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Overview

Author(s):
International Monetary Fund. Monetary and Capital Markets Department
Published Date:
October 2014
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This is the 65th issue of the Annual Report on Exchange Arrangements and Exchange Restrictions (AREAER), which provides a yearly 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.2 It also provides information related to Paragraph 25 of the 2012 Integrated Surveillance Decision, which restates the obligation of each member country under the IMF’s Articles of Agreement to notify the IMF of the exchange arrangement it intends to apply and any changes in that arrangement.3

The AREAER goes beyond these, however, to provide a comprehensive description of global exchange and trade systems. It describes restrictions on current international payments and transfers and multiple currency practices (MCPs) maintained under Article XIV of the IMF’s Articles of Agreement as well as those subject to the IMF’s jurisdiction in accordance with Article VIII, Sections 2(a) and 3.4 The report also provides information on the operation of foreign exchange markets, controls on international trade, controls on capital transactions, and measures implemented in the financial sector, including prudential measures. In addition, the AREAER 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.5

The AREAER also provides detailed information on the exchange rate arrangements of member countries: the de jure arrangements as described by the countries and the de facto exchange rate arrangements, which are classified into 10 categories (Table 1). This 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 included in this report.

Table 1.Classification of Exchange Rate Arrangements
TypeCategories
Note: This methodology became effective on February 2, 2009, and reflects an attempt to provide greater consistency and objectivity of exchange rate classifications across countries and to improve the transparency of the IMF’s bilateral and multilateral surveillance in this area.
Hard pegsExchange arrangement with no separate legal tenderCurrency board arrangement
Soft pegsConventional pegPegged exchange rate within horizontal bandsStabilized arrangementCrawling pegCrawl-like arrangement
Floating regimes (market-determined rates)FloatingFree floating
ResidualOther managed arrangement

Several tools help navigate and interpret the findings of this report. A single table compares the characteristics of the exchange and trade systems of all IMF member countries: Summary Features of Exchange Arrangements and Regulatory Frameworks for Current and Capital Transactions in IMF Member Countries. The Country Table Matrix lists the categories of data reported for each country, and the Compilation Guide includes definitions and explanations used to report the data.

The AREAER is available in several formats. This Overview is available in print and online, and the detailed information for each of the 191 member countries and territories is included on a CD that accompanies the printed Overview and is in the AREAER Online database. In addition, the AREAER Online contains data published in previous issues of the AREAER and is searchable by year, country, and category of measure and allows cross-country comparisons for time series.6

Overall Developments

In general, the AREAER includes a description of exchange and trade systems as of December 31, 2013. However, any changes made to member countries’ exchange rate arrangements before April 30, 2014, are reflected in the report as are some other developments through July 30, 2014.7 During this period, there was additional foreign exchange liberalization accompanied by continuing efforts to bolster financial sector regulatory frameworks against a backdrop of the slow global emergence from the Great Recession and heightened capital flow volatility. Global activity strengthened in the second half of 2013, driven primarily by recovery in the advanced economies, while macroeconomic imbalances increased in some emerging market economies. Nonetheless, the global recovery remained fragile, and new geopolitical risks emerged.

After a prolonged period of strong portfolio inflows, emerging markets faced both a transition to more volatile external conditions and higher risk premiums. These economies were profoundly affected by market reactions to the anticipated discontinuation by the United States of the extraordinary monetary policies implemented to spur growth in the aftermath of the global financial crisis. When the Federal Reserve signaled steps toward normalizing monetary policy in May 2013, investors withdrew from emerging market economies, causing their exchange rates to depreciate and their interest rates to rise sharply. After this broad-based initial reaction, investors began to differentiate more among economies, focusing on those with large external financing needs or other macroeconomic imbalances. In mid-January 2014 there was another, smaller outbreak of turmoil.

This renewed increase in financial volatility highlights the challenges for emerging market economies posed by the changing external environment. Countries with relative weaknesses such as higher inflation or wider current account deficits were generally more affected. Although such weaknesses are not new, prospects of improved returns in advanced economies have made investor sentiment less favorable toward emerging market risks.

On a global basis, 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 be the motivation behind the tightening of capital controls and the imposition of restrictions that occurred in some countries. There were also additional reforms in the financial sector regulatory framework, part of broader steps to address legacy risks from the global financial crisis. In particular, the euro area moved toward a more robust and safer financial sector, and stronger regulatory standards for the global banking system were phased in.

