation on exports included the restriction of repatriation and surrender requirements and increases in export duty rates on certain goods. For example, to prevent the depletion of foreign exchange reserves, Belarus, Iceland, Malawi, Thailand, Venezuela, and Zimbabwe implemented more stringent repatriation and surrender requirements. To improve administration of the controls, China introduced an online system for examining the collection and settlement of foreign exchange export receipts.

Current Invisible Transactions

Overall, exchange controls on current invisible transactions decreased during the reporting period. Of the 54 liberalization measures in this category, the majority either abolished or raised the quantitative limits on the availability of foreign exchange for making payments for invisible transactions and current transfers. A number of countries also relaxed documentation and/or approval requirements for these transactions. For example, Bangladesh, Lao P.D.R., Lesotho, Nepal, and South Africa increased the limit on foreign exchange purchases by residents for current transactions, and Mozambique, Seychelles, Turkmenistan, and Zimbabwe either partially or fully lifted restrictions on payments and transfers for current international transactions. Moldova, the Syrian Arab Republic, and Turkey adopted measures to relax or abolish limits on the use of credit cards abroad.

Regulations related to resident and nonresident accounts were generally eased. The majority of countries continued to liberalize controls, allowing residents and nonresidents more access to foreign currency accounts both at home and abroad to facilitate their current international transactions. For example, Moldova and Seychelles eliminated all restrictions prohibiting residents from opening foreign currency accounts abroad. In the Syrian Arab Republic, both residents and nonresidents may now open foreign exchange accounts. Madagascar now allows its residents to hold payment instruments abroad, and free trade zone enterprises may open bank accounts abroad. In Aruba, resident companies that have fulfilled certain conditions may now execute transactions from their foreign currency accounts without any administrative restrictions. China also took steps to allow residents to open accounts abroad; however, the regulations are not yet in effect.

Capital Controls

The liberalization of controls on international capital transactions continued in 2008. Member countries (47) reported 204 changes in various categories of capital controls—almost the same number as in 2007—including controls on capital and money market instruments, credit operations, foreign direct investment (FDI), real estate, and personal capital transactions. Of these changes, two-thirds are considered easing of capital controls. The reporting period is characterized by the following noteworthy trends: (1) an easing of capital controls dominating the first half of 2008, giving way to (2) a period marked by a restrictive tone during the last quarter of the year, which reversed to (3) signs of renewed willingness to loosen capital controls in early 2009.

Most of the liberalization (41) took place with respect to credit operations, mainly to address domestic liquidity constraints. For example, Croatia lifted controls on guarantees, sureties, and financial backup facilities. India raised the cap significantly on overseas borrowing and removed the all-in-cost ceiling for trade credits. Malaysia relaxed restrictions on foreign currency loans and domestic loans to nonresidents. Serbia and Ukraine suspended reserve requirements on external borrowing temporarily to facilitate local banks’ lending operations. Among the few (13) tightening measures, Fiji introduced limits and approval requirements for nonresident borrowing, backtracking on some of the policies implemented in early 2008. Iceland, facing significant balance of payments constraints, introduced limits on lending to and borrowing from nonresidents.

Policy decisions strongly favored easing of controls on capital and money market instruments and derivative instruments. Member countries reported 29 and 20 easing measures, as opposed to 14 and 4 tightening measures, respectively, for capital and money market instruments and derivatives and other instruments. For example, in early 2008 Thailand eliminated the 30% unremunerated reserve requirement introduced in 2006 for investment in debt securities. India took a series of minor steps in capital account liberalization throughout 2008 by raising limits on a variety of investment types for foreign investors and introducing currency futures in major stock exchanges. Malaysia now allows residents to issue foreign currency bonds locally. Croatia allows residents to purchase securities abroad and foreign issuers to offer securities in the domestic market. Azerbaijan fully liberalized derivatives transactions. Mexico and South Africa either simplified approval procedures or relaxed restrictions on banks to participate in futures markets.

Changes in controls on FDI were equally split between outward and inward flows—a small majority of the changes involved easing of measures. For example, the Philippines and Thailand raised the limit on outward investment and eliminated the prior approval requirement for investment up to that limit. Controls on FDI inflows were also liberalized in several member countries. For example, Zimbabwe lifted the approval requirement for repatriation of profits, dividends, and capital appreciation. Slovenia eliminated a licensing requirement for nonresident investment in entities engaged in military equipment production and trade. Azerbaijan fully liberalized outward direct investment, but introduced a 30% limit on investment in domestic insurance companies by foreign insurance companies. Significant tightening of controls was implemented in Iceland, which introduced a comprehensive set of capital controls in the midst of a severe crisis. Among other tightening measures was the introduction by Korea of an approval requirement for financial institutions planning to establish overseas branches or offices.

