Chapter

Overview

Author(s):
International Monetary Fund. Monetary and Capital Markets Department
Published Date:
December 2013
Share
  • ShareShare
Show Summary Details

This volume (64th issue) 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 effect 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 such restrictions. It also provides information related to Paragraph 25 of the 2012 Integrated 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 any changes in the arrangement.2

The AREAER endeavors to provide a comprehensive description of exchange and trade systems, going beyond exchange restrictions or exchange controls. In addition to information related to restrictions on current international payments and transfers and multiple currency practices (MCPs) maintained under Article XIV of the IMF’s Articles of Agreement, it includes restrictions and MCPs subject to the IMF’s jurisdiction in accordance with Article VIII, Sections 2(a) and 3.3 The report also provides information on the operation of 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 member countries for security reasons, including those notified to the IMF in accordance with relevant decisions by the IMF Executive Board.4

This 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.5 The classification is based on the information available on members’ de facto arrangements, as analyzed by the IMF staff, which may differ from countries’ officially announced (de jure) arrangements. The methodology and the characteristics of the categories are described in the Compilation Guide.6

The AREAER aims to provide timely information. In general, the report includes a description of exchange and trade systems as of December 31, 2012. However, changes in member countries’ exchange rate arrangements are reflected as of April 30, 2013, and in some cases, reference is made to other significant developments through August 31, 2013.7

To facilitate easy comparison, a single table provides an overview of the characteristics of the exchange and trade systems of all IMF member countries (see the Summary Features of Exchange Arrangements and Regulatory Frameworks for Current and Capital Transactions in IMF Member Countries). The Country Table Matrix lists the categories used in the database, and the Compilation Guide includes definitions and explanations used by member countries to report the data and for use in interpreting this report.

The AREAER is available in several formats. This Overview of the year’s developments is available in print and online, and detailed information for the 191 countries and territories covered here is included on a CD that accompanies the printed Overview and in an online database, AREAER Online. In addition to the information on the exchange and trade systems of these 191 countries and territories in 2012, AREAER Online contains historical data published in previous issues of the AREAER. It is searchable by year, country, and category of measure and allows cross-country comparisons for time series.8

Overall Developments during 2012

The general trend toward foreign exchange liberalization and strengthening the financial sector regulatory framework continued during 2012 against a backdrop of slow recovery from the global crisis and an incomplete transition to financial stability. Financial and market conditions improved markedly starting in late 2012, but global economic conditions remained subdued amid changing dynamics that point to stronger underlying activity in advanced economies and slowing growth in major emerging market economies. Accommodative monetary policy in advanced economies helped boost growth pulled down by fiscal consolidation and a still weak financial system but also contributed to capital outflows to emerging market economies during most of the reporting period. Changes in investor sentiment increased the volatility of capital flows to emerging market economies and led to the large-scale pullout of investments from emerging market economies following the announcement in May by the Federal Reserve that a tapering of U.S. monetary easing would begin in the second half of 2013. Improved market conditions allowed a return to more stable exchange rate regimes and facilitated the easing of controls on current and capital transactions, but concerns about capital flow volatility may have motivated the tightening of capital controls and the imposition of restrictions in selected countries. There was continued reform of financial sector regulatory frameworks, with countries further strengthening financial regulations in recognition of the vulnerabilities that contributed to the global financial crisis.

The 2013 AREAER documents the following major trends and significant developments:

  • Improved market conditions and slowly recovering growth may have facilitated the reversal of the shift toward more flexible exchange rates evident during the previous reporting period. The number of countries that used a soft peg bounced back almost to its previous (April 2011) level while the number that fell into the residual category—other managed arrangements—experienced the greatest decline. In short, countries returned to more stable exchange rate arrangements they had previously abandoned because of weakening external balance positions or strong appreciation pressure.

  • The exchange rate remained the anchor for monetary policy for fewer than half of member countries, which increasingly opted to monitor multiple indicators. The U.S. dollar maintained its position as the dominant exchange rate anchor and increased its share when new member South Sudan adopted this framework. This followed a steady five-year decline in the number of countries using the U.S. dollar as exchange rate anchor.

  • In contrast to the previous reporting period, the major advanced economies reported no exchange rate interventions. This was not the case for some smaller advanced economies and emerging market economies, which have experienced mounting pressure on their exchange rates against the backdrop of increased capital flow volatility. Their heightened intervention activity was evident in self-reporting, various market reports, and significant changes in some members’ foreign exchange reserves.

  • Continuing the trend during 2011, there was increased use during 2012 and early 2013 of foreign exchange auctions to facilitate foreign exchange operations in less-developed foreign exchange markets as a tool for managing foreign reserves and as a vehicle for foreign exchange interventions.

  • Changes in forward transactions gravitated toward easing, both to roll back measures introduced during the crisis and as part of a broader liberalization process. Taxes on foreign exchange transactions were generally tightened to address pressure on exchange rates, but decreasing capital inflows prompted some reduction in tax rates.

  • The number of IMF member countries accepting the obligations of Article VIII, Sections 2(a), 3, and 4, remained 168 with no new acceptances. When South Sudan became a member in April 2012, it notified the IMF that it avails itself of transitional arrangements under Article XIV with respect to measures under IMF jurisdiction in effect on the date of its membership. This raised the number of Article XIV members to 20.

  • The trend continued toward greater current account openness despite the weakness of the global recovery. The regulatory framework eased considerably for exports and imports and for current invisible transactions, notwithstanding some tightening of the norms on current account transactions and a slight increase in exchange restrictions motivated by external imbalances and macro-financial considerations. This was particularly the case for the repatriation and surrender of export proceeds and for import procedures, suggesting that countries are increasingly relying on the external trade channel to boost growth. Unlike in 2011, there was an increase in the total number of exchange restrictions on current payments and transfers in 2012 as well as in the number of members maintaining them.

  • Developments in 2012 and early 2013 were shaped by members’ continued efforts to strengthen the financial regulatory framework, concerns about financial stability, and volatile capital flows. There was a continuation of the overall trend toward liberalization of capital transactions except in the financial sector. Most of the countries carried out gradual liberalization or rolled back controls introduced at the height of the global crisis, but others used capital controls to respond to the changing global environment, in particular to increased capital flow volatility. Specifically, there was a return of investors to emerging markets at the end of 2012, but flows began to shifting toward advanced economies in the early part of 2013 with improved U.S. growth prospects, new progrowth policies in Japan, weaker growth prospects in emerging markets, and fears about an early tapering of U.S. monetary stimulus. Although most of the measures introduced in the reporting period affected cross-border lending, the liberalization trend was most pronounced in foreign direct investment.

  • The prudential framework of banks’ operations continued to strengthen, as it has since the global crisis, although the pace slowed somewhat. In addition, the changes that occurred in capital controls tightened existing norms on commercial banks and other credit institutions, which suggests that in some countries concerns about financial stability may be significant enough to require tools stronger than just nondiscriminatory prudential measures. Reported changes easing prudential frameworks in the financial sector were mostly aimed at supporting the restructuring and recovery of the banking sector; many rolled back previous tightening and expanded institutional investors’ investment opportunities. A large share of the measures affecting reserve requirements attests to the importance of this tool in the pursuit of monetary policy and financial stability objectives and in the response to changes in capital flows. As in the previous year, the framework for commercial banks’ foreign exchange risk management was overwhelmingly tightened, likely reflecting concerns about risks related to increased variability in foreign exchange markets.

The remainder of this Overview highlights the major developments covered in this issue of the AREAER. Details of member countries’ exchange arrangements and their regulatory frameworks for current and capital transactions are presented in the individual country chapters, which are available on the CD that accompanies the printed Overview or through AREAER Online.

Developments in Exchange Arrangements

This section documents major changes and trends in the following related areas: exchange rate arrangements, intervention, monetary anchors, and the operation and structure of foreign exchange markets. It also reports on significant developments with respect to exchange taxes, exchange rate structures, and national currencies. There are nine tables within this section. Table 1 summarizes the detailed descriptions in the country chapters by reporting each IMF member country’s monetary policy framework as indicated by country officials and the classification of their de facto exchange rate arrangements. Table 2 breaks down countries’ de facto exchange rate arrangements for 2008–13. Table 3 highlights changes in the reclassification of the de facto exchange rate arrangements between January 1, 2012, and April 30, 2013. Table 4 outlines IMF member countries’ monetary anchors, and Table 5 reports other changes related to the exchange rate and monetary policy frameworks. Table 6 presents the structure of the foreign exchange markets among the membership, and Table 7.a reports changes regarding foreign exchange markets. Last, Tables 7.b and 7.c report changes in currency and exchange rate structures and exchange subsidies and taxes, respectively.

Table 1.De Facto Classification of Exchange Rate Arrangements and Monetary Policy Frameworks, April 30, 2013
The classification system is based on the 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. The system distinguishes among four major categories: 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.
This 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 illustrate that different exchange rate regimes can be consistent with similar monetary frameworks. The monetary policy frameworks are as follows.
Exchange rate anchor
The monetary authority buys or sells 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 authority 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 rather monitors various indicators in conducting monetary policy. This category is also used when no relevant information on the country is available.
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.
Exchange rate arrangement

(number of countries)
Monetary Policy Framework
Exchange rate anchorMonetary aggregate target

(26)
Inflation-targeting framework

(34)
Other1

(39)
U.S. dollar

(44)
Euro

(27)
Composite

(13)
Other

(8)
No separate legal tender (13)Ecuador

El Salvador

Marshall Islands

Micronesia
Palau

Panama

Timor-Leste

Zimbabwe
Kosovo

Montenegro
San MarinoKiribati

Tuvalu
Currency board (12)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
Lithuania2Brunei Darussalam
Conventional peg (45)Aruba

The Bahamas

Bahrain

Barbados

Belize

Curaçao and Sint Maarten

Eritrea
Jordan

Oman

Qatar

Saudi Arabia

Turkmenistan

United Arab Emirates

Venezuela
Cape Verde

Comoros

Denmark2

Latvia2

São Tomé and Príncipe

WAEMU

Benin

Burkina Faso

Côte d’Ivoire

Guinea-Bissau

Mali

Niger
Senegal

Togo

CAEMC

Cameroon

Central African Rep.

Chad

Congo, Rep. of

Equatorial

Guinea

Gabon
Fiji

Kuwait

Libya

Morocco4 Samoa
Bhutan

Lesotho

Namibia

Nepal

Swaziland
Solomon Islands5,6 (01/12)
Stabilized arrangement (19)Cambodia

Guyana

Honduras

Iraq

Lebanon
Maldives

Suriname

Trinidad and Tobago
MacedoniaVietnam7Belarus (05/10) Iran

Syria

Tunisia
Congo, Dem. Rep. of the5,7 (01/12)

Tajikistan7

Ukraine7

Yemen7 (06/12)
Georgia7 (06/11)Angola7

Azerbaijan7

Costa Rica5,7 (04/12)

Lao P.D.R.7

Bolivia5,7 (11/11)
Crawling peg (2)NicaraguaBotswana
Crawl-like arrangement (15)Ethiopia

Honduras

Jamaica

Kazakhstan
CroatiaSingapore5 (11/11)Argentina7

China7

Rwanda7

Uzbekistan7
Dominican Rep.7

Indonesia7 (06/12)
Egypt5,7 (11/11)

Haiti7

Tunisia6,8
Pegged exchange rate within horizontal bands (1)Tonga
Other managed arrangement (19)LiberiaAlgeria

Iran

Syria

Vanuatu
Bangladesh

Burundi

Guinea

Kyrgyz Rep.

Malawi

Nigeria
ParaguayBelarus

Malaysia

Mauritania

Myanmar

Russia8

Sudan

Switzerland5,9 (01/13)
Floating (35)Afghanistan

The Gambia

Kenya

Madagascar

Mozambique

Papua New Guinea9 (01/13)

Seychelles

Sierra Leone

Sri Lanka (02/12)

Tanzania

Uganda8

Zambia
Albania

Armenia6

Brazil

Colombia

Ghana

Guatemala5 (03/12)

Hungary

Iceland

Korea

Mexico

Moldova

New Zealand (11/12)

Peru

Philippines

Romania

Serbia

South Africa

Thailand

Turkey

Uruguay
India

Mauritius

Mongolia

Pakistan
Free floating (30)Australia

Canada

Chile

Czech Rep.

Israel

Japan

Mexico

Norway

Poland

Sweden

United Kingdom
Somalia

United States

EMU

Austria

Belgium

Cyprus

Estonia

Finland

France

Germany

Greece

Ireland

Italy

Luxembourg

Malta

Netherlands

Portugal

Slovak Rep.

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.Exchange Rate Arrangements, 2008–13

(Percent of IMF members as of April 30 each year)1

Exchange Rate Arrangements20082200932010420115201252013
Hard pegs12.212.213.213.213.213.1
No separate legal tender5.35.36.36.86.86.8
Currency board6.96.96.96.36.36.3
Soft pegs39.934.639.743.239.542.9
Conventional peg22.322.323.322.622.623.6
Stabilized arrangement12.86.912.712.18.49.9
Crawling peg2.72.71.61.61.61.0
Crawl-like arrangement1.10.51.16.36.37.9
Pegged exchange rate within horizontal bands1.12.11.10.50.50.5
Floating39.942.036.034.734.734.0
Floating20.224.520.118.918.418.3
Free floating19.717.615.915.816.315.7
Residual
Other managed arrangement8.011.211.18.912.69.9
Source: AREAER database.
Table 3.Changes and Resulting Reclassifications of Exchange Rate Arrangements, January 1, 2012–April 30, 2013
CountryChangePrevious Arrangement1Arrangement in the 2013 AREAER
Bolivia2Within the scope of the official crawling peg exchange rate regime, in an external environment of marked exchange rate volatility and decreasing external inflation, the sliding rate was set at zero. Consequently, the boliviano stabilized anew against the U.S. dollar since November 2011. Accordingly, the de facto exchange rate arrangement was retroactively reclassified to a stabilized arrangement from a crawling peg, effective November 2, 2011. However, the change is reflected as of January 1, 2012, corresponding to the first day of the period covered in this year’s AREAER.Crawling pegStabilized arrangement
Costa Rica2Since mid-April 2012, the colon–U.S. dollar exchange rate remained within a 2% band vis-à-vis the lower bound of the exchange rate band and was occasionally at the lower bound level itself, prompting the Central Bank of Costa Rica to intervene to prevent the colon from appreciating further. Given the stability of the exchange rate, the de facto exchange rate arrangement was retroactively reclassified to a stabilized arrangement from other managed arrangement, effective April 16, 2012.Other managed arrangementStabilized arrangement
Democratic Republic of the Congo2After departing from the stabilized band in November 2011 with increased flexibility for several months, the Congo franc stabilized anew against the U.S. dollar in early January 2012. Accordingly, the de facto exchange rate arrangement was retroactively reclassified to a stabilized arrangement from other managed, effective January 1, 2012.Other managed arrangementStabilized arrangement
Egypt2Following a period of stability against the U.S. dollar, the pound, in mid-November 2011, started on a depreciating trend against the dollar within a margin of less than 2% with a one-time adjustment in January 2013. Accordingly, the de facto exchange rate arrangement was retroactively reclassified to a crawl-like arrangement from a stabilized arrangement, effective November 10, 2011. This change is reflected as of January 1, 2012, corresponding to the first day of the period covered in this year’s AREAER.Stabilized arrangementCrawl-like arrangement
GeorgiaSince July 2012, the lari has remained stable against the U.S. dollar in a 2% band. Market supply and demand play a role in determining the exchange rate, as does official action based on the observed path of the exchange rate and the discretionary nature of the foreign exchange auctions. Therefore, the de facto exchange rate arrangement was reclassified from floating to a stabilized arrangement against the U.S. dollar, effective July 1, 2012.FloatingStabilized arrangement
Guatemala2After a period of relative stability from June 2011 through early March 2012, the quetzal showed increased flexibility against the U.S. dollar without an ascertainable path for the exchange rate. Accordingly, the de facto exchange rate arrangement was retroactively reclassified to floating from a stabilized arrangement, effective March 13, 2012.Stabilized arrangementFloating
IndonesiaSince June 2012, the rupiah followed a depreciating trend against the U.S. dollar within a margin of less than 2%. Accordingly, the de facto exchange rate arrangement was reclassified to crawl-like arrangement from floating, effective June 1, 2012.FloatingCrawl-like arrangement
New ZealandThere was an increase in the volume of net New Zealand dollars sold by the Reserve Bank of New Zealand since November 2012, continuing through April 2013. Accordingly, the de facto exchange rate arrangement was reclassified to floating from free floating, effective November 1, 2012.Free floatingFloating
Papua New Guinea2From mid-February 2012 through the end of December 2012, the kina remained stable against the U.S. dollar within a 2% band. Accordingly, the de facto exchange rate arrangement was retroactively reclassified to a stabilized arrangement from floating, effective February 23, 2012.FloatingStabilized arrangement
Papua New Guinea3In January 2013, the exchange rate departed from the stabilized band and has shown increased flexibility since. Therefore, the de facto exchange rate arrangement was reclassified to floating from a stabilized arrangement, effective January 1, 2013.Floating
Singapore2After falling to the lower half of the policy band in September and October 2011, the Singapore dollar resumed its previous course and followed an appreciating trend against a basket of currencies within a 2% band since November 2011. Therefore, the de facto exchange rate arrangement was retroactively reclassified to a crawl-like arrangement from other managed, effective November 9, 2011. The change is reflected as of January 1, 2012, corresponding to the first day of the period covered in this year’s AREAER.Other managed arrangementCrawl-like arrangement
Solomon Islands2After a period of gradual appreciation against the U.S. dollar, the Solomon Islands dollar has been stable against the dollar within a 2% band since January 30, 2012. Therefore, the de facto exchange rate arrangement was retroactively reclassified to a conventional peg from other managed arrangement, effective January 30, 2012.Other managed arrangementConventional peg
Sri LankaFollowing a period of stability in the exchange rate, the authorities limited their intervention in the foreign exchange market and allowed increased flexibility against the U.S. dollar. As a result, the rupee–U.S. dollar exchange rate departed from the stabilized band and moved more freely. Accordingly, the de facto exchange rate arrangement was reclassified to floating from a stabilized arrangement, effective February 9, 2012.Stabilized arrangementFloating
Switzerland2From January 2012 through mid-January 2013, the Swiss franc remained within a narrower 2% margin of the announced minimum exchange rate. Therefore, the de facto exchange rate arrangement was retroactively reclassified to a stabilized arrangement from other managed arrangement, effective January 1, 2012.Other managed arrangementStabilized arrangement
Switzerland3Following a period of stability, around mid-January 2013, the franc departed from the stabilized band against the euro with limited flexibility, while the authorities’ commitment to defending the minimum exchange rate remained unchanged. Accordingly, the de facto exchange rate arrangement was reclassified to other managed arrangement from a stabilized arrangement, effective January 14, 2013.Other managed arrangement
YemenDue to the unification of the official and parallel market rates and stability of the exchange rate against the U.S. dollar since June 2012, the de facto exchange rate arrangement was reclassified to a stabilized arrangement from other managed arrangement, effective June 1, 2012.Other managed arrangementStabilized arrangement
Source: AREAER database.
Table 4.Monetary Policy Frameworks and Exchange Rate Anchors