The 2014 AREAER documents the following major trends and significant developments:

  • Exchange rate arrangements continued gravitating toward more stable arrangements amid the slow recovery of both global growth and global financial conditions. There was a decline in the residual category (other managed arrangements) over the past two years, with a simultaneous increase in the number of countries with a soft peg, and an overall shift away from flexible arrangements. This is likely a reflection of recurring pressure on the currencies of emerging market economies as a result of capital flow volatility, which may have contributed to increased exchange rate management.

  • Fewer than half of member countries now use the exchange rate as the anchor for monetary policy, continuing the trend toward monitoring multiple indicators. The U.S. dollar remained the dominant exchange rate anchor, although the number of countries anchoring continued to decline.

  • Exchange rate intervention again increased in emerging market economies, as during 2012, reflecting the bouts of exchange market pressure caused by heightened capital flow volatility. The major advanced economies reported no foreign exchange interventions. There was continued use of foreign exchange auctions as a tool for managing foreign reserves and as a vehicle for foreign exchange interventions. Such auctions are often used in less-developed foreign exchange markets because they are transparent, and this was again the case during this past year.

  • Foreign exchange market structures continued to modernize, and market-based arrangements increased, leaving fewer countries with foreign exchange standing facilities and allocation systems. Countries overwhelmingly tightened taxes on foreign exchange transactions as part of broader efforts to increase tax revenues, reduce dollarization, contain the profitability of the private financial sector, or address pressures on exchange 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. Twenty IMF members avail themselves of the transitional arrangement under Article XIV.

  • Member countries moved toward greater current account openness. Regulatory conditions for import transactions and payments for invisibles mostly eased, but the recent trend toward liberalization reversed during this reporting period with respect to exports and export proceeds. A number of restrictive measures were eliminated, but the total number of exchange restrictions on current payments and transfers increased, particularly with respect to payments for invisible transactions, in response to balance of payments pressures. The overall increase in exchange restrictions on current payments and transfers also reflects improved reporting by members.

  • The trend toward greater overall liberalization of capital transactions continued. Easing measures predominated for both inflows and outflows, despite an increase in the total number of measures reported in 2013. Most measures affected capital and money market instruments and were aimed at easing outflows more than inflows, as was the case during 2012. This trend may reflect further globalization, the financial deepening of emerging markets, and the greater share of portfolio flows in total capital flows to emerging markets, particularly since the financial crisis, as investors search for yield. Tightening measures on outflows included those designed to shore up reserves and ease pressure on the domestic exchange market. The liberalization trend was also pronounced in foreign direct investment, which began to moderate with the decline in global commodity prices.

  • Developments in the financial sector reflect ongoing efforts to bolster the regulatory framework and implement reforms while easing or removing capital controls on the operations of market participants. Member countries continued to strengthen the prudential framework of banks’ operations to address the legacy of the global financial crisis. Capital controls were eased as part of broader capital flow liberalization plans in some countries. In some emerging market economies, this was a regulatory response to bouts of capital flow volatility during the reporting period, and in other countries it was part of broader reforms to develop the financial sector. Prudential requirements were revised in many countries to enhance the liquidity, solvency, and risk management of the financial sector and facilitate banks’ recovery. Reserve requirements were used extensively to implement monetary policy, reduce dollarization, or respond to changes in capital flows.

The remainder of this Overview highlights the major developments covered in the individual country chapters that are part of this report (these country chapters are on the CD that accompanies the printed version of the Overview and are available 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 2 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 3 breaks down countries’ de facto exchange rate arrangements for 2008–14. Table 4 highlights changes in the reclassification of the de facto exchange rate arrangements between January 1, 2013, and April 30, 2014. Table 5 outlines IMF member countries’ monetary anchors, and Table 6 reports other changes related to the exchange rate and monetary policy frameworks. Table 7 presents the structure of the foreign exchange markets among the membership. Finally, Table 8.a reports changes regarding foreign exchange markets, and Tables 8.b and 8.c report changes in currency and exchange rate structures and exchange subsidies and taxes, respectively.