The majority of changes in controls on other capital transactions also introduced liberalization measures. Some countries (eight) reported easing controls on real estate transactions, allowing residents or nonresidents to acquire real estate abroad or domestically. For example, Thailand raised the limit on purchases of real estate abroad by residents. In Croatia, nonresidents from EU member countries are now allowed to purchase or own land locally. Turkey gave permission to foreign capital companies established there to acquire real estate to conduct their business and economic activities. As a tightening measure, Fiji now requires all property acquired by nonresident individuals to be fully financed from abroad, except for purchases in approved tourism-related projects. Similarly, the majority of changes reported by countries for personal capital transactions were also in the direction of greater easing. Lesotho, Namibia, Nigeria, Serbia, South Africa, and Sri Lanka raised limits on personal capital transactions. Azerbaijan and Zimbabwe eliminated the approval requirements for the transfer of assets and gifts.

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.9,10 The category provisions specific to the financial sector covers monetary, prudential, and foreign exchange controls.11 It includes, among other things, borrowing abroad, lending to nonresidents, purchase of locally issued securities denominated in foreign exchange, and regulations pertaining to banks’ and institutional investors’ investments. 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 or institutional investors 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 2008 and through end-July 2009 are presented in Table 10 and may be summarized as follows:

Table 10.Changes in Provisions Specific to the Financial Sector, January 2008–July 2009
Type of Control
Provisions Specific to thePrudentialCapital
Financial SectorEasingTighteningNeutralEasingTighteningNeutral
Commercial banks and other credit institutions69662323150
Institutional investors11852170
Source: AREAER database.
  • For provisions specific to commercial banks and other credit institutions, the overwhelming majority of the changes reported were prudential-type controls (158 of 196 measures in this category). A very strong pattern in this category is that the first three quarters of 2008 were dominated by tightening (41) of prudential regulations (Bolivia, Pakistan, Peru), but the period since October 2008 showed a complete reversal of this trend (Croatia, Peru, Serbia, Sri Lanka), with the number of easing measures (51) tripling compared with the earlier period and tilting slightly toward easing for the entire period (69 easing, 66 tightening). The majority of changes occurred in the area of reserve requirements, with a total of 38 tightening measures. Bahrain, the Dominican Republic, Jamaica, Pakistan, Trinidad and Tobago, and Uzbekistan were among the countries that increased reserve requirements for commercial banks and other credit institutions. Bolivia, Kazakhstan, Peru, and Venezuela introduced new reserve requirements (six) and tightened existing ones. These measures were introduced mainly in the first half of the reporting period. Tighter limits were imposed on foreign exchange positions in some countries (e.g., Macedonia, FYR, Paraguay, Serbia, Tajikistan). Although many changes aimed to boost domestic lending to speed up economic recovery, the tightening of prudential regulations to limit lending in foreign exchange to residents has continued (e.g., Bolivia, Romania). This development may reflect member countries’ concern about foreign exchange risk exposure in the financial sector. Similarly, most liberalization in provisions for commercial banks and other credit institutions involved some type of relaxation or removal of reserve requirements (e.g., Azerbaijan, Belarus, Croatia, Cyprus, Paraguay, Serbia, Sri Lanka, Republic of Yemen) to ease tight liquidity conditions in the second half of the reporting period. Haiti, Kazakhstan, Pakistan, and Peru relaxed tightening measures introduced earlier. Other easing measures included relaxation of foreign exchange exposure limits (e.g., Argentina, Colombia, Croatia, Malta); reduction of liquidity or liquid asset ratios (e.g., Cyprus, Georgia, Pakistan); and higher limits on foreign currency lending by banks (e.g., Syrian Arab Republic).