(Percent of IMF members as of April 30 each year)1

U.S. DollarEuroCompositeOther

Currency
Monetary

Aggregate
Inflation

Targeting
Other2
2008333.014.48.03.711.722.96.4
2009328.714.47.44.313.315.416.5
2010426.514.87.93.713.216.417.5
2011525.314.27.44.215.316.317.4
2012522.614.26.84.215.316.820.0
201323.014.16.84.213.617.820.4
Source: AREAER database.Note: When the de facto exchange rate arrangement differs from the de jure arrangement, the monetary anchor indicated in this table reflects the de facto arrangement.
Table 5.Changes in Exchange Rate Arrangements, Official Exchange Rate, and Monetary Policy Framework, January 1, 2012–August 31, 2013
CountryChange
AlbaniaEffective January 16, 2012, the Bank of Albania (BOA) adopted a policy to accumulate an adequate level of foreign reserves in the medium term that would cover more than four months of imports and the short-term external debt of the country. Previously, the BOA intervened in order to meet the net international reserves target, which was included each year in its monetary program.
BurundiEffective March 12, 2012, the Bank of the Republic of Burundi began determining the reference rate each morning on the basis of the weighted average of commercial banks’ foreign exchange buying and selling transactions with their customers on the previous day, excluding transactions through the Marché des Enchères Symétriques en Devises (MESD). Previously, the rate was based on its MESD auctions.
BurundiEffective April 12, 2013, with the replacement of the Marché des Enchères Symétriques en Devises with the Marché Interbancaire des Devises, the method for calculating the reference rate was modified to include all Bank of the Republic of Burundi (BRB) transactions with its customers on the previous day. To prevent a recurrence of sharp fluctuations, bank operations for which the exchange rate deviates from the defined band are systematically excluded from the calculations. Previously, the BRB determined the reference rate each morning based on the weighted average of commercial banks’ foreign exchange buying and selling transactions with their customers on the previous day, excluding BRB transactions through the Marché des Enchères Symétriques en Devises.
Costa RicaEffective January 25, 2012, in order to reinforce the economy’s “financial shield,” the board of directors of the Central Bank of Costa Rica, in Article 7 of Meeting 5532-2012 of January 25, 2012, agreed to implement a new program to build international reserves between February 1, 2012, and December 31, 2013, up to US$1,500 million.
Czech RepublicEffective September 27, 2012, the Czech National Bank (CNB) announced additional monetary easing within the context of the inflation-targeting framework from foreign exchange interventions given that the interest rate reached the zero lower bound. As of April 30, 2013, the CNB has not used this foreign exchange intervention tool.
Czech RepublicEffective November 1, 2012, the Czech National Bank suspended sales of foreign exchange reserve revenues, which were aimed at preventing a continued rise in the reserve level, and began to publish monthly foreign exchange transaction data on its website, with a two-month lag.
Dominican RepublicEffective January 1, 2012, pursuant to a resolution on December 15, 2011, of the Monetary Board, the Central Bank of the Dominican Republic adopted explicit inflation targeting as its monetary policy framework.
EgyptEffective July 10, 2012, in addition to the 7-day repurchase agreements introduced in March 2011, 28-day repurchase agreements (introduced June 14, 2012, by the Central Bank of Egypt) became part of Egypt’s monetary policy framework.
GuatemalaEffective January 1, 2012, the annual inflation target was set at 4.5% ±1% for 2012.
GuatemalaEffective January 1, 2013, the annual inflation target was set at 4.0% ±1% for 2013.
IraqEffective January 17, 2012, the Central Bank of Iraq reduced the level around which it stabilizes the exchange rate from ID 1,170 to ID 1,166 per U.S. dollar.
IraqEffective April 15, 2013, the Central Bank of Iraq sells foreign exchange to banks for import letters of credit by adding ID 9 per U.S. dollar to the auction exchange rate. For other import transactions the Central Bank of Iraq adds ID 13 per U.S. dollar.
IsraelEffective May 13, 2013, the Bank of Israel (BOI) announced a foreign exchange purchase plan to offset the effect of natural gas production on the exchange rate, estimating the total purchases to be about $2.1 billion by the end of 2013 within the framework of this plan. The BOI’s assessments of the overall effect on the balance of payments resulting from natural gas production and foreign exchange purchases will be updated from time to time and publicized. In line with this framework, prior to the May 13 announcement, the BOI had intervened in the foreign exchange market, albeit not more than three times through the end of April.
JapanEffective February 14, 2012, the Bank of Japan (BOJ) introduced the “price stability goal in the medium to long term” as a part of its efforts to further clarify the determination to overcome deflation and achieve sustainable growth with price stability. The price stability goal is the inflation rate the BOJ considers consistent with price stability sustainable in the medium to long term. The BOJ considers “the price stability goal in the medium to long term” to be in a positive range of 2% or lower in terms of the year-over-year rate of change in the consumer price index and, more specifically, set a goal of 1% at the time of this announcement. Before introduction of this goal, the “understanding of medium-to long-term price stability” showed a range of inflation rates that each Policy Board member understood as price stability from a medium-to long-term perspective.
JapanEffective January 22, 2013, the Bank of Japan (BOJ) introduced the “price stability target” under the framework for the conduct of monetary policy. Replacing a “goal” with a “target” and setting that target at 2% in terms of the year-over-year rate of change in the consumer price index are based on the following: (1) Because prices are expected to rise moderately, it is judged appropriate to clearly indicate the target of 2% in order to anchor the sustainable rate of inflation. (2) Switching from a “goal” to a “target” reflects increasing awareness of the importance of flexibility in the conduct of monetary policy in Japan. Recognizing that the inflation rate consistent with price stability on a sustainable basis will rise as efforts by a wide range of entities toward strengthening Japan’s competitiveness and growth potential progress, the BOJ has set the target at 2% for year-over-year change in the consumer price index.
JapanEffective April 4, 2013, the BOJ introduced “quantitative and qualitative monetary easing”, maintaining the target of 2% in terms of the year-on-year rate of change in the consumer price index (CPI), with a time horizon of about two years. Under the new monetary policy framework, it will double the monetary base and the amounts outstanding of Japanese government bonds (JGBs) as well as exchange-traded funds (ETFs) in two years, and more than double the average remaining maturity of JGB purchases.
KoreaEffective January 1, 2013, the inflation target for 2013 onward is 2.5–3.5% based on the year-over-year average change in the consumer price index. The target horizon is three years (2013–15).
MalawiEffective May 7, 2012, in anticipation of devaluation, the Reserve Bank of Malawi took steps aimed at allowing market forces to determine the exchange rate and at improved availability of foreign exchange in the market. Accordingly, the Reserve Bank of Malawi implemented the revised Guidelines for Foreign Exchange Trading Activities, allowing more market determination of the exchange rate.
MalawiEffective May 7, 2012, the Reserve Bank of Malawi devalued the kwacha from MK 168 to MK 250 per U.S. dollar.
MoroccoEffective March 27, 2012, the Bank Al-Maghrib reference interest rate was reduced to 3.0% from 3.25%.
MyanmarEffective April 2, 2012, the de jure exchange rate arrangement was reclassified to a managed float from a conventional peg to the SDR at K 8.50847 per SDR.
MyanmarEffective April 2, 2012, the cutoff rate in the daily foreign exchange auction held by the Central Bank of Myanmar is used as the reference exchange rate for that day’s trading. Previously, the kyat was officially pegged to the SDR at K 8.50847 per SDR within a margin of ±2%.
New ZealandBased on a speech delivered by the Reserve Bank of New Zealand (RBNZ) governor on May 30, 2013, the RBNZ undertook foreign exchange transactions to dampen some of the spikes in the exchange rate in the earlier months, and the RBNZ is prepared to scale up foreign exchange activities if there are opportunities to have greater influence on the exchange rate.
RussiaEffective May 1, 2012, the Bank of Russia (BR) began reporting daily foreign exchange intervention data with a two-day lag, with historical data back to January 1, 2011. Previously, since June 2011, the BR published weekly foreign exchange intervention data with a one-week lag.
RussiaEffective July 24, 2012, the Bank of Russia widened the band of allowable fluctuation of the ruble from Rub 6 to Rub 7 and reduced the cumulative amount of unplanned interventions triggering an automatic adjustment of the exchange rate band by 5 kopeks from US$500 million to US$450 million.
San MarinoEffective September 1, 2012, a new monetary agreement between San Marino and the European Union, signed March 27, 2012, went into effect, repealing the previous agreement of November 29, 2000. The new agreement authorizes San Marino to use the euro as its official currency, grant legal tender status to euro banknotes and coins, and issue limited quantities of euro coins (as did the former agreement). Under the new agreement, San Marino commits to adopting relevant EU legislation regarding (1) money laundering, (2) fraud and forgery, (3) euro banknotes and coins, (4) banking and financial legislation, and (5) rules on the collection of statistical data within the time specified by the agreement (1–6 years) from implementation of the agreement (on euro banknotes and coins; combating fraud and counterfeiting; banking and financial legislation, including the prevention of money laundering and statistical reporting requirements) within the time specified by that agreement (1–6 years from the date of entry into effect—Decree No. 120 of August 7, 2012).
SerbiaEffective July 18, 2012, the National Bank of Serbia changed its main open market operations from two-week reverse repo transactions (liquidity absorbing) to one-week repo transactions (liquidity providing).
SerbiaEffective September 9, 2012, the Russian ruble has been added to the list of currencies (previously, 16 currencies, now 17 including the Russian ruble) against which the official middle exchange rates of the dinar are quoted in the National Bank of Serbia list of official exchange rates and are used for bookkeeping, statistics, and calculation of customs duty and other import fees, as provided by Article 41 of the Foreign Exchange Law. Also, the list of foreign currencies and cash that banks may trade and of foreign cash that licensed exchange dealers may buy and sell was expanded to include Russian rubles (Decision on the Types of Foreign Exchange and Foreign Cash to Be Purchased and Sold in the Foreign Exchange Market—RS Official Gazette No. 98/2012).
SerbiaEffective December 19, 2012, the National Bank of Serbia changed its main open market operations from one-week repo transactions (liquidity providing) to one-week reverse repo transactions (liquidity absorbing).
Solomon IslandsEffective October 1, 2012, the de jure exchange rate regime is classified as a peg against a basket of currencies. Previously, the exchange rate policy of the Central Bank of the Solomon Islands (CBSI) was a peg against the U.S. dollar. The change in policy is based on price stability through greater flexibility to absorb global commodity price movements. However, to prevent large fluctuations in the rate and protect exporters and gross foreign reserves from undue volatility, the CBSI capped exchange rate movement to ±1% around the base rate. The new basket gives the greatest weight to the U.S. dollar, which accounts for 58% of total weight. The Australian dollar is the second largest at 32%. The remaining currencies are the New Zealand dollar at 5%, the yen at 3%, and the pound sterling at 2%.
Solomon IslandsEffective January 1, 2013, the new Central Bank Act—CBSI Act 2012—passed by the Parliament in November 2012 went into effect. Section 16 states that without limiting the primary objective of domestic price stability, (1) the government may after consultation with the Central Bank of the Solomon Islands (CBSI) determine the exchange rate regime; and (2) the CBSI may, after consultation with the minister of finance, determine and implement the exchange rate policy and enter into foreign exchange arrangements.
Solomon IslandsEffective April 17, 2013, the Central Bank of the Solomon Islands (CBSI) conducted a survey on exchange rate developments and administration since 2000. It sent an exchange rate questionnaire to banks, private companies, exporters, importers, and other stakeholders. The objective of the survey was to assess whether the CBSI should consider further revision of the exchange rate administration.
TunisiaEffective April 18, 2012, a fixing arrangement (i.e., the average of market participants’ quotes) replaced the currency composite as the reference exchange rate published by the Central Bank of Tunisia.
United StatesEffective January 25, 2012, the Federal Open Market Committee (FOMC) announced that inflation at the rate of 2%, as measured by the annual change in the price index for personal consumption expenditures, was most consistent over the longer term with the Federal Reserve’s statutory mandate. In setting monetary policy, the FOMC will seek to mitigate deviations in inflation from its longer-term goal and deviations in employment from the FOMC’s assessment of its maximum level.
ZambiaEffective April 2, 2012, in preparation for a transition from targeting reserve money to targeting the interest rate by means of a key policy interest rate, the Bank of Zambia (BOZ) introduced the BOZ policy rate as another anchor of monetary policy.
Source: AREAER database
Table 6.Foreign Exchange Market Structure, 2009–13