Table 2.De Facto Classification of Exchange Rate Arrangements and Monetary Policy Frameworks, April 30, 2014
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 between 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 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.
Exchange rate arrangement (number of countries)Monetary Policy Framework
Exchange rate anchorMonetary aggregate target

(25)
Inflation-targeting framework

(34)
Other1

(43)
U.S. dollar

(43)
Euro

(26)
Composite

(12)
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)Djibouti

Hong Kong SAR

ECCU

Antigua and Barbuda

Dominica

Grenada
St. Kitts and Nevis

St. Lucia

St. Vincent and the Grenadines
Bosnia and Herzegovina

Bulgaria
Lithuania2Brunei Darussalam
Conventional peg (44)Aruba

The Bahamas

Bahrain

Barbados

Belize

Curaçao and Sint Maarten

Eritrea
Jordan

Oman

Qatar

Saudi Arabia

South Sudan

Turkmenistan

United Arab Emirates

Venezuela
Cabo Verde

Comoros

Denmark2

São Tomé and Príncipe

WAEMU

Benin

Burkina Faso

Côte d’Ivoire

Guinea-Bissau

Mali

Niger
Senegal

Togo

CEMAC

Cameroon

Central African Rep.

Chad

Rep. of Congo

Equatorial

Guinea

Gabon
Fiji

Kuwait

Libya

Morocco3

Samoa
Bhutan

Lesotho

Namibia

Nepal

Swaziland
Solomon Islands4
Stabilized arrangement (21)Guyana

Iraq

Kazakhstan

(02/14)

Lebanon
Maldives

Suriname

Trinidad and Tobago
FYR MacedoniaSingapore

Vietnam5
Bangladesh5

(02/13)

Burundi5

(03/13)

Democratic Rep. of the Congo5

Guinea5

(08/13)

Sri Lanka5

(10/13)

Tajikistan5

Yemen5
Angola5

Azerbaijan5

Bolivia5

Egypt5

(07/13)
Crawling peg (2)NicaraguaBotswana
Crawl-like arrangement (15)Honduras

Jamaica
CroatiaChina5

Ethiopia5

Uzbekistan5
Armenia5

(03/13)

Dominican

Republic5

Guatemala5,6

(11/12)
Argentina5

Belarus5,6

(09/12)

Haiti5

Lao P.D.R.5

Switzerland7

(05/13)

Tunisia4,8
Pegged exchange rate within horizontal

bands (1)
Tonga
Other managed arrangement (18)Cambodia

(7/13)

Liberia
Algeria

Iran

Syria
The Gambia

Myanmar

Nigeria

Rwanda
Czech Rep.

(11/13)
Costa Rica

(08/13)

(12/13)

Russia8

Sudan

Vanuatu6
Floating (36)Afghanistan

Kenya

Madagascar

Malawi6

(05/12)

Mozambique

Papua New

Guinea

Seychelles9

(03/14)

Sierra Leone

Tanzania

Ukraine

(02/14)

Uruguay


Albania

Brazil

Colombia

Georgia

(11/13)

Ghana

Hungary

Iceland

Indonesia

(08/13)

Israel (05/13)

Korea

Moldova

New Zealand

Paraguay

(07/13)

Peru

Philippines

Romania

Serbia

South Africa

Th ailand

Turkey

Uganda6

India

Mauritius

Mongolia

Zambia
Free floating (29)Australia

Canada

Chile

Japan

Mexico

Norway

Poland

Sweden

United Kingdom
Somalia

United States

EMU

Austria

Belgium

Cyprus

Estonia

Finland

France

Germany

Greece

Ireland

Italy

Latvia (01/14)

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. CEMAC = Central African Economic and Monetary Community; ECCU = Eastern Caribbean Currency Union; EMU = European Economic and Monetary Union; WAEMU = West African Economic and Monetary Union.
1

Includes countries that have no explicitly stated nominal anchor, but rather monitor various indicators in conducting monetary policy.

2

The member participates in the European Exchange Rate Mechanism (ERM II).

3

Within the framework of an exchange rate fixed to a currency composite, the Bank Al-Maghrib adopted a monetary policy framework in 2006 based on various inflation indicators with the overnight interest rate as its operational target to pursue its main objective of price stability.

4

The country maintains a de facto exchange rate anchor to a composite.

5

The country maintains a de facto exchange rate anchor to the U.S. dollar.