  • Changes in capital controls reflect trends similar to those in other sectors. Of 38 measures introduced during the reporting period, 23 changes were toward liberalization and only 15 toward tightening. The majority of liberalizing measures involved relaxation of regulations allowing foreign banks to invest domestically and resident banks to lend to nonresidents. For example, Malaysia now allows nonresidents to participate in the equity of commercial banks to some extent, and Azerbaijan fully liberalized nonresidents’ investments in local banks. Reflecting the de facto dollarization of the economy, Zimbabwe allows banks to borrow and authorized dealers to lend up to a certain limit in U.S. dollars without an approval requirement. Controls have been eased on banks’ foreign borrowing to increase liquidity in the domestic money markets. For example, India doubled the limit to 50% on banks’ borrowing from their overseas branches, and the Republic of Korea abolished the 110% limit on overbought or long positions of nondeliverable forwards between foreign exchange banks and foreign financial institutions. Tightening measures for banks include the introduction of an approval or registration requirement for foreign lending and limits on the repayment of foreign loans (e.g., Fiji, Ukraine) and limits on lending operations between residents and nonresidents (e.g., Fiji, Iceland, Thailand).

  • Capital controls were significantly eased for institutional investors. Similarly to the previous year, the majority of changes in the provisions specific to nonbank financial institutions were related to changes in capital controls. Of the reported 52 changes, only 24 were related to prudential regulations. Although the overwhelming majority of the changes in capital controls introduced easing, more than half the prudential measures had a tightening effect: 32 measures (11 prudential controls and 21 capital controls) moved toward an easing of controls. The relaxation of capital controls allowed insurance companies, pension funds, and unit trust management companies to invest abroad a larger proportion of the assets under their management. For example, Chile, Peru, and South Africa raised the limit on pension funds’ investments abroad; Turkey completely eliminated the ceiling on pension funds’ investment in foreign instruments. Conversely, Bolivia and Georgia introduced or reduced upper limits on insurance companies’ investments abroad. As part of a comprehensive set of capital controls introduced in the face of a balance of payments crisis, Iceland prohibited investment in securities, shares of investment funds, money market instruments, and other transferable financial instruments with foreign currency.

  • A number of reported changes in provisions specific to the financial sector are recorded as neutral and institutional changes. These changes cannot be linked directly to the easing or tightening of rules and reflect mainly the introduction or amendment of prudential oversight instruments and institutions. They include changes to methods for calculating net open positions of banks, setting nondiscriminatory limits on securities exposure, and establishing prescriptions for determining the technical provisions of insurance companies. For example, Bolivia introduced countercyclical provisioning requirements, and Macedonia, FYR, improved the operation of the National Bank of the Republic of Macedonia’s credit registry, offering a more frequently updated and broader database for banks’ exposure. During the reporting period, the number of such neutral and institutional financial sector measures was slightly lower than during 2007, and all the measures were in the area of prudential regulations.

In addition to the 185 IMF member countries, the report includes information on Hong Kong SAR (People’s Republic of China) as well as Aruba and the Netherlands Antilles (both Netherlands). Kosovo became the 186th member of the IMF in June 2009, and it will be included in future reports.

The information on restrictions and MCPs consists of verbatim quotes from the latest published IMF staff report on each economy issued as of December 31, 2008, and represents the views of IMF staff, which may not necessarily have been endorsed by the IMF Executive Board. In cases of unpublished IMF staff reports, the verbatim quotes have been included in the AREAER with the express consent of the member. If such consent has not been provided, the relevant information is reported as “not publicly available.” If countries implement changes to these restrictions after the relevant IMF report 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 categories of exchange rate arrangements are (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, (d) stabilized arrangements, and (e) crawl-like arrangements; (3) floating regimes, under which the exchange rate is market determined and characterized as (a) floating or (b) free floating; and the residual category, other managed arrangements. These categories are based on the flexibility of the arrangement and the way 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 free-floating category is based on a simple and verifiable criterion—namely, the number of interventions. Countries in this category generally commit to a nonintervention policy and disclose information on their intervention whenever they do intervene.

The information on exchange restrictions and MCPs in the 2009 AREAER is based on the relevant IMF staff report issued before December 31, 2008. However, the AREAER does not indicate whether such exchange restrictions or MCPs have been approved by the IMF.

A standard review of the exchange systems of some of these countries was under way in 2008.

A member should notify the IMF before imposing such measures. The notification is immediately distributed to the IMF Executive Board. A 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 indefinitely.

Institutional investors refer to insurance companies, pension funds, and investment firms and funds. The investment operations of these investors are typically subject to specific regulations for prudential reasons and frequently also for capital control reasons.

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) could also 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.

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