(Number of IMF members as of April 30 each year)1

2009220103201120122013
Spot exchange market179183186187188
Operated by the central bank84105117115118
Foreign exchange standing facility807776
Allocation2929313031
Auction3129262931
Fixing85555
Interbank market137151157159161
Over the counter109115122
Brokerage454649
Market making737173
Forward exchange market127126128127129
Source: AREAER database.Note: … indicates that information on the arrangement was not separately collected during this period.
Table 7.a.Changes in Foreign Exchange Markets, January 1, 2012–August 31, 2013
CountryChangeType
AfghanistanEffective November 17, 2012, the settlement period for Da Afghanistan Bank’s foreign currency auctions was shortened to within the same day from two days.Tightening
AfghanistanEffective March 6, 2013, the settlement period for Da Afghanistan Bank’s foreign currency auctions was changed to T + 1 from within the same day.Easing
AfghanistanEffective March 18, 2013, the fine for successful bidders who fail to settle their account within T + 1 days was raised to US$20,000 from US$10,000.Tightening
BoliviaEffective January 2, 2012, the fee on outward funds transfers by the financial system through the Central Bank of Bolivia was set at 1%, and the fee on inward funds transfers by the financial system through the Central Bank of Bolivia was set at 0.6%.Tightening
BoliviaEffective July 24, 2012, the financial transaction tax was extended for 36 months from the effective date by Law No. 234 of April 13, 2012.Tightening
BoliviaEffective October 12, 2012, the Central Bank of Bolivia began to offer US$150 million daily. The demand for foreign exchange has not exceeded this amount.Neutral
BurundiEffective March 12, 2012, the Bank of the Republic of Burundi (BRB) made the following changes to the Marché des Enchères Symétriques en Devises: (1) The frequency of auctions was lowered from five to two a week, on Tuesdays and Thursdays at 9:30 a.m. (2) Foreign currencies was allocated at the offered rates (multiple rates) instead of the single marginal rate. (3) In order to promote the interbank market, banks could not purchase foreign exchange from or sell it to the BRB outside of the market.Tightening
BurundiEffective March 1, 2013, in support of measures to set the fluctuation band for the foreign exchange rate and arrest depreciation of the franc, the Bank of the Republic of Burundi increased its intervention in the Marché des Enchères Symétriques en Devises by selling US$8,958,098.88 in accordance with the new intervention procedures. The weighted average rate resulting from this intervention (FBu–US$1,569.2) was adopted as the reference rate for the next business day, i.e., March 4, 2013, which reversed the trend toward depreciation and brought the rate from FBu 1,724.27 on March 1 to FBu–US$1,569.2 on March 4, 2013.Tightening
BurundiEffective March 1, 2013, the Bank of the Republic of Burundi set a fluctuation margin on foreign currency buying and selling transactions by commercial banks and exchange bureaus of ±1% of the reference rate it publishes each morning.Tightening
BurundiEffective April 12, 2013, the Bank of the Republic of Burundi (BRB) discontinued the Marché des Enchères Symétriques en Devises (MESD), which had lost its symmetry. Only the BRB was intervening in the MESD despite the assumption that it was driven by commercial banks, with the BRB intervening only as a last resort.Easing
BurundiEffective April 12, 2013, the Bank of the Republic of Burundi (BRB) established an interbank foreign exchange market, the Marché Interbancaire des Devises, to replace the Marché des Enchères Symétriques en Devises, which had lost its symmetry. To encourage banks to trade currencies and promote the interbank market, the BRB acted to prevent exchange bureaus from procuring foreign exchange from commercial banks. The new regulations governing the interbank foreign exchange market allow the BRB to intervene on its own initiative in accordance with market conditions.Easing
ChinaEffective April 16, 2012, the floating band of the RMB’s trading prices against the U.S. dollar in the interbank foreign exchange market was widened from 0.5% to 1%—i.e., on each business day, the trading prices of the RMB against the U.S. dollar in the interbank foreign exchange market may fluctuate within a band of ±1% around the central parity released on the same day by the China Foreign Exchange Trade System. The spread between the highest offer price and the lowest bid price of RMB–U.S. dollar spot transactions, as quoted by foreign-exchange-designated banks to their customers, may not exceed 2% of the central parity (previously 1%).Easing
ColombiaEffective February 6, 2012, the Bank of the Republic suspended the options auction mechanism and resumed daily foreign exchange purchases of at least US$20 million to increase the level of international reserves through competitive auctions for at least three consecutive months.Neutral
ColombiaEffective February 24, 2012, the Bank of the Republic extended the program of daily purchases of a minimum of US$20 million to at least August 4, 2012.Neutral
ColombiaEffective April 30, 2012, the Bank of the Republic extended the program of daily purchases of a minimum of US$20 million to at least November 2, 2012.Neutral
ColombiaEffective August 24, 2012, a total purchase amount of US$700 million through daily auctions for the remainder of August and September was announced.Neutral
ColombiaEffective September 28, 2012, the Bank of the Republic extended the program of daily purchases of a minimum of US$20 million to at least March 30, 2013, with a total purchase amount of US$3,000 million between October 1, 2012, and March 29, 2013.Neutral
CyprusEffective March 28, 2013, restrictions were imposed on banking operations of commercial banks without licenses to carry out transactions for international clients and of Cypriot customers of the licensed banks.Tightening
EgyptEffective December 30, 2012, the Central Bank of Egypt (CBE) introduced a multiple price auction mechanism to buy and sell foreign exchange with the following rules (1) The CBE sets the bid amounts (not the price). (2) Each bank may submit up to three bids in the auction, for which the total amount is determined by the quota assigned to the bank by the CBE, based on its commercial needs and previous sales in the interbank market. (3) On the auction day, the CBE announces the amount to be offered one hour before to the auction. (4) Once a week, the CBE announces the auction dates for the week. (5) Banks receive a list of priority clients based on strategic needs (foreign investors and clients with commercial needs are given priority). (6) Banks authorized by the CBE may participate in the auction. (7) Auction results are announced to the public through several data service providers, such as Reuters and Bloomberg, as well as on the CBE website.Neutral
EgyptEffective January 6, 2013, the following restrictions were imposed on bid-ask spreads quoted by authorized foreign exchange dealers: (1) The client bid rate may range from three piastres (one piastre is one one-hundredth of a pound) below the interbank bid rate to the interbank bid rate (previously, from 150 basis points below the interbank bid rate to the interbank bid rate). (2) The client offer rate must not exceed three piastres above the interbank offer rate (previously, within 50–150 basis points above the interbank rate).Tightening
EgyptEffective February 4, 2013, the restrictions regarding bid-ask spreads were revised as follows: (1) The interbank bid-offer rate may be ±1 piastre (one piastre is one one-hundredth of a pound) around the weighted average of the latest auction held by the Central Bank of Egypt. (2) The client bid rate may be between one piastre below the interbank bid rate and the interbank bid rate. (3) The client offer rate (for those with commercial needs) may vary between the interbank offer rate and one piastre above the interbank offer rate. Retail clients pay an additional commission of 1–2 piastres (previously, 0.5–1%) on the offer side.Tightening
EgyptEffective February 4, 2013, in the interbank market, banks may place their bids and offers within a band of ±1 piastre (previously, ±0.5%) around the weighted average rate of the most recent foreign exchange auction.Tightening
EgyptEffective April 14, 2013, the Central Bank of Egypt announced and held an exceptional auction for the sale of US$600 million. Banks were required to apply with the amount of their clients’ outstanding import needs in conformity with the following import commodities: (1) staple commodities (tea, meat, poultry, fish, wheat, oil, milk powder and infant milk, beans, lentils, butter, corn); (2) capital goods spare parts; (3) intermediary production components and raw materials; and (4) pharmaceuticals and vaccines.Neutral
El SalvadorEffective October 31, 2012, the Board of the Central Reserve Bank approved the Minimum Guidelines for Operations involving Currency Forwards, enabling banks in the system to engage in such operations.Easing
FijiEffective January 1, 2012, authorized banks may write net forward sales contracts up to F$20 million.Easing
GuatemalaEffective December 28, 2012, the fluctuation margin (added to or subtracted from the five-day moving average of the exchange rate) used to determine whether the Bank of Guatemala may intervene was increased from 0.6% to 0.65%.Easing
HungaryEffective February 27, 2012, the Magyar Nemzeti Bank (MNB) terminated the foreign currency sale tenders program. Previously, the MNB operated a program of foreign exchange sale tenders to provide banks with foreign currency to close their open positions arising from early repayment of foreign-currency-denominated mortgages.Easing
IraqEffective February 21, 2012, banks’ spread was capped at ID 10 per U.S. dollar over the price at which they can buy foreign exchange at the Central Bank of Iraq auctions.Tightening
IraqEffective April 2, 2012, the limit on banks’ cash foreign exchange purchases in the auction was increased from US$250,000 to US$400,000.Easing
IraqEffective April 12, 2012, the amount of foreign exchange licensed money transfer companies and exchange bureaus may purchase was reduced from US$250,000 to US$75,000 a week.Tightening
IraqEffective April 12, 2012, the limit on banks’ cash foreign exchange purchases in the auction was reduced to US$250,000 from US$400,000.Tightening
IraqEffective June 26, 2012, limits were set on banks’ purchases of foreign exchange in the auction for transfers between US$3 million and US$10 million depending on the amount of bank capital.Tightening
IraqEffective June 26, 2012, money transfer companies may not transfer foreign exchange for their clients’ import transactions.Tightening
IraqEffective June 26, 2012, the limit on banks’ cash foreign exchange purchases in the auction was increased to US$1.25 million from US$250,000.Easing
IraqEffective July 10, 2012, the limit on banks’ cash foreign exchange purchases in the auction was increased to US$2 million from US$1.25 million.Easing
IraqEffective July 10, 2012, the limits on banks’ purchases of foreign exchange in the auction for transfers were increased to between US$5 million and US$15 million from between US$3 million and US$10 million.Easing
IraqEffective October 1, 2012, the limit on banks spreads of ID 10 per U.S. dollar over the price at which they can buy foreign exchange at the Central Bank of Iraq auctions was eliminated.Easing
IraqEffective October 1, 2012, the limits on banks’ purchases of foreign exchange in the auction for transfers were eliminated.Easing
IraqEffective October 1, 2012, the limit on banks’ cash foreign exchange purchases in the auction was increased to US$4 million from US$2 million.Easing
IraqEffective October 1, 2012, individuals may buy US$5,000 in foreign exchange for any purpose on proof of identity with a passport. Previously, individuals were allowed to buy foreign exchange up to US$10,000 for certain purposes only with supporting documentation.Tightening
IraqEffective February 17, 2013, authorized banks spreads were capped at ID 10 per U.S. dollar over the exchange rate at which banks can buy foreign exchange in the Central Bank of Iraq auctions.Tightening
IraqEffective April 15, 2013, the weekly limits for money transfer companies and money exchange companies were increased to US$450,000 from US$75,000 and to US$300,000 from US$75,000, respectively. These limits may be increased or decreased according to market conditions and the companies’ commitment to sell U.S. dollars to citizens.Easing
LebanonEffective June 30, 2013, the Central Bank of Lebanon issued Basic Circular No. 4 of December 7, 2011. It stipulates that category A money dealers must raise their capital to LBP 750 million from LBP 250 million and category B money dealers from LBP 100 million to LBP 250 million—or LBP 500 million if established before December 7, 2011, and 500 million if established on or after December 7, 2011. Money dealers were given until June 30, 2013, to comply. Category A money dealers may deal in cash, transfers, checks, traveler’s checks, and precious metals. Category B dealers whose capital was raised to LBP 500 million may deal in cash and traveler’s checks up to the equivalent of US$10,000, uncollected traveler’s checks, and gold bars not exceeding 1,000 grams. Category B money dealers established before December 7, 2011, may opt to raise their capital to LBP 500 million in order to expand their operations to include the above (BDL Basic Circular No. 4).Tightening
LithuaniaEffective January 1, 2012, electronic money institutions may perform foreign exchange operations related to the issuance of electronic money and the provision of other payment services.Easing
MacedoniaEffective October 23, 2012, the Decision on Currency Exchange Operations went into effect. It liberalized certain documentation requirements for licensing of foreign exchange bureaus and additional conditions for operations.Easing
MoldovaEffective March 1, 2013, the National Bank of Moldova (NBM) launched foreign exchange auctions (in the form of multiple price auctions) for purchases and sales of foreign currency against lei between the NBM and licensed banks through a unique trading platform.Neutral
MyanmarEffective January 26, 2012, customers may buy or sell in the retail market up to US$10,000, or its equivalent in Singapore dollars, and euros without documentation. For larger amounts, additional documentation may be required. Previously, documentation was required for all transactions.Easing
MyanmarEffective February 9, 2012, wholesale private banks authorized to deal in foreign exchange may settle foreign exchange transactions among themselves using foreign exchange accounts at the Central Bank of Myanmar. ADs are allowed to offer larger noncash foreign exchange services to customers and to trade directly with each other in the AD marketEasing
MyanmarEffective April 2, 2012, the Central Bank of Myanmar began to hold daily two-way multiple price foreign exchange auctions open to AD banks.Neutral
MyanmarEffective April 2, 2012, the Central Bank of Myanmar reference rate is used to set the midrate in the retail Thein Phyu market and in the wholesale/interbank market for ADs.Neutral
MyanmarEffective April 2, 2012, actual exchange rates quoted by wholesale foreign exchange ADs may vary within ±0.3% of the CBM reference rate, which is the cutoff rate in that day’s daily foreign exchange auction.Tightening
MyanmarEffective April 2, 2012, private banks licensed as MCs to buy and sell foreign exchange may transact within ±0.8% of the CBM’s reference exchange rate.Easing
MyanmarEffective October 22, 2012, actual exchange rates quoted by wholesale foreign exchange ADs may vary within ±0.8% (previously, ±0.3%) of the CBM reference rate, which is the cutoff rate in that day’s daily foreign exchange auction.Easing
PakistanEffective February 13, 2013, for exchange companies (both category A and B), the spread between the buying and selling rates of foreign currencies may not exceed 25 paisas (Foreign Exchange Circular No. 1 of February 12, 2013).Tightening
RomaniaEffective May 19, 2012, licensing and control of entities performing foreign exchange transactions in cash and cash substitutes, other than those in the area of prudential supervision of the National Bank of Romania (foreign exchange offices), were transferred to the Ministry of Public Finance from the National Bank of Romania under Articles 161 and 17 of Law No. 656/2002 on preventing and sanctioning money laundering and to establish measures to prevent and combat terrorism financing, as amended and supplemented and by repealing Norm No. 4/2005.Neutral
São Tomé and PríncipeEffective July 17, 2012, purchases of euros between banks/exchange houses and the public must be at the single rate published by the Central Bank of São Tomé and Príncipe, and no commissions are allowed.Tightening
São Tomé and PríncipeEffective July 17, 2012, the Central Bank of São Tomé and Príncipe began charging a 1.5% commission on sales and 0.5% on purchases of euros. The commission applies to direct sales and purchases with commercial banks.Tightening
São Tomé and PríncipeEffective July 17, 2012, the commission on foreign exchange sales by banks and exchange houses to the public is capped at 2% for euros and 4% for other currency.Tightening
São Tomé and PríncipeEffective December 17, 2012, access to foreign exchange from the Central Bank of São Tomé and Príncipe was limited to institutions whose net position in the transaction currency is less than 12% of qualified capital and net position in total foreign currency is less than 25% of qualified capital. Institutions must comply with the central bank’s regulations on bank liquidity and capital adequacy. Financial institutions may have access to the central bank’s facilities regardless of the above conditions if the foreign exchange is for importation of goods and services during a crisis or for the importation of fuel.Tightening
SerbiaEffective January 1, 2012, the period during which exchange bureaus must transfer any excess amount of dinars to their current account with a bank was increased to within seven working days from within the same day or not later than the following working day (Decision on Terms and Conditions for Performing Exchange Operations, RS Official Gazette No. 93/2011).Easing
SerbiaEffective January 1, 2012, the threshold that determines the excess amount of dinars exchange bureaus must transfer to their current account with a bank was decreased to double from triple the average amount of dinars used for the purchase of foreign cash in the month with the highest purchase in the preceding 12 months (Decision on Terms and Conditions for Performing Exchange Operations, RS Official Gazette No. 93/2011).Tightening
Sierra LeoneEffective January 23, 2013, the weekly auction amount was reduced to US$0.70 million from US$1 million.Neutral
Sri LankaEffective March 1, 2012, forward contracts for the sale and/or purchase of foreign exchange between ADs and their clients were limited to 90 days. Such contracts may be concluded only for payments and receipts in foreign exchange connected with established transactions for trade in goods and services and allowable capital transactions.Tightening
Sri LankaEffective January 2, 2013, the 90-day limit on the maturity of forward foreign exchange contracts introduced March 1, 2012, was eliminated.Easing
SudanEffective April 5, 2012, as a temporary arrangement, each client in the foreign exchange market was allowed only one foreign currency check not exceeding US$100,000 in the clearinghouse.Tightening
SudanEffective June 24, 2012, the maximum allowed bid-ask spread was raised to 0.5% from 0.4% in all currencies.Easing
SudanEffective November 7, 2012, exchange bureaus may not buy foreign exchange from the Central Bank of Sudan.Tightening
SurinameEffective October 29, 2012, commercial banks and exchange bureaus are licensed by the Central Bank of Suriname, in accordance with the Money Transaction Offices Supervision Act 2012. The Act broadens the tools to regulate exchange bureaus and the Central Bank of Suriname is drafting guidelines to implement this Act. Previously, exchange bureaus were also licensed by the Ministry of Trade.Tightening
Trinidad and TobagoEffective May 31, 2012, in addition to the predetermined foreign exchange allocation at a price set by the Central Bank of Trinidad and Tobago (CBTT), authorized dealers may bid at auction for CBTT intervention funds. Although it is a multiple price auction, bids must be within 1% of the CBTT rate for the allocation system. Auctions are held about once a month.Neutral
TurkeyEffective January 2, 2012, the Central Bank of the Republic of Turkey extended the maturity of foreign exchange deposits borrowed by banks in the interbank market from one week to one month.Easing
TurkeyEffective January 6, 2012, in order to support additional monetary tightening, the Central Bank of the Republic of Turkey began to conduct intraday foreign exchange selling auctions as necessary. A ceiling of US$50 million was set for total volume of foreign exchange sold.Neutral
TurkeyEffective January 25, 2012, the Central Bank of the Republic of Turkey suspended the regular foreign exchange selling auctions, but retained the option to hold intraday foreign exchange selling auctions, with a maximum daily amount of US$500 million.Neutral
TurkeyEffective December 25, 2012, the maturity of the foreign exchange deposits banks may borrow from the Central Bank of the Republic of Turkey was decreased from one month to one week. The lending rates for Central Bank of the Republic of Turkey transactions were raised from 4.5% to 10.0% for U.S. dollars and from 5.5% to 10.0% for euros.Tightening
TurkeyEffective January 2, 2013, intraday foreign exchange auctions were suspended.Neutral
TurkeyEffective January 2, 2013, the Central Bank of the Republic of Turkey suspended its activities as an intermediary in the foreign exchange deposit markets.Neutral
TurkeyEffective June 11, 2013, the Central Bank of the Republic of Turkey announced that it may hold unsterilized intraday foreign exchange sales auctions or foreign exchange interventions when deemed necessary in order to support short-term additional monetary tightening.Neutral
TurkeyEffective June 11, 2013, the Central Bank of the Republic of Turkey (CBRT) resumed intraday foreign exchange selling auctions with US$50 million to be sold at each auction, and published the following guidelines: (1) Only banks authorized to operate in Foreign Exchange and Banknotes Markets in the central bank are eligible to participate in intraday auctions. (2) The number and other details of the auction are posted on Reuters page CBTQ. Following the announcement of the auction, banks may submit their offers within 15 minutes. (3) Offers may be sent via the CBRT Payment Systems Auction System (IhS). (4) Auctions are held under the multiple-price method. (5) The results of the auctions are posted on Reuters page CBTQ within 15 minutes of the deadline for submission of offers. (6) The minimum offer amount is US$1 million and multiples thereof. (7) The maximum offer amount for each bank is limited to 20% of the total auction amount. (8) Banks may not change their offer amounts and/or prices during the auction. (9) The selling amount for each intraday auction is US$50 million and the full amount of offers received is met up to the auction amount. (10) If there is more than one offer at the price at which the auction is finalized, the distribution is made on a pro rata basis. (11) Banks that do not fulfill their obligations arising from the auctions are subject to the sanctions specified in the Implementation Instructions of the Foreign Exchange and Banknotes Markets.Neutral
TurkeyEffective June 20, 2013, the amount to be sold at each intraday auction is set individually by the Central Bank of the Republic of Turkey and posted on Reuters page CBTQ.Neutral
TurkeyEffective June 24, 2013, there may be only one intraday foreign exchange selling auction on the days funding is provided from the policy rate, and the auction amount is set at a minimum US$150 million and posted on Reuters page CBTQ at 3:00 p.m.Neutral
TurkeyEffective July 2, 2013, the minimum amount for the foreign exchange selling auctions was changed from US$150 million to US$50 million, and the maximum bid amount for each bank is limited to 10% (previously 20%) of the total auction amount.Neutral
TurkeyEffective August 1, 2013, the intraday foreign exchange selling auction time was changed to 4:30 p.m. from 3:00 p.m.Neutral
TurkmenistanEffective February 27, 2012, the Regulations for Conducting Exchange Operations by Authorized Credit Institutions in Cash and Noncash Form with Individuals went into effect.Neutral
UgandaEffective February 20, 2012, the Bank of Uganda revised the framework for reserve buildup from purchasing a fixed daily amount of US$1.7 million to purchasing between US$1million and US$2 million daily, in response to sharp fluctuation of the shilling in February 2012.Neutral
UkraineEffective February 17, 2012, authorized banks may engage in swap and forward transactions involving the purchase and sale of bank metals.Easing
UkraineEffective January 1, 2013, foreign exchange transactions up to HRV 50,000 require documentation verifying the identity of a person; larger amounts require physical identification of the individual. Previously, banks and financial institutions purchased foreign exchange from individuals against any document verifying their identity.Tightening
UzbekistanEffective February 1, 2013, foreign exchange operations with residents must take place through conversion operations departments in banks and foreign exchange bureaus. These departments sell foreign exchange to resident individuals by converting sum on the personal bank card of the resident to foreign exchange deposited on an international payments card.Tightening
VenezuelaEffective March 25, 2013, the Central Bank of Venezuela launched the foreign currency auction with a first offer of US$200 million through the Complementary System to the Administration of Foreign Exchange.Neutral
Source: AREAER database.
Table 7.b.Changes in Currency and Exchange Rate Structures, January 1, 2012–August 31, 2013
CountryChangeType
BhutanEffective May 1, 2012, Indian rupees were no longer freely issued over the counter. All current international transactions denominated in rupees were streamlined to reflect the legal status of the rupee as a foreign currency.Tightening
GhanaEffective July 2, 2012, the exchange rate structure was changed from unitary to dual because the Bank of Ghana uses a reference rate for certain official transactions. This rate does not involve a mechanism to ensure that it does not differ from the prevailing market rate by more than 2%, thus giving rise to a multiple currency practice.Tightening
Islamic Republic of IranEffective September 24, 2012, the authorities adopted a two-tier exchange rate system, under which the Central Bank of Iran maintains a more appreciated interbank exchange rate for imports of food and basic goods and offers a second rate at the Foreign Exchange Trade Center for imports of authorized goods.Tightening
Islamic Republic of IranEffective September 24, 2012, the exchange rate structure was changed to multiple from unitary because in addition to the two-tier exchange rate system, under which the Central Band of Iran maintains a more appreciated interbank exchange rate for imports of food and basic goods and offers a second exchange rate at the Foreign Exchange Trade Center for imports of authorized goods, a more depreciated parallel rate is offered at the exchange rate bureaus.Tightening
MadagascarEffective March 13, 2012, the preferential exchange rate for oil importers (MGA 2,000 per U.S. dollar) was reinstated.Tightening
MadagascarEffective March 3, 2012, as a result of the preferential exchange rate used for oil imports, the exchange rate structure was changed from unitary to dual.Tightening
MyanmarEffective April 2, 2012, the official exchange rate was replaced with a reference rate for foreign exchange transactions with the government. This reference rate is used to set the Thein Phyu midrate, which generally remains within 0.8% of the reference rate but occasionally may differ by more than 2% from the other rates.Neutral
MyanmarEffective April 1, 2013, a process for redemption of foreign exchange certificates was established. Under the redemption, such certificates could be used for payments until June 30, 2013.Neutral
São Tomé and PríncipeAs a result of the Central Bank of São Tomé and Príncipe (BCSTP) regulations, which set a maximum commission of 2% on sales of euros and 4% on sales of other currencies, and required purchases of euros to be made at the single rate published daily by the BCSTP, with no commissions, the exchange rate structure was changed to unitary from multiple, effective July 17, 2012.Easing
SudanEffective June 24, 2012, Sudan adopted a new multiple exchange rate regime including (1) a central rate of SDG 4.42 per U.S. dollar that also applies to fuel imports, the payment of government obligations, and customs valuation; (2) a subsidized rate for wheat of SDG 2.9 per U.S. dollar; (3) a gold exchange rate used by the Central Bank of Sudan (CBOS) in its gold transactions; and (4) a managed float rate used mainly by commercial banks and exchange bureaus. The managed float rate applies to all other transactions and has three components: (1) an indicative rate; (2) a variable incentive premium set by the CBOS (currently 15%); and (3) a flexibility factor that allows banks to deviate from the average of the indicative rate and the incentive by ±4% (previously ±3%).Neutral
UkraineEffective June 18, 2012, although the multiple currency practice arising from the official foreign exchange auction has been eliminated, the exchange rate structure is classified as dual, because of the potential difference in exchange rates for certain government transactions and the market exchange rate.Tightening
VenezuelaEffective February 8, 2013, the official bolívar–U.S. dollar exchange rate was devalued to Bs 6.30 from Bs 4.30 per U.S. dollar.Neutral
VenezuelaEffective February 8, 2013, the implicit rate of Bs 5.30 per U.S. dollar that applied to purchases and sales in bolívares of foreign-currency-denominated securities issued by Venezuela, its decentralized entities, and other entities in the Transaction System for Foreign-Currency-Denominated Securities operated by the Central Bank of Venezuela was discontinued.Neutral
VenezuelaEffective March 25, 2013, the Transaction System for Foreign-Currency-Denominated Securities was replaced with the Complementary System to the Administration of Foreign Exchange to complement the Commission for the Administration of Currency Exchange system, which supplies foreign exchange at the official rate of Bs 6.30 per U.S. dollar. Access to the Complementary System to the Administration of Foreign Exchange is restricted to importers selling food, medicine, and other basic goods.Neutral
ZambiaEffective January 23, 2012, the government of Zambia approved the recommendation of the Bank of Zambia board of directors to rebase the kwacha.Neutral
ZambiaEffective January 1, 2013, the kwacha was rebased by removing three zeros. The rebased kwacha circulated alongside the old currency for six months.Neutral
Source: AREAER database.
Table 7.c.Changes in Exchange Subsidies and Exchange Taxes, January 1, 2012–August 31, 2013
CountryChangeType
ArubaEffective January 1, 2012, the exemption for foreign exchange commissions for payments settled in Netherlands Antillean guilders was revoked (AB 2011 No. 76).Tightening
BoliviaEffective December 5, 2012, a tax throughout the national territory was established (Supreme Decree No. 1423 of September 22, 2012) on a temporary basis for 36 months on the sale of foreign currency. The rate is 0.7% of the assessed tax base. For financial and nonbank entities, the assessed base is the sum of all foreign currency sales expressed in local currency. The taxable base for exchange bureaus is 50% of the sum of all foreign currency sales expressed in local currency. The sale of foreign currency by financial institutions to the Central Bank of Bolivia is exempt.Tightening
BrazilEffective February 29, 2012, the 6% IOF rate maximum maturity was increased from 720 days to 1,080 days for inflows related to external loans.Tightening
BrazilEffective February 29, 2012, the IOF rate was reduced from 2% to zero for settlements of simultaneously contracted foreign exchange transactions after December 1, 2011, related to inflows from cancellation of depository receipts invested in the acquisition of stocks in the stock market.Easing
BrazilEffective March 12, 2012, the maximum maturity of external loans subject to the 6% IOF rate was increased from 1,080 days to 1,800 days.Tightening
BrazilEffective June 14, 2012, the maximum maturity of external loans subject to the 6% IOF rate was decreased from 1,800 days to 720 days.Easing
BrazilEffective December 5, 2012, the maximum maturity of external loans subject to the 6% rate was decreased from 720 days to 360 days.Easing
EcuadorEffective January 1, 2012, the tax on transfers abroad was increased from 2% to 5%.Tightening
Source: AREAER database.