6

The exchange rate arrangement or monetary policy framework was reclassified retroactively, overriding a previously published classification.

7

The country maintains a de facto exchange rate anchor to the euro.

8

The central bank has taken preliminary steps toward inflation targeting.

9

The exchange rate arrangement was reclassified twice during this reporting period, reverting back to the classification in the previous year’s report.

Table 3.Exchange Rate Arrangements, 2008–141(Percent of IMF members as of April 30)
Exchange Rate Arrangement200822009320104201152012520132014
Hard peg12.212.213.213.213.213.113.1
  No separate legal tender5.35.36.36.86.86.86.8
  Currency board6.96.96.96.36.36.36.3
Soft peg39.934.639.743.239.542.943.5
  Conventional peg22.322.323.322.622.623.623.0
  Stabilized arrangement12.86.912.712.18.49.911.0
  Crawling peg2.72.71.61.61.61.01.0
  Crawl-like arrangement1.10.51.16.36.37.97.9
  Pegged exchange rate within horizontal bands1.12.11.10.50.50.50.5
Floating39.942.036.034.734.734.034.0
  Floating20.224.520.118.918.418.318.8
  Free floating19.717.615.915.816.315.715.2
Residual
  Other managed arrangement8.011.211.18.912.69.99.4
Source: AREAER database.
1

Includes 188 member countries and 3 territories: Aruba and Curaçao and Sint Maarten (all in the Kingdom of the Netherlands) and Hong Kong SAR (China).

2

As retroactively classified February 2, 2009; does not include Kosovo, Tuvalu, and South Sudan, which became IMF members on June 29, 2009, June 24, 2010, and April 18, 2012, respectively.

3

As published in the 2009 AREAER; does not include Kosovo, Tuvalu, and South Sudan, which became IMF members on June 29, 2009, June 24, 2010, and April 18, 2012, respectively.

4

As published in the 2010 AREAER; does not include Tuvalu and South Sudan, which became IMF members on June 24, 2010, and April 18, 2012, respectively.

5

As published in the 2011 and 2012 AREAERs; does not include South Sudan, which became an IMF member on April 18, 2012.