Exchange Rate Arrangements

Improved market conditions may have contributed to the almost complete reversal of the previous shift to more flexible exchange rate arrangements. After losing about 4 percent of member countries during the period January 2011–April 2012, the soft peg category strengthened almost to its previous (April 2011) level, reaching 42.9 percent of the membership (see Table 2). This change further widened the gap between soft pegs and floating arrangements. Countries with soft pegs represent the single largest exchange rate arrangement category—almost equal to the combined number of floating and other managed arrangements (44 percent of members). More specifically, both the stabilized and crawl-like arrangement categories expanded, while the residual other managed arrangement category contracted markedly.

  • There were no changes between April 2012 and April 2013 among the countries that have no separate legal tender or currency boards. In fact, the countries with these arrangements tend to maintain their exchange rate policies unless there are large structural changes in their economies.

  • The number of countries with a conventional peg arrangement increased by 2, to 45. The Solomon Islands, which has a de jure conventional peg arrangement, stabilized the exchange rate and thus, after one year, its de facto exchange rate arrangement was reclassified back to a conventional peg. In addition, South Sudan adopted a de jure conventional peg exchange rate arrangement after introducing its own currency (and pegging it against the U.S. dollar) at the time of its independence in July 2011. Pending further review, South Sudan’s de facto exchange rate arrangement is provisionally included in the conventional peg category.

  • Although the number of stabilized arrangements increased only by 3—to 19—between April 30, 2012, and April 30, 2013, this category had the largest number of changes in the reporting period: 11 in all. Including temporary changes, seven countries entered and four countries left this group. Five new countries joined and remained in this group: Bolivia (previously crawling peg), Costa Rica (previously other managed arrangement), the Democratic Republic of the Congo (previously other managed arrangement), Georgia (previously floating), and Yemen (previously other managed arrangement). Two countries (Egypt and Guatemala) that left this group moved back to the exchange rate arrangement categories they had before the previous reporting period. Two other countries (Papua New Guinea and Switzerland) were classified as having stabilized arrangements for part of the reporting period but eventually reverted to their previous classifications.

  • The number of countries with crawl-like arrangements increased from 12 to 15, with no countries leaving this group. The three countries that joined this group are Egypt (previously stabilized arrangement), Indonesia (previously floating), and Singapore (previously other managed arrangement).

  • Tonga is the only country that maintains a pegged exchange rate within horizontal bands. Two additional countries have de jure pegged exchange rates within horizontal bands, but one of them has a de facto stabilized arrangement and the other has a de facto other managed arrangement.

  • Five countries left the category other managed arrangement (the residual category); one country joined this group again after having been reclassified to another category for part of the reporting period (Switzerland, which was classified as having a stabilized arrangement for slightly over a year). Among the countries that left this group the majority moved to soft pegs. Three moved to stabilized arrangements (Democratic Republic of the Congo, Costa Rica, Yemen), one to a crawl-like arrangement (Singapore), and one to a conventional peg (Solomon Islands).

  • The number of countries with floating arrangements remained stable (35), with several changes to the composition of the group. The same number of countries switched sides between the stabilized arrangement and floating categories: Georgia (previously floating) was reclassified to stabilized arrangement, and Guatemala (previously stabilized) was reclassified to floating; Papua New Guinea was classified as a stabilized arrangement for part of the period before returning to floating. Indonesia left this group to be reclassified as having a crawl-like arrangement, but this was offset by the addition of New Zealand, previously in the free-floating category.

  • The number of countries classified as having free-floating arrangements declined by 1, to 30. New Zealand was reclassified as floating after the volume of the Reserve Bank of New Zealand’s net New Zealand dollar sales started to increase in November 2012.

Monetary Anchors9

The exchange rate remained the anchor for monetary policy for fewer than half of member countries (Table 4). This reporting period has been remarkably quiet in terms of developments in official monetary anchors,10 following two years of significant recategorization, in part because of improved reporting.11 Among exchange rate anchors, the only change reflects the addition of South Sudan with a peg against the U.S. dollar. There were a few more changes among the other categories. Overall, with four switches between the categories and one new member joining with a U.S. dollar anchor, the number of members using the U.S. dollar as a monetary anchor (44) increased slightly, whereas the number of members using the euro (27), a composite (13), or another single currency (8) remained the same (see Table 1).

Fifty-seven member countries have an officially announced fixed exchange rate policy—either a currency board or a conventional peg—which implies the use of the exchange rate as the unique monetary anchor, with one exception. Although the official (de jure) exchange rate regime of the Solomon Islands is a peg against a basket of currencies (effective October 1, 2012), the monetary policy framework was reported to comprise a mix of anchors, including the exchange rate. Among the 65 countries that have floating exchange rate arrangements—floating or free floating—the monetary anchor does not refer to the exchange rate and varies among monetary aggregates (12), inflation targeting (30), and other (23, including the 17 euro area countries). Fourteen countries implementing soft pegs and other managed arrangements target monetary aggregates. Countries with either stabilized or crawl-like arrangements (34) rely on a variety of monetary frameworks, including monetary aggregates and inflation-targeting frameworks. Paraguay is the only country classified as other managed arrangement with an inflation-targeting framework; the remaining other managed arrangements are almost equally split between monetary aggregate targets (6) and other monetary policy frameworks (7).

  • The share of IMF members with the exchange rate as the main policy target increased only slightly, from 47.9 percent to 48.2 percent. This increase is due solely to the new member, South Sudan. Countries with hard pegs or conventional pegs make up three-quarters of this group. Three currency unions—the Central African Economic and Monetary Community (CAEMC), Eastern Caribbean Currency Union (ECCU), and Western African Economic and Monetary Union (WAEMU)—have exchange rate anchors for their respective common currency. However, these countries account for less than 20 percent of global output and world trade. Exchange rate anchors are by far the first choice of small, open economies, as suggested in the economic literature.

  • The U.S. dollar maintained its position as the dominant exchange rate anchor, having increased slightly with the addition of South Sudan after five years of consistent contraction since April 2008. Countries that continue to anchor to the dollar also include those with moderate trade relations with the United States.

  • There was no change in the share or composition of countries using an exchange rate anchor to the euro. These countries, such as the Communauté financière d’Afrique (CFA) franc area countries, generally have a common history with European countries or strong trade relations with western Europe, including central and eastern European countries such as Bulgaria, the former Yugoslav Republic of Macedonia, Montenegro, and San Marino.

  • Thirteen countries anchor their exchange rate to a currency composite. Four track the SDR as the sole currency basket or as a component of a broader reference basket; one tracks a euro–U.S. dollar basket; two Pacific island countries track a composite that includes the Australian and New Zealand dollars in combination with major global currencies; and the remaining six countries do not disclose the composition of their reference currency baskets.

  • The number of countries with an exchange rate anchor to another single currency remained unchanged (8). Two of these countries use the Australian dollar as their legal currency, and one has a currency board arrangement with the Singapore dollar. The remaining five have conventional pegged arrangements, three with the South African rand and two with the Indian rupee. Half the countries in this group are landlocked, bordering either partially or exclusively the country whose currency they use as their exchange rate anchor

Most IMF member countries, representing the overwhelming share of global output, are split among monetary aggregate targeting, inflation targeting, and other (which includes monetary policy not committed to any specific target).

  • The number of countries targeting a monetary aggregate declined from 29 in April 2012 to 26 in April 2013.12 This category does not include any country with a free-floating exchange rate arrangement; in fact, monetary aggregates are often the choice of economies with less-developed financial markets and managed exchange rates. The objective of the arrangement is to influence consumer prices and eventually asset prices through the control of monetary aggregates. Reserve money is often used as the operational target to control credit growth through the credit multiplier. During the past year, two countries switched from monetary aggregate targeting to other monetary framework (Mongolia and Pakistan), and one country switched to inflation targeting (Paraguay).

  • The number of countries that directly target inflation increased by two (Japan and Paraguay).13 After the initial introduction of a price stability goal in 2012, Japan implemented the price stability target under the monetary policy framework and set the target at 2 percent in January 2013. These significant developments underline that an inflation-targeting framework is increasingly the choice among advanced economies and not only middle-income economies. Of the inflation-targeting countries, 30 have either floating or free-floating exchange rate arrangements, a policy framework that requires considerable monetary authority credibility to make up for the loss of transparent intermediate targets.14 A few countries refer to their monetary framework as “inflation targeting light,” suggesting that they also consider indicators other than inflation. During the past year, one other country, Paraguay, joined this group by adopting inflation targeting as its formal monetary policy after completing the transition stage. Furthermore, Russia and Uganda are in the transition stage to full-fledged inflation targeting.15

  • The number of countries that are not committed to any specific target (the “other” column in Table 1) increased by 1 to 39. Mongolia and Pakistan now report a multiple indicator approach to monetary policy, while Japan formally adopted an inflation-targeting framework. This category includes many of the largest economies, such as the euro area and the United States, where the monetary authorities have sufficient credibility to implement the monetary framework without a specific monetary anchor. Countries in this category also include those with multiple monetary anchors, often including an exchange rate anchor. For example, Pakistan, which previously targeted only monetary aggregates, was reclassified to “other” monetary policy framework because it now seeks to control inflation in the policy mix. Similarly, Mongolia reports monitoring a broad range of financial and real indicators in the conduct of monetary policy.

Foreign Exchange Interventions

The IMF staff regularly assesses whether the frequency of foreign exchange intervention is consistent with de facto free-floating arrangements (see the Compilation Guide).16 These assessments draw on information that is publicly available and made available to the IMF through other sources, including during official staff visits to member countries. This section summarizes developments in foreign exchange interventions since January 1, 2012, some of which are also depicted in Table 5 and Table 7.a.

Intervention Purpose

The developments related to official interventions paint a mixed picture. There has been no reported intervention in major advanced economies (for example, Japan, euro area). However, against the backdrop of increased capital flow volatility, there has been mounting pressure on smaller advanced economies and emerging market economies. The heightened intervention activity was evident in self-reporting, various market reports, and significant changes in some members’ foreign exchange reserves.

After intervening several times in 2011, Japan ceased its official foreign exchange activities in 2012 and early 2013. On the other hand, New Zealand responded to heavy appreciation pressure by increasing its foreign exchange purchases. The Czech Republic announced additional monetary easing in the form of foreign exchange interventions while suspending sales of foreign exchange reserve revenues.

In some countries, exchange rate pressure reflects domestic conditions rather than the global environment. Faced with significant volatility against the backdrop of political protests, Turkey resumed (see Table 7.a) its intraday foreign exchange selling auctions in June 2013 after suspending the regular selling auctions in January 2012 and the intraday auctions in January 2013. Leaning the other way, Israel announced, in May 2013, a foreign exchange purchase plan (see Table 5) to offset the effect of natural gas production on the exchange rate, estimating total purchases to be about US$2.1 billion by the end of 2013 within the framework of this plan.

Intervention Techniques

In 2012, to combat massive overvaluation and defend the minimum exchange rate, the Swiss National Bank increased its purchases to approximately Sw F 188 billion in foreign currency (compared with Sw F 17.8 billion in 2011) with a wide range of counterparties in Switzerland and abroad.

Turkey’s central bank introduced the reserve option mechanism (ROM) as a new monetary policy tool, while gradually phasing out its foreign exchange auctions. In this framework, the central bank grants banks the option to hold a fraction of their mandatory reserves for Turkish lira liabilities in foreign currency and gold. The ROM, which largely replaced the role of auctions and bilateral interventions, has been used as an active policy tool by the central bank and may have contributed to stabilizing capital flow volatility, indirectly influencing exchange rate movements. However, Turkey had to resort to a large volume of foreign exchange auctions when faced with significant volatility in June 2013.

Russia continued to ease the rules guiding its interventions by further widening the band (from Rub 6 to Rub 7) for allowable fluctuations and reducing the cumulative amount of unplanned interventions triggering an automatic adjustment of the exchange rate band by 5 kopeks (US$500 million to US$450 million). Furthermore, foreign exchange interventions are now reported with a two-day lag (previously, one-week lag). Similarly, Guatemala widened the fluctuation margin triggering interventions from 0.6 percent to 0.65 percent.

Official Exchange Rates

The vast majority (168) of IMF member countries report publishing official exchange rates. This includes not only countries that have officially determined and/or enforced exchange rates; by definition it also refers to any reference or indicative exchange rate that is computed and/or published by the central bank. The calculation of such exchange rates is often based on market exchange rates, such as exchange rates used in interbank market transactions or in a combination of interbank and bank-client transactions in a specified observation period. The published exchange rate is used as a guidance for market participants or for accounting and customs valuation purposes, in exchange transactions with the government, and sometimes mandatorily in specific exchange transactions. One new member, South Sudan, alongside El Salvador and Kenya, joined this group during the 2012–13 reporting period, while Japan reported no reference exchange rate published by the Bank of Japan. Among the 22 members that report no official or reference exchange rates, more than half (12) are countries with no separate legal tender.

Foreign Exchange Markets

Between January 1, 2012, and August 31, 2013, there were only minor changes in the reported foreign exchange market structure of members (Table 6). The most noteworthy developments were the increase in the number of countries with foreign exchange mechanisms operated by the central bank (by 3) and in the number of countries that have over-the-counter interbank markets (by 7). Table 7.a. includes detailed descriptions of changes concerning foreign exchange market arrangements.

Foreign Exchange Standing Facility, Allocations, Auctions, and Fixing

More than half of IMF member countries (118) report maintaining some type of official facilities by the central bank in the spot foreign exchange market, an increase of three from the previous year. Burundi, which previously held official foreign exchange auctions, stopped using them, whereas Iceland, the Islamic Republic of Iran, Moldova, and South Sudan had central-bank-operated mechanisms in place during the reporting period.

  • Almost two-thirds of members with foreign exchange markets fully or partially operated by the central bank reported maintaining a foreign exchange standing facility (76), one less than during the previous reporting period. Such a facility allows market participants to buy foreign exchange from or sell it to the central bank at predetermined exchange rates and is usually instrumental in maintaining a hard or soft peg arrangement. The credibility of such arrangements depends to a large extent on the availability of foreign exchange reserves backing the facility. All countries with currency boards (12), conventional pegs, with the exception of one (44), or crawling pegs (2) have a foreign exchange standing facility. South Sudan, as a newly independent country with a de jure conventional peg exchange rate regime, has a nascent foreign exchange market and is in the process of developing its central bank operations. The remaining 20 countries primarily have stabilized arrangements (9) or other managed arrangements (6) and their foreign exchange markets are often less developed. Egypt reported having eliminated its foreign exchange standing facility.

  • There was an increase (by 2) in the number of countries holding official foreign exchange auctions (31), and in a significant majority of those (26) foreign exchange auctions are the only mechanism operated by central banks. Almost half of these countries have exchange rate regimes classified as floating (14), and almost half of the countries with de facto stabilized arrangements hold foreign exchange auctions (8), of which 6 hold only foreign exchange auctions. Auctions have been also used to influence the exchange rate rather than solely to manage foreign reserves. For example, Mexico, the only free floater with a foreign exchange auction in place, has implemented a mechanism involving foreign exchange sales auctions, which are held if the exchange rate depreciates by more than 2 percent since the previous day. Similarly, Turkey held foreign exchange selling auctions while changing the rules and daily limits of auctions multiple times during this reporting period. Overall, there were 45 changes related to auctions across the membership. Iraq and Turkey combined account for more than half of these changes. After suspending regular foreign exchange selling auctions and intraday foreign exchange auctions in January 2012 and January 2013, respectively, Turkey reinstated the mechanism against a backdrop of significant volatility in June 2013. Iraq, on the other hand, had almost an equal number of tightening (6) and easing (8) measures related to the transaction limits on auction participants. Colombia extended daily direct purchase auctions to build up reserves several times. Trinidad and Tobago added foreign exchange (multiple price) auctions to its allocation system operated by the central bank, and Venezuela launched foreign exchange auctions, expanding the mechanisms (foreign exchange standing facility and allocation system) its central bank already had in place. Moldova launched two-way multiple price foreign exchange auctions, and Egypt replaced the foreign exchange standing facility with two-way multiple price auctions. During this period, Burundi discontinued the Marché des Enchères Symétriques en Devises, a platform the central bank used to hold foreign exchange auctions as part of an effort to revamp its foreign exchange market. Hungary discontinued foreign currency sale tenders five months after launching this program to provide banks with liquidity for a specific purpose.17

  • The number of countries with allocation systems increased by 1 to 31, reaching the same number of countries with foreign exchange auctions. As opposed to countries holding foreign exchange auctions, most of the countries (24) with allocation systems also rely on other mechanisms operated by their central banks. Foreign exchange allocation is often used to provide foreign exchange for strategic imports, such as oil or food, when foreign exchange reserves are scarce. When these arrangements result in rationing, they can give rise to exchange restrictions. The Foreign Exchange Trade Center, operated by Iran’s central bank, provides foreign exchange for imports of authorized goods. Similarly, Sudan’s central bank sells foreign exchange to commercial banks in accordance with the importance of the imported commodity, with priority on strategic needs. With a nascent foreign exchange market, the Bank of South Sudan attempts to clear the foreign exchange market through weekly allocations, under the nominal anchor of the fixed exchange rate. Malawi no longer allocates foreign exchange to authorized dealers at their request to meet their clients’ demand after implementing the revised Guidelines for Foreign Exchange Trading Activities to allow for more market determination of the exchange rate.

  • There has been no change in the number (5) or composition of countries holding fixing sessions. Only Belarus and Mauritania continue to operate fixing sessions on a regular basis. As a major conduit for foreign aid flows, Mozambique’s central bank channels foreign exchange into the market by holding selling sessions with authorized banks via its software platform. Serbia retains the option of using fixing sessions when necessary to stabilize the foreign exchange market. Although Syria indicated that it held fixing sessions during this reporting period, the extent and regularity of its operations are unknown. Fixing sessions are more characteristic of an early stage of market development, when they help establish a market-clearing exchange rate in a shallow market with less experienced market participants.

Interbank and Retail Foreign Exchange Markets

Two additional countries reported a functioning interbank market: Bosnia and Herzegovina and Comoros. The main types of interbank markets in these 161 countries include over-the-counter markets, brokerage arrangements, and market-making arrangements. Thirty-four members allow operation of all three types of systems.

  • Among the countries with a functioning interbank market, more than two-thirds (122), seven more than in the previous year, operate over the counter: 64 of those operate exclusively over the counter; nearly one-half (73) employ a market-making arrangement; and slightly less than one-third (49) allow for intermediation by brokers.

  • Over-the-counter operations account for the majority of interbank markets because in a number of economies, particularly small economies, market participants cannot undertake the commitments of a market maker. Burundi established an over-the-counter interbank foreign exchange market, the Marché Interbancaire des Devises, to replace the previous foreign exchange auctions. Over-the-counter foreign exchange markets operate in developed economies as well, where the market is sufficiently liquid to operate without the support of specific arrangements or institutions.

  • Six members reported an inactive interbank market.

  • Forty-nine members reported using brokers (for example, Republic of Korea and Singapore), three more than in the previous year. El Salvador, Peru, and Russia now report broker participation in the foreign exchange market.

  • Seventy-two members reported using market-making agreements in the interbank market, an increase of one since last year. This form of market arrangement is used both in developed economies (such as Switzerland) and developing economies (such as Zambia) and across all types of exchange rate arrangements.

More than two-thirds of the membership reports a framework for foreign exchange bureaus. The majority of these countries impose a licensing requirement, but in a number of them, there are no bureaus in operation. Several changes were implemented with respect to exchange bureaus during the reporting period; these were overwhelmingly tightening. Serbia modified the regulation regarding the excess amount of dinars exchange bureaus are required to transfer into their current accounts with banks by extending the period during which such transfers must be made (easing) but lowering the threshold that defines the excess amount (tightening). The Central Bank of Lebanon issued a circular that requires money dealers dealing in cash, transfers, checks, traveler’s checks, and precious metals to raise their capital significantly. In Sudan, exchange bureaus may no longer buy foreign exchange from the central bank. The Central Bank of Suriname became the sole authority for issuance of licenses to commercial banks and exchange bureaus (previously, exchange bureaus were also licensed by the Ministry of Trade). Cyprus imposed restrictions on banking operations of commercial banks but exempted certain licensed banks to allow them to carry out transactions for international clients. In Uzbekistan, conversion by residents of sum to foreign exchange must take place through personal bank cards. Conversion operation departments in banks and foreign exchange bureaus sell foreign exchange to resident individuals by converting sum on the personal bank card of the resident to foreign exchange deposited on an international payment card. Ukraine imposed further identification restrictions, requiring physical identification of individuals for transactions exceeding HRV 50,000. In contrast, in Lithuania, electronic money institutions may now perform foreign exchange operations related to the issuance of electronic money and the provision of other payment services. Macedonia liberalized certain documentation requirements for licensing of foreign exchange bureaus and additional conditions for operations.

Although the majority of members refrain from restricting exchange rate spreads and commissions in the interbank market, several countries imposed new or additional restrictions in this area. Pakistan limited exchange companies’ (both category A and B) spreads between the buying and selling rates of foreign currencies to 25 paisas. The Central Bank of São Tomé and Príncipe began charging a 1.5 percent commission on sales and 0.5 percent on purchases of euros and capped the commission on foreign exchange sales by banks and exchange houses to the public at 2 percent for euros and 4 percent for other currencies. Egypt progressively tightened the limits on bid-ask spreads in the interbank and spot markets. On the easing side, Sudan slightly raised the bid-ask spread for the interbank market.

Among the countries reporting controls on interbank foreign exchange pricing are Botswana, China, the Democratic Republic of the Congo, Haiti, and Saudi Arabia. Many of the spread limits are agreed among market participants in the context of market making or other ad hoc agreements. These limitations are generally implemented in the context of fixed or stabilized exchange rate arrangements.

There were several other developments in currency pricing. China widened the interbank trading fluctuation band from ±0.5 percent to ±1 percent around the central parity released on the same day by the China Foreign Exchange Trade System. Myanmar, as part of a transition to a more flexible exchange rate regime, introduced a number of measures in foreign exchange trading in order to unify the multiple exchange rate system by imposing a transaction range of ±0.8 percent around the reference rate for banks’ transactions with clients. It later raised the ±0.3 percent limit for interbank trading to ±0.8 percent. The Bank of the Republic of Burundi set a fluctuation margin on foreign currency buying and selling transactions by commercial banks and exchange bureaus of ±1 percent of the reference rate it publishes each morning.

Other Measures

Most of the changes in other measures during the reporting period refer to exchange rate structure (Table 7.b), taxes on foreign exchange transactions (Table 7.c), and forward and swap operations (see Table 7.a).

  • Changes related to forward transactions continued to gravitate toward easing (see Table 7.a): there were four easing changes as opposed to one tightening measure. For example, Fiji authorized banks to write net forward sales contracts up to F$20 million. As part of its foreign exchange market liberalization efforts, Ukraine authorized banks to trade in foreign exchange swaps among themselves. El Salvador approved minimum guidelines for operations involving currency forwards, enabling its banks to engage in such operations. Sri Lanka eliminated the limit on the maturity of forward foreign exchange contracts it introduced earlier in the reporting period.

  • There were several changes in the number of countries maintaining dual or multiple exchange rate structures (see Table 7.b). Madagascar’s exchange rate structure was changed back to dual from unitary after the reinstatement of a preferential exchange rate for oil importers. Similarly, the exchange rate structure of Iran was reclassified as multiple given the implementation of a two-tier exchange rate system, under which imports of food and basic goods receive a preferential exchange rate, in addition to a more depreciated parallel rate offered by the exchange bureaus. Ghana’s exchange rate structure was also changed from unitary to dual, since the official rate may differ by more than 2 percent from market rates. In contrast, São Tomé and Príncipe capped the commissions on sales of euros and other currencies and required purchases to be made at a single rate published by the central bank, which caused its exchange rate structure to be classified as unitary. Currently, 24 countries are classified as having more than one exchange rate, of which 17 are dual and 7 multiple. This is a result mainly of specific exchange rates applied for certain transactions or actual or potential deviations of more than 2 percent between official and other exchange rates.

  • There were a few changes with respect to foreign exchange taxes (see Table 7.c). Aruba revoked the foreign exchange commission exemption for transactions settled in Netherlands Antilles guilders. Bolivia introduced a foreign exchange tax of 0.7 percent on a temporary basis for 36 months, and Ecuador increased the tax on transfers abroad from 2 percent to 5 percent. Responding to changes in capital inflows, Brazil took a series of steps that slightly eased the taxing of foreign-exchange-related transactions. Overall, 32 countries (the same as the previous year) tax foreign exchange transactions. On the other hand, only two countries (Serbia and Sudan) have foreign exchange subsidies in place benefiting certain export sectors.

  • Finally, a series of neutral changes were recorded (see Table 7.b). Myanmar implemented a process for redemption of foreign exchange certificates to be used for payments until a deadline. The government of Zambia rebased the kwacha by removing three zeros. Venezuela took several steps to improve its multiple exchange rate structure.

Member Countries’ Obligations and Status under Article VIII

This section provides an overview of the acceptance by most IMF members of the obligations of Article VIII, Sections 2(a), 3, and 4, of the Articles of Agreement and of other members’ use of the transitional arrangements of Article XIV. It also describes restrictive exchange measures—namely, exchange restrictions and multiple currency practices (MCPs) subject to IMF jurisdiction under Articles VIII and XIV and measures imposed by members for national and/or international security reasons. Further, this section refers to changes in restrictive exchange measures in 2012 and to members’ positions as reported in the latest IMF staff reports as of December 31, 2012.

In accepting the obligations of Article VIII, Sections 2(a), 3, and 4, members agree not to impose restrictions on payments and transfers for current international transactions or engage in discriminatory currency arrangements or MCPs. Out of 188 members of the IMF, 168 have accepted Article VIII status. Of these Article VIII members, the number of those maintaining restrictive exchange measures increased by 4 to 34 in 2012.18

IMF staff reports indicate that, among the members with Article XIV status, Afghanistan, Liberia, and Tuvalu do not maintain any exchange restrictions or MCPs. Angola, Bhutan, and Syria maintain exchange measures under both Article VIII and Article XIV. Bosnia and Herzegovina, Burundi, Eritrea, Ethiopia, Iraq, Maldives, Myanmar, Nigeria, São Tomé and Príncipe, and Turkmenistan maintain exchange measures under Article VIII only, and Albania maintains exchange measures under Article XIV only. The exchange regimes of Kosovo and South Sudan are under IMF staff review. The exchange regime of Somalia will be reviewed as circumstances permit.

Restrictive Exchange Measures

Exchange Restrictions and/or multiple currency practices

The overall stance of restrictive exchange measures tightened somewhat in 2012 as both the total number of measures maintained and the number of members maintaining them increased. The total number of restrictions or MCPs maintained by members increased by 7 to 102 in 2012, reversing a decline of 5 in 2011. While the decline in restrictive exchange measures in 2011 was attributable to Article XIV members, both Article VIII and Article XIV members contributed to the increase in 2012. The number of members that maintained restrictive exchange measures, which increased by 1 in 2011, further increased by 4 to a total of 48 in 2012. This reflected the reporting of exchange measures by members with Article VIII status (Ghana, Hungary, Iceland, Ukraine). Taking account of both the increases in the number of restrictive exchange measures and the total number of members that maintained such measures, the average number of measures per member maintaining such measures remained almost the same at just above 2 in 2012.

The average number of restrictions or MCPs maintained by Article XIV members is significantly higher than the figure for Article VIII members. With a slight increase in the number of restrictive exchange measures, the average number of measures for Article XIV members reached 3.9. In contrast, for Article VIII members that maintain exchange measures, broadly commensurate increases in the number of measures and members maintaining such measures caused the average number of measures to remain the same at 1.4.

Changes in restrictive exchange measures maintained by members in 2012 were diverse in nature. For example, among Article XIV countries, São Tomé and Príncipe eliminated an MCP arising from multiple exchange markets with no mechanism to prevent spreads among effective exchange rates in the spot market to diverge more than 2 percent at any time. Further, an IMF staff review found that Myanmar maintained restrictions, including advance import deposit requirements, a 100 percent margin requirement for imports, general restrictions on the making of payments and transfers for invisible transactions, and official action imposing additional costs for exchange transactions. Myanmar also maintained MCPs, including official action giving rise to multiple effective exchange rates and broken cross rates. Among Article VIII countries, Belarus imposed advance import deposit requirements to reduce stress on the balance of payments. To increase the effectiveness of capital controls, Iceland placed limits on remittances of the amortized principal on bonds and the indexed portion of amortization. Ghana maintained an MCP in the form of a special reference rate for certain official imports. Hungary adopted an MCP in the form of an exchange plan that involved multiple effective exchange rates for spot transactions with no mechanism to prevent spreads among effective exchange rates in the spot market from diverging more than 2 percent at any time. This measure was related to a policy to help debtors in foreign currency mortgages who had been adversely affected by the depreciation of the forint vis-à-vis other currencies in which mortgage loans were extended in Hungary. Ukraine maintained two MCPs in the form of a preferential official exchange rate for certain government transactions and, to safeguard reserves and prevent capital flight, a requirement to surrender gains on foreign exchange purchased but not used.

Table 8 shows the distribution of exchange measures under IMF jurisdiction by type and by status of members during the period 2010–12. Because of the disaggregation of the wide variety of measures, the number of measures in each category is relatively low.

Table 8.Exchange Restrictions and Multiple Currency Practices, January 1, 2012–December 31, 2012
Member under
Article XIV

Status
Article VIII StatusTotal
201020112012201020112012201020112012
Total number of restrictions maintained by members157525443434810095102
Restrictions on payments for imports546223769
Advance import deposit and margin requirements2111113
Restrictions on advance payments1112212
Requirement to balance imports with export earnings111111
Restrictive rules on the issuance of import permits111111
Tax clearance requirements111111
Other111111
Restrictions on payments for invisibles171615766242221
Education111111
Medical services111111
Travel services443211654
Income on investment888555131313
Tax clearance requirement222111333
Exchange tax on profits111111
Interest on deposits and bonds111222333
Profits and dividends333111444
Foreign exchange balancing for profit remittances111111
Clearance of debts to government to remit profits111111
Other322322
Restrictions on amortization on external loans111113224
Restrictions on unrequited transfers54311554
Wages and salaries1111121
Clearance of debt to government to remit wages111111
Family remittances11
Other222222
Nonresident accounts322322644
Transferability of frozen or blocked deposits111322433
Limits on use of foreign currency accounts111111
Convertibility of nonresident domestic currency deposits11
Restrictions arising from bilateral or regional
payment, barter, or clearing arrangements:333444777
Unsettled debit balances
Restrictions with general applicability9810999181719
Administered allocations, rationing and undue delay445333778
Payments above a threshold1111211
Tax clearance certificates111111
Exchange taxes111333444
Surrender of export earnings to have access to foreign exchange111111
Other223111334
Multiple currency practices141414171820313234
Exchange taxes444111555
Exchange subsidies1111
Multiple price auctions222222444
Differentials between official, commercial, and parallel rates777101114171821
Margin requirements111111
Non-interest-bearing blocked accounts111111
Non-interest-bearing advance import deposits111111
Exchange rate guarantees111111
Memorandum items:
Average number of restrictions per member3.83.73.91.51.41.42.32.22.1
Number of countries with restrictions151414283034434448
Sources: AREAER database and IMF staff reports.

Though the number of restrictions on payments for imports increased by 3 to 9 in 2012, they form a small fraction of exchange measures as a whole. They include advance import deposits or margin requirements that increase the effective cost of imports (Myanmar, Sudan), restrictions on advance payments that seek to minimize the delay between payment and performance (Belarus, Swaziland), and restrictive administrative rules with respect to imports (Bhutan, Ethiopia).

Restrictions on payments for invisibles declined by 1, to 21 in 2012, leaving such restrictions at about a fifth of total exchange measures. These restrictions reflect members’ policy of reducing the use of foreign exchange for transactions considered to have low priority and of restraining large transfers of investment income, in part to encourage reinvestment. Restrictions on payments for invisibles that typically affect individuals include limits on educational allowances (Angola), medical expenses (Angola), travel abroad (Angola, Bhutan, Eritrea, Sudan), and interest on nonresident domestic currency deposits (Bangladesh). Restrictions that affect the business sector include constraints on the remittance of investment income in the form of a tax clearance requirement (Ethiopia, Fiji, São Tomé and Príncipe), an exchange tax on profits (Colombia), limitations on the remittance of interest on frozen foreign currency deposits (Bosnia) and on bonds (Iceland), limitations on the remittance of profits and dividends, whether realized in foreign or domestic currency (Angola, Eritrea, Iran), a requirement that foreign exchange earnings cover investment income remittances (foreign exchange balancing, Bhutan), or requirements to clear debts to the government before the transfer of profit abroad (Iraq).

Members maintain other transaction-specific restrictions. The definition of a current international transaction in Article XXX(d) of the IMF’s Articles of Agreement includes the amortization of external loans and bonds. Thus, restrictions on such amortization (Ethiopia, Iceland, India) fall within the jurisdiction of the IMF. Some members maintain restrictions on unrequited transfers, including limits on the transfer by nonresidents of salaries and wages (Nepal), a requirement to clear debts with the government prior to remitting wages (Iraq), and limitations on other private transfers (Angola, Bhutan). Limits are maintained on the transferability of balances in frozen foreign exchange accounts in the former Yugoslavia (Bosnia and Herzegovina, Montenegro, Serbia). Unsettled debit balances in bilateral or regional payments, barter, or clearing arrangements give rise to exchange restrictions (Albania, Democratic Republic of the Congo, India, Iraq, Syria, Zimbabwe). The incidence of unsettled balances has remained at 7 since 2010, suggesting challenges in settling balances from inoperative arrangements.

Restrictions of general applicability remained in the range of 17 to 19 measures during 2010–12, accounting for about a fifth of total exchange measures. Included in this category are measures involving administrative allocation of foreign exchange, rationing, and undue delay in the provision of foreign exchange (Eritrea, Maldives, Myanmar, Syria), limits on payments above a threshold (Fiji), tax clearance certificate requirements (Iraq), exchange taxes that constitute restrictions but not MCPs (Angola, Aruba, Gabon), and a requirement to surrender export earnings for access to foreign exchange (Colombia).

The number of MCPs, which broadly constituted about a third of exchange measures during 2010–12, increased by 2 to 34 in 2012. Official action that of itself gives rise to a spread of more than 2 percent between buying and selling rates for spot exchange transactions, or in the context of multiprice auction systems when the system established by official action has no mechanism to prevent such a spread, is considered an MCP. MCPs come in a variety of forms. Differentials between official and market rates triggered by official action, which form the largest subset of MCPs, increased by 3, to 21. Such MCPs typically arise from the mandatory use of a specific exchange rate for certain transactions or from maintaining an unrealistic exchange rate level that channels foreign exchange transactions to a parallel market with a more depreciated exchange rate. More Article VIII members (Democratic Republic of the Congo, Georgia, Ghana, Guinea, Hungary, Kyrgyz Republic, Malawi, Mongolia, Suriname, Ukraine) maintain actions that give rise to these differentials than do Article XIV members (Burundi, Eritrea, Maldives, Myanmar, Syria). Other measures giving rise to MCPs are exchange taxes (Angola, Colombia, Eritrea), margin requirements (Sudan), non-interest-bearing advance import deposits (Syria), exchange guarantees (Tunisia), and multiple price foreign exchange auctions (Angola, Mongolia, Nigeria, Sierra Leone). Such auctions are often implemented until a well-functioning interbank market develops.

Table 9 provides descriptions of restrictive exchange measures by members as indicated in the latest IMF staff reports as of December 31, 2012. Excluded from Table 9 are member countries that have not consented to publication of such measures described in unpublished IMF staff reports.