Table 4.Changes and Resulting Reclassifications of Exchange Rate Arrangements, January 1, 2013–April 30, 2014
CountryChangePrevious Arrangement1Arrangement in the 2014 AREAER
ArmeniaSince March 2013, the dram has appreciated within a 2% band against the U.S. dollar. Thus, the de facto exchange rate arrangement was reclassified from floating to a crawl-like arrangement, effective March 12, 2013.FloatingCrawl-like arrangement
BangladeshBeginning in December 2012, the taka followed an appreciating trend for three months as a result of increased foreign exchange inflows and stabilized afterward within a 2% band. Accordingly, the de facto exchange rate arrangement was reclassified from other managed to a stabilized arrangement, effective February 7, 2013.Other managedStabilized arrangement
Belarus2Starting with the last quarter of 2012, the Belarusian rubel followed a depreciating trend within a 2% band. Therefore, the de facto exchange rate arrangement was retroactively reclassified from other managed to a crawl-like arrangement, effective September 19, 2012. This change is reflected as of January 1, 2013, corresponding to the first day of the period covered in this year’s AREAER.Other managedCrawl-like arrangement
BurundiBecause the Burundi franc has stabilized within a 2% band against the U.S. dollar since March 2013, the de facto exchange rate arrangement has been classified from other managed to stabilized arrangement, effective March 6, 2013.Other managedStabilized arrangement
CambodiaThere were several marginal adjustments in the path of the riel–U.S. dollar exchange rate in 2013. The riel was stable until June, but then increased in volatility. Accordingly, the de facto exchange rate arrangement was reclassified from stabilized to other managed arrangement, effective July 1, 2013.Stabilized arrangementOther managed
Costa RicaIn 2013, the Central Bank of Costa Rica (BCCR) kept its commitment to maintain the band, in order to continue the gradual and orderly transition to a floating exchange rate. The band does not include a central parity. As of December 31, 2013, the intervention selling exchange rate reached C 812.05, indicating a band with a width of 62.4% with the lower bound as the basis. The average exchange rate for the U.S. dollar on the foreign currency market (MONEX) in 2013 stayed in the vicinity of the lower bound of the band, recording an annual average level of C 501.09, C 0.6 lower than the previous year. As a result, the local currency recorded a nominal appreciation of 1.0% (0.4% in 2012). Beginning January 29, 2014, in a national context of reduced foreign currency liquidity, the exchange rate increased rapidly, reaching maximums in the vicinity of C 570 per U.S. dollar in the second week of March. Nonetheless, the rate stabilized as of March 13, 2014, and between that date and April 30, 2014, the exchange rate recorded an average level of C 548.47. The excessive exchange rate volatility prompted the BCCR to intervene within the band, with the aim of preventing sharp fluctuations in the price of the U.S. dollar. Between January 29 and April 30, 2014, the BCCR carried out foreign exchange sales to stabilize the exchange rate for a cumulative sum of US$386.6 million. Accordingly, the de facto exchange rate arrangement has been reclassified to other managed from a stabilized arrangement, effective August 30, 2013.Stabilized arrangementOther managed
Czech RepublicWith inflation below target and continued undershooting expected, the Czech National Bank announced November 7, 2013, that it will intervene in the foreign exchange market to weaken the koruna so that the exchange rate against the euro is close to CZK 27. The target is asymmetric: the Czech National Bank will not intervene to strengthen the currency toward the level of CZK 27. The currency has traded between CZK 27.0 and CZK 27.7 since then. Accordingly, the de facto exchange rate arrangement was reclassified from free floating to other managed, effective November 7, 2013.Free floatingOther managed
EgyptSince July 2013, the Egyptian pound has stabilized within a 2% band against the U.S. dollar. This trend continued through April 2014, which led to reclassification of the de facto exchange rate arrangement from crawl like to a stabilized arrangement, effective July 3, 2013.Crawl-like arrangementStabilized arrangement
The GambiaFollowing a sharp depreciation of the dalasi against the U.S. dollar in 2012, the exchange rate was relatively stable during 2013 with some spikes and sharp realignments mostly due to presidential exchange rate directives that imposed overvalued exchange rates, issued in October 2012, June 2013, July 2013, and August 2013. Accordingly, the de facto exchange rate arrangement was reclassified from floating to other managed, effective January 1, 2013.FloatingOther managed
GeorgiaDuring January–September of 2013, the National Bank of Georgia’s net interventions amounted to US$555 million. Since October 2013, the lari depreciated by almost 7% against the U.S. dollar. At the end of 2013 and the beginning of 2014, the National Bank of Georgia sold US$440 million in order to curb speculation expectations in the market, but has not intervened since February 2014. Accordingly, the de facto exchange rate arrangement was reclassified to floating from a stabilized arrangement, effective November 6, 2013.Stabilized arrangementFloating
Guatemala2From January 1, 2013, through December 31, 2013, the Bank of Guatemala (BOG) purchased $75.3 million (on eight occasions) and sold $26 million (on four occasions). During this period, the quetzal showed reduced volatility and remained within a 2% band against the U.S. dollar, with an appreciating trend between November 16, 2012, and mid-May 2013. It then followed a depreciating trend until October 28, 2013, after which it resumed an appreciating path until the end of the year. Market supply and demand play a role in determining the exchange rate, as does official action based on the observed path of the rate and the high volume of BOG participation in the foreign exchange auctions. Accordingly, the de facto exchange rate arrangement was retroactively reclassified from floating to a crawl-like arrangement. Intervention data are available on the BOG website. The change is reflected as of January 1, 2013, corresponding to the first day of the period covered in this year’s Annual Report on Exchange Arrangements and Exchange Restrictions.FloatingCrawl-like arrangement