Table 9.Exchange Restrictions and/or Multiple Currency Practices by Country, as of December 31, 2012
Country1Exchange Restrictions and/or Multiple Currency Practices2
AlbaniaThe IMF staff report on the 2012 Article IV Consultations with Albania states that, as of November 19, 2012, Albania still avails itself of the transitional arrangements under Article XIV and maintained an exchange restriction in the form of outstanding debit balances on inoperative bilateral payments agreements, which were in place before Albania became an IMF member. These relate primarily to debt in nonconvertible and formerly nonconvertible currencies. The IMF staff is currently assessing Albania’s exchange system for potential exchange restrictions and multiple currency practices. (Country Report No. 13/7)
AngolaThe IMF staff report for the 2012 Article IV Consultation and First Post-Program Monitoring with Angola states that, as of July 2, 2012, Angola maintained exchange measures pursuant to the transitional arrangements under Article XIV, and a number of measures subject to IMF jurisdiction under Article VIII. The measures maintained pursuant to Article XIV are (1) limits on the availability of foreign exchange for invisible transactions, such as travel, medical, or educational allowances; and (2) limits on unrequited transfers to foreign-based individuals and institutions. In addition, Angola maintained two exchange restrictions subject to IMF jurisdiction under Article VIII, Section 2. These are (1) limits on the remittances of dividends and profits from foreign investments that do not exceed US$1,000,000; and (2) the discriminatory application of the 0.015% stamp tax on foreign exchange operations. Angola also maintained two multiple currency practices arising from: (1) the Dutch foreign exchange auction; and (2) the discriminatory application of the 0.015% stamp tax on foreign exchange operations that are subject to approval under Article VIII, Section 3. (Country Report No. 12/215)
ArubaThe IMF staff report for the 2010 Article IV consultation with the Kingdom of the Netherlands—Aruba states that, as of October 7, 2010, 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. (Country Report No. 10/334)
BangladeshThe IMF staff report for the 2011 Article IV consultation with Bangladesh states that, as of October 17, 2011, Bangladesh maintained an exchange restriction on the convertibility and transferability of proceeds of current international transactions in nonresident taka accounts. (Country Report No. 11/314)
BelarusThe IMF staff report on the Third Post-Program Monitoring Discussion with Belarus states that, as of November 28, 2012, the authorities lifted some of the earlier introduced administrative controls, including the ban on the purchase of foreign exchange for certain import payments in excess of €50,000. However, based on currently available information, Belarus continues to maintain restrictions on the availability of foreign exchange for advance payments for imports. The IMF staff is currently reviewing the jurisdictional implications of the new regime and the remaining foreign exchange controls.
BhutanThe IMF staff report for the 2011 Article IV consultation with Bhutan states that, as of May 13, 2011, Bhutan maintained exchange restrictions subject to IMF approval under Article VIII, Section 2(a). (Country Report No. 11/123)
BosniaThe IMF staff report for the 2012 Article IV Consultation with Bosnia and Herzegovina, states that, as of September 12, 2012, Bosnia and maintained restrictions on the transferability of balances and interest accrued on frozen foreign currency deposits, subject to IMF jurisdiction under Article VIII. (Country Report No. 12/282)
BurundiThe IMF staff report for the 2012 Article IV Consultation, First Review under the Three-Year Arrangement under the Extended Credit Facility states that, as of July 16, 2012, Burundi maintained one multiple currency practice that is inconsistent with Article VIII, Section 2(a): the exchange rate used for government transactions differ by more than 2% from market exchange rates. (Country Report No. 12/226)
ColombiaThe IMF staff report for the 2011 Article IV consultation with Colombia states that, as of July 7, 2011, 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 earned before 2007 and that 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, in which branches of foreign corporations are required to either surrender their export proceeds to the authorities or agree to a government limitation on their access to the foreign exchange market. (Country Report No. 11/224)
Democratic Republic of the CongoThe IMF staff report for the 2012 Article IV Consultation with the Democratic Republic of the Congo (DRC) states that, as of September 6, 2012, the DRC maintained measures that give rise to one exchange rate restriction and one multiple currency practice subject to IMF approval. The exchange restriction involves an outstanding net debt position against other contracting members under the inoperative regional payments agreement with the Economic Community of the Great Lakes Countries. The multiple currency practice relates to a fixed exchange rate set quarterly applying to transactions through a bilateral payments agreement with Zimbabwe. (Country Report No. 13/94)
EthiopiaThe IMF staff report for the 2012 Article IV Consultations states that, as of September 29, 2012, Ethiopia maintained four restrictions on the 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 National Bank of Ethiopia (NBE) to obtain import permits. These restrictions are inconsistent with Article VIII, Section 2(a), of the IMF’s Articles of Agreement. The IMF staff is continuing to assess whether a general finance and economic cooperation agreement signed between the government of Ethiopia and China in 2006 gives rise to exchange restrictions under Article VIII. (Country Report No. 12/287)
FijiThe IMF staff report for the 2011 Article IV Consultations states that, as of January 06, 2012 Fiji maintained an exchange restriction subject to Article VIII arising from the Fiji Revenue and Customs Authority tax certification requirements before foreign companies can remit profits abroad and from limits on large payments (e.g., oil imports and dividends repatriation of foreign banks). (Country Report No. 12/44)
GabonThe IMF staff report on the 2010 Article IV Consultations states that, as of February 3, 2011, owing to the imposition of a tax on all wire transfers, including for making payments and transfers for current international transactions, Gabon maintained an exchange restriction subject to IMF approval under Article VIII, Section 2(a), of the Articles of Agreement. (Country Report No. 11/97)
GeorgiaThe IMF staff report on the Request for a Stand-by Arrangement and an Arrangement under the Standby Credit Facility states that, as of March 29, 2012, the Georgia government uses the official exchange rate for budget and tax accounting purposes as well as for all payments between the government and enterprises and other legal entities, and for foreign exchange transactions with the National Bank of Georgia. The official rate is defined as the average of the previous day’s market transaction rates, and may thus differ by more than 2% from the freely determined market rate, which gives rise to a multiple currency practice. In practice, the official and market rates have never differed by more than 2% since the introduction of foreign exchange auctions in March 2009. (Country Report No. 12/98)
GhanaThe IMF staff report for the Sixth and Seventh Reviews Under the Three-year Arrangement Under the Extended Credit Facility states that as of July 2, 2012, Ghana maintained a multiple currency practice, arising from a special reference rate for certain official transactions, subject to IMF approval (Country Report No. 12/201).
GuineaThe IMF staff report on a First Review under the Three-Year Arrangement under the Extended Credit Facility with Guinea states that, as of September 12, 2012, Guinea maintained a multiple currency practice, as the value of the official rate lags the weighted average commercial bank rate on which it is based by one day. (Country Report No. 12/301)
HungaryThe IMF staff report for the 2011 Article IV Consultations and the Second Post-Program Monitoring Discussion states that as of January 4, 2012, Hungary maintained multiple currency practices subject to the IMF’s approval under Article VIII, Section 3 arising from the establishment by the Magyar Nemzeti Bank of a foreign exchange scheme that involves a multiplicity of effective exchange rates for spot transactions without a mechanism to ensure that such rates will not deviate among each other by more than 2%. (Country Report No. 12/13)
IcelandThe IMF staff report for the 2012 Article IV Consultation and First Post-Program Monitoring Discussion with Iceland states that, as of March 26, 2012, Iceland maintained exchange restrictions arising from limitations imposed on the conversion and transfer of (1) interest on bonds (whose transfer the foreign exchange rules apportion depending on the period of the holding), (2) amortized principal on bonds, and (3) the indexed portion of principal on bonds. (Country Report No. 12/89)
IndiaThe IMF staff report for the 2012 Article IV Consultation with India states that, as of April 12, 2012, 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): restrictions related to the nontransferability of balances under the India-Russia debt agreement; restrictions arising from unsettled balances under inoperative bilateral payments arrangements with two eastern European countries; and a restriction on the transfer of amortization payments on loans by nonresident relatives. (Country Report No. 13/37)
Islamic Republic of IranThe IMF staff report for the 2011 Article IV consultation with the Islamic Republic of Iran states that, as of July 6, 2011, Iran maintained one exchange restriction and a multiple currency practice 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 practice arises from the budget subsidies for foreign exchange purchases in connection with payments of certain Letter of Credits opened prior to March 21, 2002, under the previous multiple exchange rate system. (Country Report No. 11/241)
IraqThe IMF staff report for the Second Review under the Stand-By Arrangement states that as of March 7, 2011, Iraq maintained four measures (plus one exchange restriction maintained for national or international security) that have been identified to give rise to exchange restrictions subject to IMF approval: (1) the requirement to pay all obligations and debts to the government before proceeds of investments of investors and salaries and other compensation of non-Iraqi employees may be transferred out of Iraq, (2) the requirement to submit a tax certificate and a letter of non-objection stating that the companies do not owe any taxes to the government before non-Iraqi companies may transfer proceeds of current international transactions out of the country, (3) the requirement that before non-Iraqis may transfer proceeds in excess of ID 15 million out of Iraq the banks are required to give due consideration of legal obligations of these persons with respect to official entities, which must be settled before allowing any transfer, and (4) an Iraqi balance owed to Jordan under an inoperative bilateral payments agreement. (Country Report No. 11/75)
KosovoThe IMF staff report for the 2011 Article IV Consultations with Kosovo states that as of June 22, 2011, the IMF staff is in the process of assessing whether Kosovo imposes exchange restrictions and/or multiple currency practice subject to IMF jurisdiction. (Country Report No. 11/210)
Kyrgyz RepublicThe IMF staff report on the Third Review under the Three Year Arrangement under the Extended Credit Facility states that, as of November 15, 2012, the Kyrgyz Republic maintained a multiple currency practice, which predates the arrangement, arising from the use of the official exchange rate for government transactions. The official rate may differ by more than 2% from market rates because it is based on the average transaction-weighted rate of the preceding day. In practice, the official and market rates have never differed by more than 2%. (Country Report No. 12/329)
MalawiThe IMF staff report for the First Review under the Extended Credit Facility Arrangement with Malawi states as of December 6, 2012, the IMF staff is in the process of reviewing recent reforms to make an assessment of Malawi’s exchange rate system. (Country Report No. 13/119)
MaldivesThe IMF staff report for the 2010 Article IV consultation with Maldives states that, as of January 24, 2011, Maldives maintained an exchange restriction subject to IMF approval under Article VIII, Section 2(a), of the IMF’s Articles of Agreement, arising from the Maldives Monetary Authority’s policy of rationing its supply of foreign exchange to commercial banks. This rationing by a governmental agency has caused the channeling of foreign exchange transactions for current international transactions to the parallel market where transactions take place at an exchange rate that deviates by more than 2% from the official exchange rate. The more than 2% exchange rate spread gives rise to a multiple currency practice subject to IMF approval under Article VIII, Section 3, and also to an exchange restriction given the additional cost involved for obtaining foreign exchange. (Country Report No. 11/293)
MongoliaThe IMF staff report for the 2012 Article IV Consultation and Third Post-Program Monitoring states that, as of November 1, 2012, Mongolia maintained two multiple currency practices (MCPs) subject to IMF jurisdiction. First, the modalities of the multiprice auction system give rise to an MCP since there is no mechanism in place that ensures that exchange rates of accepted bids at the multiprice auction do not deviate by more than 2%. In addition, Mongolia has an official exchange rate (reference rate) that is mandatorily used for government transactions (as opposed to the commercial market rate). Therefore, by way of official action, the authorities have created market segmentation. While Order #699 of the Bank of Mongolia issued December 3, 2010, sets forth that the reference rate is determined based on the weighted average of market rates used from 4:00 p.m. of the previous day to 4:00 p.m. of the current day, the IMF staff is of the view that this order does not eliminate the market segmentation and multiplicity of effective rates arising from it. Accordingly, in the absence of a mechanism to ensure that the commercial rates and the reference rate do not deviate by more than 2%, the way the reference rate is used in government transaction gives rise to an MCP subject to IMF approval. (Country Report No. 12/320)
MontenegroThe IMF staff report for the 2012 Article IV consultation with the Republic of Montenegro states that, as of April 30, 2012, Montenegro maintained an exchange system free of restrictions on the making of payments and transfers for current international transactions, except with respect to pre-1992 blocked foreign currency savings accounts. (Country Report No. 12/122)
MyanmarThe IMF staff report for the 2011 Article IV consultation with Myanmar states that, as of March 5, 2012, Myanmar maintained exchange restrictions and multiple currency practices subject to IMF approval under Article VIII. Exchange restrictions subject to IMF jurisdiction arise from (1) advance import deposit requirements; (2) 100% margin requirements; (3) general restrictions on the availability and use of foreign exchange as such; (4) general restrictions on the making of payments and transfers related to invisibles; (5) the extra burden caused by official action imposing additional costs for exchange transactions; (6) official action that gives rise to multiple effective exchange rates in the markets (as well as potential deviations absent a mechanism to prevent spreads) with respect to the official exchange rate compared with all other exchange rates, the foreign exchange certificates (FEC) rate, and the “Thein Phyu counter rate” (TP rate); and (7) broken cross-rates. (Country Report No. 12/104)
NepalThe IMF staff report for the 2012 Article IV consultation with Nepal states that as of November 2, 2012, Nepal maintained an exchange restriction under Article VIII, arising due to the limit of 75% placed by the Industrial Enterprise Act on conversion and transfer to foreign currency of salaries on nonresidents from countries where convertible currencies circulate. (Country Report No. 12/326)
NigeriaThe IMF staff report for the 2011 Article IV consultation with Nigeria states that, as of February 9, 2012, multiple prices are a technical characteristic of the CB’s Dutch auction system and can give rise to multiple currency practices (MCPs). The IMF staff is currently conducting a comprehensive review of Nigeria’s exchange system to identify the extent of any further restrictions and MCPs subject to IMF approval. (Country Report No. 12/194)
São Tomé and PríncipeThe IMF staff report for the First Review under the Three-Year Arrangement with São Tomé and Príncipe states that as of July 6, 2012, São Tomé and Príncipe maintained one measure subject to IMF approval under Article VIII: an exchange restriction arising from Article 3(i) and Article 10.1(b) of the Investment Code (Law No. 7/2008) regarding limitations on the transferability of net income from investment. The restriction results from the requirement that taxes and other obligations to the government have to be paid/fulfilled as a condition for transfer, to the extent the requirement includes the payment of taxes and the fulfillment of obligations unrelated to the net income to be transferred. (Country Report No. 12/216)
SerbiaThe IMF staff report on the 2010 Article IV Consultation and Third Review under the Stand-By Arrangement and Financing Assurances states that, as of March 18, 2010, Serbia maintained a floating exchange rate system free of restrictions on current international payments and transfers, except with respect to blocked pre-1991 foreign currency savings accounts. (Country Report No. 10/93)
Sierra LeoneThe IMF staff report for the Fourth Review under the Three-Year Arrangement under Extended Credit Facility states that, as of September 5, 2012, Sierra Leone maintained one multiple currency practice subject to IMF jurisdiction arising from the applied multiple- price Dutch auction system, as there is no formal mechanism in place to prevent spreads of effective rates between winning bids from exceeding 2% percent. (Country Report No. 12/285)
SudanThe IMF staff report for the 2012 Article IV Consultation with Sudan states that as of September 7, 2012, Sudan maintained (1) an exchange restriction and a multiple currency practice arising from the imposition by the government of a cash margin requirement for most imports and (2) an exchange restriction arising from the imposition of an absolute ceiling on foreign exchange for travel, subject to IMF approval under Article VIII, Sections 2(a) and 3. In addition, Sudan recently introduced additional exchange measures, and the IMF staff is currently assessing these measures to determine their compliance with Article VIII. (Country Report No. 12/298)
SurinameThe IMF staff report for the 2012 Article IV consultation with Suriname states that, as of July 17, 2012, Suriname maintained multiple currency practices arising from the spread of more than 2% between the buying and the selling rates in the official market for government transactions and also from the possible spread of more than 2% between these official rates for government transactions and those in the commercial markets that can take place within the established band. (Country Report No. 12/281)
SwazilandThe IMF staff report for the 2011 Article IV consultation with Swaziland states that, as of December 30, 2011, Swaziland maintained one exchange restriction subject to IMF approval under Article VIII. This arises from a 50% limit on the provision for advance payments for the import of certain capital goods. (Country Report No. 12/37)
SyriaThe IMF staff report for the 2009 Article IV Consultation with Syria states that, as of February 12, 2010, Syria continued to maintain, 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. 10/86)
TunisiaThe IMF staff report for the 2012 Article IV consultation with Tunisia states that, as of July 10, 2012, 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 US$20 million). (Country Report No. 12/255)
UkraineThe IMF staff report for the 2012 Article IV Consultations with Ukraine states that as of June 18, 2012, Ukraine maintained multiple currency practices arising from (1) the use of the official exchange rate for certain government transactions, and (2) the requirement that a Ukrainian resident who sells previously purchased foreign exchange not used within 10 days (including foreign exchange returned to the resident because the counterparty failed to fulfill its obligations under an import contract) transfer 100% of the positive difference from the sale price, on a quarterly basis, to the state budget. (Country Report No. 12/315)
ZambiaThe IMF staff report for the 2012 Article IV Consultations with Zambia states that, as of May 25, 2012, Zambia maintained an exchange restriction shown by the accumulation of external payments arrears, which is subject to IMF approval under Article VIII. (Country Report No. 12/200)
ZimbabweThe IMF staff report for the 2012 Article IV consultation with Zimbabwe states that, as of September 10, 2012, apart from one remaining exchange restriction subject to IMF jurisdiction arising from unsettled balances under an inoperative bilateral payments agreement with Malaysia, payments and transfers for current international transactions can now be effected without restriction. (Country Report No. 12/279)
Source: IMF staff reports.

Exchange measures maintained for security reasons

Some members maintain measures imposed solely for national and/or internal security reasons, which could give rise to exchange restrictions under IMF jurisdiction and as such require IMF approval under Article VIII, Section 2(a). However, because the IMF does not provide a suitable forum for discussion of political and military considerations leading to measures of this kind, it established a special procedure for notification and approval of such measures.19 In total, 14 members notified the IMF of measures introduced solely for security reasons during 2012; 10 members did so during January–August 2013. For the most part, notification was from advanced economies. In general, the restrictions involved take the form of financial sanctions to combat financial terrorism or financial sanctions against certain governments, entities, and individuals in accordance with UN Security Council resolutions or EU regulations.

Regulatory Framework for Foreign Exchange Transactions

This section surveys the measures reported by members with respect to the regulatory framework for foreign exchange transactions for the period January 2012 to August 2013. This section is divided into five major categories: trade-related measures, current invisible transactions and transfers, account transactions, capital controls, and provisions specific to commercial banks and institutional investors.

Trade-Related Measures

Trade-related measures were predominantly easing measures, continuing a trend observed in recent years despite a weak recovery in the world economy. The total number of measures (adjusted for a factor explained below) amounted to 145, of which 76 were easing, 52 tightening, and 17 neutral.

Imports and import payments

The number of measures relating to imports and import payments (see adjustment in footnote below) amounted to 100, of which 50 were easing measures, 36 were tightening measures, and 14 were neutral measures.20 With respect to easing measures, several members liberalized advance payments for imports. For example, Belarus eliminated the requirement of central bank permission for advance import payments from foreign currency proceeds received by residents through transactions other than bank loans. China eliminated requirements for advance payments. Fiji increased the limit on advance payments for imports. Moldova extended the period for imports of goods and services to be realized from one year to two years from the date of advance payments. Myanmar eliminated a 100 percent advance payment requirement. South Africa and Swaziland raised the amount of advance payments that may be made for imports up to R 10 million from 50 percent to 100 percent of ex-factory cost.

Some members liberalized other aspects of their import and payment regimes. For example, Bulgaria eliminated the import licensing requirement for certain grains, roots, and tubers and raised the threshold over which payments and transfers require documentation. Bangladesh permitted a markup over the London interbank offered rate for imports on usance terms and permitted importers to obtain buyer credits from abroad for a period not exceeding one year. Fiji increased the amount that authorized dealers may approve for merchandise imports. Maldives expanded the list of products subject to zero duty. Mexico reduced duties for a number of tariff lines and reduced the duty to zero for certain products destined for consumption in border areas. Myanmar revoked the foreign exchange balancing requirement that linked import payments to export earnings. EU countries eliminated limits on imports of steel from Russia on its accession to the World Trade Organization. Malawi discontinued verification of import documents for imports valued below a threshold. Lifting a ban of several years, the United States allowed the importation of most goods from Myanmar.

The scope for free trade agreements continued to expand. The ASEAN-Australia–New Zealand Free Trade Agreement (AANZFTA) went into effect with Indonesia. A free trade agreement between Panama and the United States went into effect. Venezuela became a member of MERCOSUR.

With respect to tightening measures, several members raised import duties, banned certain items, or introduced general import licensing. In compliance with MERCOSUR commitments, Argentina raised the duty on 100 tariff items imported from out of zone. Denmark required import licenses for certain wood products from Russia. In the face of heavy balance-of-payments pressures, Egypt issued an import priority list for the allocation of foreign exchange by banks. Malaysia adopted a negative import list. Micronesia and Moldova raised the duty on cigarettes and on liquefied natural gas, respectively. Moldova also raised excise taxes on liquefied petroleum gas. Kuwait issued bans, often source-specific, on beef, poultry, derived products, and live animals and banned the importation of certain weapons, used tires, chewable tobacco, and cigarettes and other tobacco products unless the packaging contained a health warning on the front. Portugal and the United States banned charcoal imports from Somalia, and Iraq imposed licensing requirements for imports.

Import regimes were tightened in various other ways. To promote the use of letters of credit in import payments, Iraq sells foreign exchange for import letters of credit at a rate determined by adding ID 9 per U.S. dollar to the auction rate while adding ID 13 for other import payments. Kazakhstan required banks to monitor the return of unused portions of an import advance in resident importers’ accounts. Mauritania required a minimum deposit of 10 percent on documentary credits for essential imports, 20 percent for hydrocarbon imports, and 40 percent for other products. In response to balance of payments pressures, Sri Lanka imposed a 100 percent margin deposit requirement against letters of credit for imports of certain goods, and Ukraine reduced the deadline for receipt of imported goods and services from 180 days to 90 days from the date of payment.

Exports and export proceeds

During this reporting period, there were substantially more easing measures than tightening measures. Of the 45 measures reported, 26 were easing, 16 tightening, and 3 neutral.

With respect to easing measures, some members liberalized the deadline for the repatriation of export proceeds and the fraction that must be converted to local currency. For example, Argentina extended the period from the date of the bill of lading for deposit of the proceeds of exports to affiliates from 15 to 30 days. To provide immediate access to proceeds for exporters, Bangladesh permitted export bills to be discounted by authorized dealers. Bhutan lengthened the period for the repatriation of export proceeds from India to 90 days. As part of the continued liberalization of the exchange regime, Moldova extended the deadline for repatriation of proceeds from one to two years. Malawi reduced the percentage of export proceeds that must be converted to local currency on receipt from 40 to 20 percent.

Some members also liberalized verification and means of repatriation. Following years of continued easing of the export surrender requirement, China revoked the export proceeds verification system. Kazakhstan eliminated the use of a transaction passport with which banks for several years monitored the repatriation of export proceeds. Although Indonesia required receipt of export proceeds through the traditional banking system, such receipts may subsequently be freely transferred abroad. Serbia permitted receipt of proceeds from electronic sales of goods through e-money institutions.

Exports were also promoted through agreements. The Canada-Panama Free Trade Agreement went into effect in 2013. Kosovo began to benefit from a preferential agreement with the European Union that will last until 2015.

Among miscellaneous easing measures, Bolivia authorized exports of sugar if domestic supplies at a fair price are adequate. Myanmar revoked the commercial tax on exports, with some exceptions. In line with global easing of restrictions against Myanmar, Canada removed Myanmar from its Area Control List.

A few members tightened the regulations on repatriation and surrender of export proceeds. Argentina required the surrender of export proceeds, advance payments, and prefinancing within 15 days of disbursement. After extending the deadline for the repatriation of export proceeds from 6 to 12 months in late 2012, India shortened the deadline to 9 months in early 2013. Sudan required the repatriation of export proceeds under sight letters of credit and cash against documents within one month of shipment. Ukraine reduced the deadline for repatriation of proceeds from 180 to 90 days.

Current Invisible Transactions and Current Transfers

This section discusses nontrade payments and transfers that are included in the current account of the balance of payments. Under this category are income from investment (for example, profits, dividends, interest); payments for travel, education expenses, medical expenses, subscription or membership fees; and unrequited transfers (for example, remittance of nonresidents’ salaries and wages). The tendency toward substantial easing of measures in this category has continued. In the period under review, the relevant measures totaled 70, of which 45, 22, and 3 were easing, tightening, and neutral measures, respectively. This compares with 45 measures in the previous reporting period, of which 33 were easing measures and 11 were tightening measures.

Payments for current invisibles and current transfers

Out of 60 measures relating to payments for current invisibles, 38 were easing measures and 20 were tightening measures. On measures in the easing direction, for example, Bangladesh, Mauritania, and Myanmar raised travel allowances. Bangladesh authorized payment without approval of commissions to foreign stock brokerage firms for services to foreign investors with respect to investment in Bangladesh and increased the limit on payments by information technology firms for business purposes. Bhutan permitted citizens traveling to India for medical treatment to purchase foreign exchange cash up to a limit and to transmit the remainder by direct transfer to the hospital’s account. Much as for import payments, Bulgaria required documentation for payments and transfers for invisibles above a certain limit, and Fiji and India increased the threshold above which documentation is required for payments. Fiji eased the limits on payments and transfers for airline ticket sales, medical treatment, trade-related payments, and remittances for miscellaneous purposes without documentation. In addition, Fiji delegated approval of transfers to authorized banks of profits and dividends, up to a limit. Iraq eliminated the tax clearance requirement for transfers of foreign exchange purchased at auction. Bangladesh permitted resident foreign nationals to make monthly remittances out of their current savings up to 75 percent of their net income to cover their commitments abroad. Morocco eased the transfer of savings on income by eliminating the obligation to deduct expenditures incurred in Morocco. Myanmar liberalized remittances of salaries, compensation payments for accidents, pension payments, income of foreign airlines, and air freight charges. Sudan authorized local banks to process transfers and current payments for banks operating in the free zone.

In the tightening direction, several examples may be cited. To stem capital flight, Argentina set new requirements for purchases of banknotes or foreign exchange for travel, gifts, and educational expenses and reduced the time by which advance payment of interest on foreign loans may be made from 15 to 5 days before the due date. It also required approval for payments for professional and technical services, patents, trademarks, and commissions in transactions between related entities or if the beneficiary resides or the account is located in a tax haven. Australia required approval for payments above a threshold in high-risk transactions, including those in which one party is an individual in the Islamic Republic of Iran or a legal entity incorporated there. Bhutan limited personal travel allowances according to a daily amount and a cumulative monthly amount, while Iran reduced in two successive steps the amount of foreign exchange that may be purchased for travel. Ecuador increased the rate of the exchange tax on transfers abroad. Iraq reduced the amount of foreign exchange that may be bought for any purpose on proof of identity with a passport only, and Ukraine tightened procedures for identifying persons in foreign exchange transactions. In the midst of a financial crisis, in March 2013, Cyprus imposed limits (with larger amounts requiring approval) on payments for educational allowances, transfers for normal business activity, and banknotes taken for travel abroad. Payments through credit and debit cards were also subject to limits. In subsequent weeks, Cyprus began easing the above-mentioned limits and removed the limit on payments by credit or debit cards.

Proceeds from current invisibles and current transfers

The few measures relating to proceeds from invisible transactions were mainly easing measures (7 of 10). For example, Bangladesh permitted up to 50 percent of repatriated foreign exchange to be credited against payments for business process outsourcing, raised the threshold above which inward remittances must be declared, and raised the maximum amount of proceeds from small-value services that may be received through online payment service providers. In line with the measures implemented on export proceeds, Malawi lowered the percentage of proceeds that must be converted to local currency on receipt, and Moldova extended the deadline for repatriating proceeds from one to two years.

In contrast, with respect to tightening measures, Argentina required proceeds to be credited to a demand account in a local financial institution. For a period of six months, Ukraine required transfers in Group 1 foreign exchange and Russian rubles that exceed a certain threshold to be converted to local currency to stem depreciation pressure on the currency.

Account Transactions

Members reported 95 changes in regulations on resident and nonresident accounts, of which 65 were easing measures, 24 were tightening measures, and 6 were neutral measures. Despite the overall easing trend, some members have tightened regulations on account transactions in response to acute financial crises.

Resident Accounts

Changes referring to resident accounts numbered 55, of which 37 were easing measures, 14 were tightening measures, and 4 were neutral measures. Easing measures refer to the opening of resident accounts, eligible credits, and withdrawals. For example, Bhutan permitted nongovernmental organizations and foreign exchange earners to open U.S. dollar–denominated accounts with local banks. It also allowed local industries to retain 10 percent of their Indian rupee earnings in rupee accounts with local banks. In Morocco, entities belonging to a finance city consortium were authorized to open foreign currency or convertible dirham accounts, and Sudan permitted local contractors to open foreign currency accounts. Pakistan permitted authorized dealers to use foreign currency accounts to extend trade loans in foreign currency. India allowed exporters to credit earnings in foreign currency to their foreign currency accounts but required the balance to be converted to rupees by the end of the subsequent month. Burundi revoked limits on withdrawals from resident foreign currency accounts. Colombia permitted residents to transfer funds to and from clearing accounts of the same account holder. Myanmar permitted withdrawals in cash up to US$10,000. Sri Lanka eased the transfers of funds between nonresident and resident foreign currency accounts.

Fewer members implemented tightening measures. As for withdrawals, Argentina required that withdrawal of foreign currency from ATMs abroad be debited only against foreign currency accounts held locally. To control possible outflows from domestic estates, Iceland rescinded the exemption from capital controls of payments from bankruptcy and from contractual claims in accordance with the composition of creditors’ agreements. Iran prohibited the purchase of foreign currency exceeding a certain amount for the purpose of opening a foreign currency account. Tunisia required surplus funds in foreign currency accounts to be converted to dinars. In March 2013, reflecting an ongoing financial crisis, Cyprus prohibited the cashing of checks, limited daily withdrawals in cash to €300, and prohibited the establishment of new accounts unless funded by transfers from abroad. At the same time, Cyprus imposed limits on noncash transfers from one bank to another bank in Cyprus and transfers abroad. Subsequently, these restrictions were eased gradually: the limit on cash withdrawals was raised to €500 for legal persons; limits on noncash payments to another bank in Cyprus were increased; transfers of term deposits were permitted within the same institution and for purchases of real estate; and new bank accounts were authorized if the accounts were funded with cash for new term deposits of at least three months or for the servicing of new loans.

Nonresident Accounts

Of the 44 measures reported for nonresident accounts, 32 were easing measures (many of which also refer to measures taken by Cyprus in the context of the gradual easing of the restrictions imposed in late March—because they applied equally to resident and nonresident accounts), 10 were tightening measures, and 2 were neutral measures. With respect to easing measures, Bhutan permitted nonresidents to withdraw a specific amount in cash and the balance through other payment instruments on the closure of their accounts. Honduras authorized financial institutions to accept deposits in Canadian dollars. India permitted the transfer of funds from nonresident ordinary accounts to nonresident external accounts within an overall ceiling, while Sri Lanka permitted transfers between foreign currency accounts of nonresidents and residents. Myanmar allowed nonresidents to maintain accounts with public and private banks. Libya permitted nonresident Libyans to open accounts in convertible dinars and foreign currency.

With respect to tightening measures, Bhutan revoked permission for nonresidents to maintain domestic currency accounts in Bhutan. Croatia revoked a specific regulation governing nonresident bank accounts. Ukraine prohibited deposits of foreign exchange cash in investment accounts of foreign investors.

Capital Controls

There was a continuation of the overall trend toward the liberalization of capital transactions in the midst of slow global recovery and an increase in the volatility of capital flows. As a result, while some countries continued their gradual liberalization, others instituted capital controls in response to the increased volatility and the changing global environment. Capital flows to emerging markets, which recovered after the onset of the global financial crisis but stayed slightly below precrisis peaks, ended in 2011 because of concern about growing European debt. Capital flows were generally weak during most of 2012, but international investors returned to emerging markets in the last quarter of 2012 in search of yield, partly in response to measures taken in Europe (the European Central Bank’s Outright Monetary Transactions program) and in the United States (the Federal Reserve’s third quantitative easing program). Volatility increased during the early part of 2013 as flows began shifting to advanced economies because of improved U.S. growth prospects, new progrowth policies in Japan, weaker growth prospects in emerging markets, and fears about early tapering of U.S. monetary stimulus. In response, some emerging markets rolled back controls to ease conditions for inflows.

Easing measures dominated for both inflows and outflows, despite an increase in the overall number of measures reported over last year. Between January 1, 2012, and August 31, 2013, IMF members reported 202 measures compared with 164 measures during the previous period (January 2011 to July 2012). The increase in the aggregate number of measures reported reflects a large number of changes implemented in Cyprus.21 Of the total, 133 (or about 66 percent) of the measures implemented were directed toward easing capital flows. (During the previous year, it was about 60 percent.) Of the remaining measures, 57 (or about 28 percent) were tightening measures and the rest (about 6 percent) were neutral.

The measures included in this section are also considered to be capital flow management measures (CFMs) as defined by the IMF’s institutional view on the liberalization and management of capital flows.22 In addition to capital controls included in this section, prudential-type measures discussed in the next section may also be CFMs if they were designed to influence capital flows. However, the AREAER does not use this terminology because classifying a measure as a CFM requires substantial background information and considerable judgment, which is beyond the scope of the analysis conducted for building the AREAER database.

Repatriation and surrender requirements

Only a few countries modified repatriation and surrender requirements with respect to capital transactions. All the measures related to some form of tightening. Argentina reduced to 30 days the repatriation period for settlement of proceeds related to financial debts and issuance of securities abroad. Indonesia now requires that proceeds from issuance of loans abroad be received through domestic banks, though without an obligation to keep the funds in such banks or to convert them to domestic currency.

Controls on capital and money market instruments

The total number of measures taken (39) to adjust controls on capital and money market instruments was less than the number of measures taken last year. Measures to ease (22) as opposed to tighten (13) controls on capital and money market instruments were aimed at easing outflows more than inflows, unlike last year, when the bulk of the measures was directed at easing inflows.

The measures to ease inflows included increased access to the domestic securities market, greater equity participation by foreigners, and relaxation of conditions for residents to receive proceeds of sales of foreign securities and debt instruments. China expanded the qualified foreign investors program by permitting Hong Kong subsidiaries of Chinese banks, insurers, and financial institutions to invest in domestic securities markets using renminbi proceeds raised in Hong Kong SAR. Brazil lowered the financial operations tax (imposto sobre operações financeiras—IOF) rate related to inflows from cancellation of depository receipts invested in the acquisition of stock on the stock market. India permitted qualified investors to buy eligible corporate debt instruments and eased and simplified investment limits for foreign institutional investors’ purchases of government securities. Serbia allowed residents who own certain foreign securities to receive proceeds from their sale. Thailand increased the scope of foreign equity participation in securities and asset management companies. Bangladesh eliminated the one-year holding period for nonresident investors buying government bonds.

Measures to tighten inflows covered resident institutions issuing shares abroad and nonresidents issuing shares in the domestic market. Sudan barred domestic banks from issuing shares overseas without approval, and Turkey replaced a registration system with an approval requirement for nonresidents making a public offering. Uruguay imposed a reserve requirement on nonresidents holding a position in central bank or government securities denominated in local currency or inflation index units.

Tightening measures on outflows included measures to ease pressure on the domestic exchange market and prevent capital flight. For example, Argentina tightened controls to safeguard reserves by limiting the use by financial institutions of their overall foreign exchange position for transactions in the secondary market and required residents to obtain central bank approval to access the local foreign exchange market for the purchase of external assets not earmarked for a specific purpose. Cyprus imposed limits on the transfer of funds overseas by individuals and for normal business activity; transfers of amounts above the limit require approval. Iceland prohibited the purchase of foreign currency for payment of bond principal. Ecuador increased the tax on transfers abroad. Bolivia reduced the ceiling for insurance companies’ investments abroad.

Easing outflow measures relaxed conditions on portfolio investment abroad by residents. Cyprus gradually reversed some of the controls imposed on outward transfers. In particular, it increased, in phases, the limits on depositors’ automatic transfers abroad for normal business activity. India eased conditions for the acquisition by residents of shares in foreign companies where they work or for which they have provided professional services. Fiji relaxed the limit on investment overseas by individuals and permitted commercial banks to open foreign currency accounts to facilitate such investments overseas. Thailand permitted companies listed on the local stock exchange to invest without limit in securities issued abroad by Thai juridical persons and up to US$50 million an investor in foreign securities without central bank approval. Turkey permitted collective investment funds to invest up to 10 percent of their portfolio value in stock exchange mutual fund units traded on foreign exchanges.

Controls on derivatives and other instruments

There was a somewhat greater trend toward easing for such transactions (14 of 20), unlike last year, when the measures were almost equally divided between easing and tightening. An equally small number of countries reported changes this reporting period as in the past period, although the total number of measures reported was greater compared with last year, mostly because of Cyprus. About half the easing measures applied to both outflows and inflows.

The restrictions on outflows in Cyprus imposed limitations on derivative transactions too. However, these are temporary measures, and their gradual easing would allow such transactions to resume. Easing measures in Malaysia allowed nonbank nonresidents to engage in ringgit-denominated interest rate derivative contracts with domestic banks with or without a firm underlying commitment and domestic banks to settle such derivative contracts with nonbank nonresidents in ringgit or foreign currency. Other easing measures affected both inflows and outflows. Argentina allowed authorized dealers to engage in arbitrage and swaps with foreign financial entities. El Salvador allowed banks to undertake forward foreign exchange contracts. Lebanon expanded the number of nonresident counterparties with which financial intermediaries could enter into derivative contracts on their own behalf or on behalf of clients. Paraguay permitted nonresident agents to purchase and sell foreign exchange forward contracts. Nonresidents and qualifying South African and Common Monetary Area entities may now engage in Zambian-referenced grain derivative contracts, which may be listed on the South African stock exchange. Sri Lanka, which tightened regulation on the period of maturity of forward foreign exchange contracts by imposing a 90-day limit in early 2012, eliminated it in early 2013.

Controls on credit operations

Controls on cross-border lending were mostly eased, with about 70 percent of measures aimed at relaxing conditions. The trend was more pronounced than last year. The total number of measures virtually doubled compared with last year. In addition, whereas last year such measures were the second most common, following measures related to controls on capital and money market instruments, this year, they were overall the most frequent type of measures implemented. Of the easing measures, about 64 percent were targeted at inflows. The majority of tightening measures targeted outflows.

Inflow easing measures were mostly related to external borrowing. Against a backdrop of declining capital flows, Brazil decreased the maturity of external loans in late 2012 subject to the IOF tax, exempting those with a maturity longer than one year from the tax in order to attract inflows. Earlier in the year, it had increased the maximum maturity subject to the IOF tax to five years to manage inflows. More than half the measures toward easing inflows were reported by India as it continued its liberalization of the external commercial borrowing (ECB) regime. Measures by India to ease ECB conditions include expanded access limits to existing users (for example, power sector, infrastructure companies) and access to ECB for new users (for example, for civil aviation; maintenance of toll systems; developers of the National Manufacturing Investment Zone; Small Industries Development Bank of India for micro, small, and medium enterprises; affordable housing projects). Serbia also continued liberalizing external borrowing to attract inflows and as part of its gradual liberalization of capital flows. It eliminated the reserve balance requirement on credit and foreign borrowing by leasing companies; branches of foreign legal entities were allowed to borrow from nonresident founders at maturities longer than one year; natural persons were allowed to borrow abroad at maturities longer than one year; short-term financial loans from abroad with maturities of more than three months for export financing were expanded beyond agricultural loans; banks were permitted to access short-term financial loans from abroad; and resident natural persons were allowed to obtain long-term cross-border financial loans for purposes other than imports of goods and services. Sri Lanka introduced a special borrowing program for domestic companies to allow them to borrow up to US$10 million a year and up to US$30 million for a period of three years through December 31, 2015; larger amounts remain subject to approval. Sri Lanka also eliminated a ceiling on banks’ credit growth funded with external borrowing and exempted foreign borrowing of commercial banks up to US$50 million each from regulatory limits for three years through December 31, 2015.

Outflow easing measures generally tended to relax the conditions on extending loans to nonresidents and on repaying external loans. India eased conditions on the repayment of loans to nonresidents by allowing payment to nonresidents’ foreign currency accounts. Fiji increased the maximum on repayment of principal and interest. Lebanon eliminated the limit based on tier 1 capital on total loans extended in countries rated BBB or higher. Serbia eliminated the requirement that loans between a resident legal person and its subsidiary abroad be financed from profit realized abroad. Tunisia allowed resident banks to access the local foreign exchange market to fund loans to nonresident service companies engaged in imports and exports and to nonresident international trading companies engaged in exports of local products. Vietnam permitted domestic banks to provide guarantees to nonresident borrowers. Bangladesh permitted importers to obtain buyer’s credit from abroad for a period not exceeding one year and at an interest cost not exceeding 6 percent a year.

Tightening measures were mostly related to outflows. Argentina took steps to ease potential pressure on the foreign exchange market and safeguard reserves by limiting the use of the local foreign exchange market to access funds related to external loans. For instance, it imposed conditions for repaying external debt if the local foreign exchange market was accessed for funds and required customers receiving foreign currency loans from domestic financial institutions to surrender the funds in the local foreign exchange market. Cyprus imposed measures to safeguard financial stability by limiting deposit withdrawals and started relaxing them shortly thereafter to protect economic activity. Iceland rescinded exemptions from capital control on payments from bankruptcy and resolution and bank winding-up committees to reduce potential pressure in the foreign exchange market. Lebanon prohibited banks and financial institutions from performing treasury placements abroad other than for operating accounts, except with correspondents rated at least BBB. Lebanon also imposed limits on credit used abroad: credit extended by a domestic bank and its branches abroad to a single borrower (or group of related borrowers) and used abroad may not exceed 10 percent of tier 1 capital, and total credit granted to a domestic bank and its foreign branches for use abroad may not exceed four times tier 1 capital. In response to deteriorating foreign exchange market conditions, Ukraine reduced the term for which residents may extend commercial credit to nonresidents from 180 days to 90 days for six months.

Very few inflow tightening measures were imposed. Colombia barred residents from obtaining foreign currency loans from nonresident individuals. To reduce the pace of domestic credit growth, Sri Lanka imposed a temporary limit on credit growth, limiting the amount of funding from abroad that could be channeled into local lending in early 2012, but lifted the measure in less than a year.

Controls on direct investment

The liberalization trend continued to be most pronounced in foreign direct investment. Easing measures far outweighed tightening measures, similarly to last year. The number of measures implemented to ease inflows was lower than those targeted at easing outflows. The total number of measures was slightly higher than last year.

Inflow easing measures included those that raised automatic threshold levels, broadened the permissible sectors, and increased the level of equity participation. Australia, Mexico, and New Zealand increased the threshold below which investments are automatically permitted. Russia permitted certain types of investors to invest in strategic sectors. South Africa eased some of its rules governing the International Headquarter Company regime, including the approval requirement for direct investment; reduced the shareholding requirement to 10 percent; and permitted companies established under this regime to list shares and debt on the local stock exchange. South Africa also permitted companies listed on the local stock exchange to establish one subsidiary in South Africa for African and offshore operations that is not subject to foreign exchange restrictions. Thailand broadened the scope and amount of equity participation in the securities business to include forms of business other than brokerage. Turkey further liberalized the limit on foreign ownership in radio and television broadcasting.

With respect to outflow easing, Fiji further relaxed the limit on overseas investment by individuals and permitted such investment by nonbank financial institutions and companies with central bank approval. India eased conditions for the acquisition by residents of shares in foreign companies, and investment in Pakistan is now permitted. South Africa permitted limited outward investment in companies, branches, and offices outside the Common Monetary Area operating outside the investor’s current line of business and allowed the transfer of additional capital overseas on approval. Morocco permitted bank accounts of domestic companies with foreign equity participation to be operated by nonresident foreign managers.

Only a handful of tightening measures were taken affecting outflows and inflows of direct investment. The measures imposed in Cyprus on transfers abroad also affected outward direct investment, but these were gradually eased. Malaysia tightened inflow controls by raising the minimum value of residential property foreigners may purchase. The Philippines tightened the registration requirement on all foreign direct investment. Argentina limited outflows by making central bank approval necessary for residents’ purchases of external assets not earmarked for a specific purpose. South Africa imposed an approval requirement for treasury outsourcing companies before they may do business in the domestic foreign exchange market.

China eased the rules on transfers overseas of proceeds from liquidation of direct investment by eliminating the approval requirement. Fiji delegated the approval of withdrawal of investment, up to a limit, to authorized dealers from the central bank.

Controls on real estate transactions

There was no clear overall direction for measures affecting real estate transactions. Similarly to last year, almost as many measures were implemented to tighten and ease flows. Malaysia and Singapore took measures to stem inflows to residential property markets in an attempt to reduce the pressure on real estate prices. While Malaysia increased the minimum value of purchases, Singapore imposed additional stamp duty. In contrast, Turkey eased regulations on real estate acquisitions by foreign individuals, including by increasing the area a foreigner may acquire, and clarified rules on the acquisition of real estate by foreign companies. Outflows from real estate transactions were eased in China by eliminating the foreign currency approval procedures related to repatriation of proceeds from the sale of real estate by nonresidents. Korea liberalized overseas purchases of real estate by individuals for any purpose other than residence.

Controls on personal transactions

As in the previous reporting period, more measures were implemented to ease controls on personal transactions. However, given the relatively lower number of measures in this category, the easing trend reflects the gradual relaxation of controls initially imposed by Cyprus. Otherwise, the picture is more balanced between easing and tightening. Korea relaxed the notification requirement for won loans not exceeding 1 million won to residents from nonresidents. Serbia allowed borrowing by natural persons from abroad at maturities over a year and for purposes other than imports of goods and services. Colombia tightened requirements on residents’ foreign currency loans by barring nonresident individuals from granting such loans. To ease pressure in the foreign exchange market, Ukraine required that foreign exchange transfers to resident individuals over a certain amount be converted to local currency. The measure is intended to remain in place for six months only. Outflows were eased by India as it relaxed conditions on the repayment of loans to nonresidents. Swaziland also eased outflows by increasing the amount individuals could invest abroad. In contrast, Argentina imposed restrictions on use of the local foreign exchange market to pay financial debts and required approval for the use of credit and debit cards that use international payment networks. Iraq reduced the amount of foreign exchange an individual may buy without documentation.

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.23 The category Provisions specific to the financial sector covers monetary and prudential measures in addition to foreign exchange controls.24 It includes, among other categories of financial institutions’ transactions, borrowing abroad, lending to non-residents, 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 measures described in the respective categories of controls on accounts, capital and money market instruments, credit operations, and direct investments, if the same regulations apply to commercial banks and institutional investors as to other residents. In such cases, the measure also appears in the relevant category in the sections Capital Controls, Resident Accounts, and Nonresident Accounts.

Developments in 2012 and early 2013 were shaped by members’ continued efforts to strengthen the financial regulatory framework, concerns about financial stability, and capital flow volatility. The developments mark two distinct trends compared with the previous reporting period: an increase in the number of capital control tightening measures and a shift toward the easing of prudential measures.

The number of reported changes in the financial sector regulatory framework exceeded the corresponding number in the previous period by 10 percent. The reported changes affected mainly banks and other financial institutions, with 17 percent of the measures introducing changes related to the regulatory framework of institutional investors. Although the majority of the 229 measures were of a prudential nature (70 percent), the increase in the number of changes consists mostly of changes in capital controls, with capital control tightening significantly increasing from the previous reporting period (by 18 measures). This tightening trend was more pronounced for commercial banks and other credit institutions than for institutional investors. Changes in the prudential regulations show a more balanced picture, with members implementing more easing measures than in the previous reporting period. Nonetheless, tightening changes dominate the measures implemented during January 2012–August 2013, except in the case of capital controls for institutional investors, for which measures easing capital controls slightly exceed tightening measures. The number of measures considered neutral increased only marginally from the previous reporting period, reflecting, among other things, continued work to revise and consolidate the current regulatory and institutional framework. The summary of the changes in this category is presented in Table 10.

Table 10.Provisions Specific to the Financial Sector, January 1, 2012–August 31, 2013
Provisions Specific to Commercial Banks and Other Credit InstitutionsProvisions Specific to Institutional InvestorsTotal
EasingTighteningNeutralTotalEasingTighteningNeutralTotal
Capital Controls1134146111002167
Prudential Measures427031143451019162
Total531043218915151040229
Source: AREAER database.

Commercial banks and other credit institutions

Changes in capital controls further tightened existing norms on commercial banks and other credit institutions (73 percent), suggesting that financial stability concerns in some countries may have required tools that were stronger than nondiscriminatory prudential measures. One of the most notable changes in this respect was the introduction of wide-ranging limitations on deposit withdrawals and cross-border transfers in Cyprus in March 2013, instituted to protect financial stability in the face of potentially destabilizing deposit outflows. Since then, restrictions have been gradually eased to reduce the impact on economic activity. Although caps on cash withdrawals and certain transfer limitations, in particular on large cross-border transactions, are still in place, restrictions on payments for regular business operations have been significantly eased. To protect the business service sector, the operations of foreign banks with international customers were exempted from the restrictions. Iceland also tightened capital controls first introduced in 2008 by removing an exemption to address potential balance-of-payments drains as a result of the winding-up of old bank estates.

Other measures to tighten capital controls included an increased tax on transfers abroad in Ecuador and on loans up to five years in Brazil in early 2012 (the latter was later reversed). To reduce reliance on more volatile short-term capital inflows, Brazil and Korea further tightened the limit on banks’ derivative positions, and Latvia introduced a liquidity ratio that increases with the share of a bank’s assets funded by nonresident deposits. Revised norms in Brazil require supervised entities to invest in certain foreign companies only as permanent investment and on approval by the Superintendence of Private Insurance. Capital controls were also tightened with respect to foreign exchange risk management (asymmetric open foreign exchange position limits) as discussed below.

The majority of the measures that ease controls involve cross-border loan transactions (Brazil, Pakistan, Serbia, Tunisia). For example, as it experienced diminishing pressure in the foreign exchange market from capital inflows, Brazil reduced the IOF rate on external borrowing with maturities longer than one year in the second half of 2012. To boost exports, banks may grant loans sourced in the foreign exchange market to nonresident service companies engaged in imports and exports in Tunisia and to nonresident international trading companies engaged in exports of products of local origin. The measures also reflect Cyprus’s relaxation of previously introduced controls on external transfers by increasing the limits in several steps and removing the ceiling on payments with credit and debit cards abroad.

Other measures easing capital controls include changes in forward transactions in Fiji, where authorized banks were permitted to write net forward sales contracts up to F$20 million, and in Sri Lanka, where the 90-day limit on the maturity of forward foreign exchange contracts introduced in March 2012 was eliminated. Banks were authorized to accept funds in Canadian dollars in Honduras. Following a significant easing of controls on outward foreign direct investment in 2011, banks in South Africa were allowed to invest an additional 5 percent of their total liabilities, excluding total shareholder equity, for expansion in Africa.

The strengthening of the prudential framework of banks’ operations started after the global financial crisis continued, albeit at a slower pace. Less than half of the reported measures that are not considered capital controls strengthened existing regulations. Some of the 70 changes implemented in the reporting period tightened regulations governing anti-money-laundering/combating the finance of terrorism (Argentina, Austria, San Marino); others aimed at reducing the risk of banking operations by adjusting regulatory limits and increasing liquidity buffers (Armenia, Lebanon, Poland, Serbia). Financial requirements for traders in over-the-counter derivatives were increased in Austria, and conditions on correspondent relations and limits on net credit exposure with correspondent banks abroad were tightened in Lebanon. A foreign exchange funding adequacy ratio to manage the maturity mismatch of banks’ on-balance-sheet and off-balance-sheet foreign exchange positions was introduced in Hungary.25 Reporting and disclosure requirements were tightened to increase transparency and boost confidence in the banking system in San Marino and Serbia and, as part of a broader reform of the financial sector regulatory framework, in Moldova. A stricter regime for the transfer of qualifying holdings in a bank’s capital was introduced in Moldova, and the acquisition of qualified holdings in a bank or other financial organization headquartered outside Slovenia or the European Union became subject to Bank of Slovenia approval. In an effort to move away from crisis mode in the banking sector, San Marino introduced an extraordinary tax of 1.5 percent on the financial industry on the total amount of accumulated losses for entities that opted to carry forward tax losses incurred during 2009–12 without time limits.

While members continued to tighten the regulatory framework for banks and other credit institutions to reinforce financial stability, changes to ease regulatory constraints (42) have also increased compared with the previous reporting period (28). Reported changes easing banks’ prudential framework were aimed mostly at supporting the restructuring and recovery of the banking sector and rolled back previous tightening in the aftermath of the global crisis.26 For example, to facilitate the recovery of the banking sector, classification rules for certain assets were eased in Moldova, San Marino, and Serbia. Guidelines for currency forwards were issued, enabling banks to engage in such operations in El Salvador. To boost credit growth, the loan-to-value limit on forint-denominated real-estate-backed mortgage loans was raised from 75 percent to 80 percent, and the loan-to-value limit on financial real estate leasing in forint was revoked in Hungary. India reduced the statutory liquidity ratio, and rules on banks’ investments in legal entities exceeding 10 percent of the shares were relaxed in Kazakhstan. Several measures encouraged reorganization and concentration in the financial sector in San Marino, including tax benefits and credit facilities for banks to acquire the liabilities of entities under extraordinary administration and tax exemption on the transfers of assets, businesses, or business units in San Marino to affiliates.

There was continued modernization and harmonization of financial sector regulatory norms. Austria further updated its financial sector regulations related to the single euro payments area project, which aims to replace current national payment services with a common EU-wide payment service. Oversight of financial institutions’ operations in Kazakhstan was transferred to the National Bank of the Republic of Kazakhstan. Kosovo significantly revised its financial sector regulatory framework, including norms on large exposures, credit risk management, and capital adequacy. Moldova and Romania amended financial sector regulations to ensure consistency between banking sector financial and prudential reporting. Poland introduced detailed rules on exposure concentration and large exposure limits. San Marino set up a deposit guarantee fund to enhance the stability of the banking system. A regulatory framework for microfinance organizations was introduced in Kazakhstan and Kosovo, and a new law for microfinance organizations was developed and submitted to Parliament in Moldova. The treatment of dormant accounts was harmonized in the West African Economic and Monetary Union countries.

Close to one-third of the reported changes in the regulatory framework for commercial banks and other credit institutions were related to reserve requirements, indicating the importance of reserve requirements in the pursuit of monetary policy and financial stability objectives and in the response to changes in capital flows. An almost equal number of easing and tightening changes were implemented in the reporting period.

  • To create a macroprudential liquidity buffer in case of external shocks, Bolivia, Cambodia, Ghana, Haiti, Peru, Turkey, and Uruguay increased the rate of required reserves on local or foreign-currency-denominated liabilities.27 Except for Croatia and India, all countries reporting changes in reserve requirements apply different reserve ratios to domestic and foreign currency liabilities. Bolivia introduced an additional reserve requirement on liabilities in foreign currency and units indexed to the U.S. dollar. With these changes, all deposits in foreign currency and units indexed to the U.S. dollar will be subject to a reserve requirement ranging from 45 percent to 66.5 percent by mid-2016. To address concerns with respect to consumer credit growth, the Central Bank of Tunisia imposed an additional 50 percent reserve requirement on increases in consumer credit in late 2012. The rate was subsequently reduced to 30 percent in March 2013, and plans were announced to remove the additional reserve requirements as soon as the quarterly rate of coverage reaches 110 percent.

  • Reserve requirements were eased in Croatia, Egypt, India, Serbia, and Tajikistan by decreasing the rate of required reserves. To reduce dollarization, the reserve requirement on domestic currency deposits was reduced and set at the same rate as for foreign currency deposits in Angola. In contrast to the previous reporting period, when Russia set a higher reserve ratio on nonresidents’ liabilities amid persistently high inflation expectations and with a view to preparing for an influx of capital, a single reserve requirement of 4.25 percent was set for all categories of liabilities subject to reserve requirements. Turkey allowed more choice in the denomination of the currency in which the reserve requirements must be met. Ghana moved to setting the reserve requirement of foreign exchange liabilities in local currency, and required reserves must increasingly be met in local currency in Serbia. Such a shift in the denomination of the required reserves usually also causes a one-time increase in the supply of foreign exchange in the foreign exchange market and may contribute to dedollarization.

As in the previous year, the framework for commercial banks’ foreign exchange risk management was overwhelmingly tightened, likely reflecting concerns about the risks related to increased variability in the foreign exchange markets. Foreign exchange exposure limits, which are often imposed in an asymmetric manner, have been lowered in Egypt, Ghana, Kosovo, Rwanda, Sri Lanka, Tanzania, Vietnam, Zambia, and Zimbabwe with a view to reducing banks’ foreign exchange risk and their ability to take a position against the currency.28 In certain cases, the limits were reduced below 10 percent of capital. For example, the net open foreign exchange position limit was reduced to ±7.5 percent from ±20 percent of core capital in Tanzania. In contrast, with the stabilization of the financial markets, Paraguay raised the daily net operating long position to US$20 million from US$5 million. The requirement that banks sell amounts exceeding SI$10 million on trading accounts (nostro/vostro) to the Central Bank of the Solomon Islands to remain within their overnight limit was eliminated. To help mitigate liquidity challenges, banks were required to maintain a maximum of 25 percent of foreign currency account balances in nostro accounts offshore to meet day-to-day international payment obligations in Zimbabwe.

While the strengthening of the norms with respect to lending in foreign exchange continued amid concerns about the systemic risk banks’ unhedged foreign currency lending to residents may pose, some countries rolled back previously introduced restrictions. For example, Austria updated prudential regulations with respect to risk management and granting of foreign-currency-denominated loans. Belarus lifted the restriction introduced in November 2012, at the height of the domestic-born crisis on foreign currency loans, except on short-term loans. Kazakhstan lifted the 20 percent provisioning requirement for foreign currency credit to borrowers without adequate foreign exchange proceeds or salary or whose foreign exchange risk was not covered by hedging instruments. In contrast, Poland introduced a 100 percent risk weight for overdue exposures secured by residential property, for which the obligation depends on changes in exchange rates or foreign currencies other than the currency of the borrower’s income. Romania implemented European Systemic Risk Board Recommendations on lending in foreign currency, which require creditors to warn unhedged clients of the negative impact of exchange rate depreciation on debt obligations and to establish maximum debt-to-income ratios for consumer loans by applying a currency stress test on the debt. Conditions for lending in foreign exchange in Vietnam were significantly strengthened. Foreign exchange lending became subject to approval by the State Bank of Vietnam, and borrowers must have sufficient foreign exchange revenue to repay the foreign exchange loan.

Institutional investors

Reported changes in the regulatory framework of institutional investors do not show a clear overall direction of prudential measures and capital controls. Seventeen members reported 19 changes in prudential measures and somewhat more (21) in capital controls: a slightly higher number of changes than in the previous reporting period.

  • Capital controls were mostly eased in the reporting period. The majority of the measures increased investment opportunities abroad for institutional investors (Kazakhstan, Namibia, Peru, Romania, Thailand). Limits on external transfers introduced by Cyprus in March 2013 were subsequently increased, easing the constraints on institutional investors’ international operations.29

  • Measures that tightened capital controls generally imposed stricter conditions or limits on the investment of pension funds and insurance companies abroad. These measures are considered capital controls because they discriminate against investment in foreign assets by forbidding, or setting lower limits on, institutional investors’ investments abroad compared with similar investments locally. Norms on pension funds’ investments were tightened in Kazakhstan, Romania, and Turkey. Foreign acquisitions of financial institutions (including banks and other financial institutions) in excess of 10 percent of total consolidated assets became subject to approval by the minister of finance in Canada, and Bolivia reduced insurance companies’ maximum investment abroad from 12 percent to 10 percent of their total investment. Restrictions were implemented in Kazakhstan on reinsurance with nonresident reinsurance organizations.

  • Five reported measures (four less than in the previous reporting period) tightened the prudential framework for institutional investors’ operations. The stricter conditions implemented on institutional investors’ operations aim to enhance the stability of the financial system. More stringent prudential limits on institutional investors’ foreign exchange position were introduced in Armenia. As part of pension reform in the Czech Republic, prudential rules for pension funds and pension companies were amended, including rules on eligible assets and investment limits and on the management of pension funds. The capital market law in Moldova redefined conditions that govern investment of funds through Undertakings for the Collective Investment of Transferable Securities (UCITS). Requirements for professional clients and qualified investors in accordance with the provisions of EU directives were also adopted. Turkey introduced new prudential rules for real estate investment companies to comply with corporate governance principles and added new obligations regarding majority shareholders.

  • Four additional reported measures eased the prudential rules for investment by institutional investors. For example, pension funds and insurance companies in Bolivia were allowed to invest in Bolivian government securities issued abroad. Turkey implemented measures to support investment in private debt securities and to introduce new investment instruments and relax investment limits for mutual, hedge, and real estate funds.

More than half the reported changes in prudential measures specific to institutional investors are recorded as neutral (10). These changes cannot be linked directly to the easing or tightening of rules and reflect mainly institutional or procedural changes. New laws were adopted and existing regulations consolidated in Argentina and Kosovo. The amendment of the pension security law in Kazakhstan defined the competence of government agencies in the field of pensions and clarified the provisions for pension annuities. In Lithuania, a shift of supervisory responsibilities to the Bank of Lithuania required some changes in the regulations. In Turkey, the capital markets law was amended to comply with the UCITS regulations, increase effectiveness and competitiveness, and comply with changes and improvements in the financial sector.

    Other Resources Citing This Publication