GuineaAs the franc has shown reduced volatility and has remained within a 2% band against the U. S. dollar since August 2013, the de facto exchange rate arrangement has been reclassified to stabilized from other managed arrangement, effective August 26, 2013.Other managedStabilized arrangement
IndonesiaFrom early 2012 to mid-2013, the rupiah steadily weakened against the U.S. dollar, as Indonesia’s current account balance shifted into a deficit. However, Bank Indonesia used a combination of actual and verbal interventions to temper excessive volatility in the exchange rate. Since August 2013, the rupiah has moved more freely. Accordingly, the de facto exchange rate arrangement was reclassified to floating from a crawl-like arrangement, effective August 19, 2013.Crawl-like arrangementFloating
IsraelThe Bank of Israel (BOI) announced a multiyear foreign exchange purchase plan to offset the effect of natural gas production on the exchange rate. The total amount to be purchased as part of this plan in 2013 was announced to be about $2.1 billion. 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 published. On October 2, 2013, the BOI announced that it will purchase $3.5 billion in 2014 to offset the effect of natural gas production on the exchange rate. The BOI purchased $5.3 billion in the foreign exchange market during 2013, of which $2.1 billion was part of the purchase plan to offset the effect of natural gas production on the exchange rate and the rest was under the foreign exchange policy announced in August 2009. The BOI does not publish the daily purchases. Since May 2013 the BOI has intervened more than three times in a six-month period, so the new Israeli shekel’s de facto exchange rate arrangement was reclassified to floating from a free-floating exchange rate arrangement, effective May 13, 2013.Free floatingFloating
KazakhstanSince February 2014 (following an 18% devaluation against the U.S. dollar), the tenge has stabilized within a (roughly) 1½% band against the U.S. dollar. Therefore, the de facto exchange rate was reclassified to a stabilized from a crawl-like arrangement, effective February 11, 2014.Crawl-like arrangementStabilized arrangement
Lao P.D.R.During the first quarter of 2013, the kip appreciated rapidly, reaching its lowest point in April at 7,615 kip per U.S. dollar, followed by a depreciating trend within a 2% band against the U.S. dollar. Therefore, the de facto exchange rate arrangement was reclassified from stabilized to a crawl-like arrangement, effective January 1, 2013.Stabilized arrangementCrawl-like arrangement
MalawiSince May 2012, the Reserve Bank of Malawi has not set a target rate and allowed substantial volatility in the exchange rate, including recent depreciation to around MK 435 per U.S. dollar by early January 2014. Official actions continue to play a role in influencing the exchange rate, but the exchange rate movements are largely market determined. Therefore, the de facto exchange rate arrangement was reclassified to floating from other managed arrangement, effective January 1, 2013.Other managedFloating
PakistanThe Pakistani rupee started to appreciate rapidly in December 2013, followed by short periods of stability with one step realignment in March 2014. Due to the limited volatility with periods of divergence, the de facto exchange rate arrangement was reclassified to other managed from a floating arrangement, effective December 5, 2013.FloatingOther managed
Papua New GuineaIn January 2013, the exchange rate departed from the stabilized band and has since shown increased flexibility. Therefore, the de facto exchange rate arrangement was reclassified to floating from a stabilized arrangement, effective January 1, 2013.Stabilized arrangementFloating
ParaguayThe Central Bank of Paraguay (CBP) implemented a program of preannounced sales of the U.S. dollars it purchases from the government. This program is more transparent, better communicated, and more consistent with an inflation-targeting regime. It indicates in advance the nature, frequency, and size of the CBP’s foreign exchange transactions to avoid influencing market expectations of the exchange rate. Accordingly, the de facto exchange rate arrangement was reclassified to floating from other managed arrangement, effective July 1, 2013.Other managedFloating
RwandaIn 2013, the franc continued to follow a depreciating trend against the U.S. dollar with several short periods of stability. Accordingly, the de facto exchange rate arrangement was reclassified from a crawl-like arrangement to other managed arrangement, effective January 1, 2013.Crawl-like arrangementOther managed
SeychellesSince mid-March 2013, the rupee depreciated within a 2% band against the U.S. dollar with one trend adjustment in July, 2013. Accordingly, the de facto exchange rate arrangement was reclassified from floating to a crawl-like arrangement, effective March 12, 2013.FloatingCrawl-like arrangement
Seychelles3Given that the rupee increased its volatility and departed from the 2% band against the U.S. dollar in April 2014, the de facto exchange rate arrangement was reclassified from a crawl-like arrangement to floating, effective March 27, 2014.Floating
SingaporeIn 2013, Singapore dollar remained stable within a 2% band against a currency composite. Therefore, the de facto exchange rate arrangement was reclassified from a crawl-like arrangement to stabilized, effective January 1, 2013.Crawl-like arrangementStabilized arrangement
Sri LankaSince October 2013, the Sri Lanka rupee has stabilized within a 2% band against the U.S. dollar. Accordingly, the de facto exchange rate arrangement was reclassified to a stabilized from a floating arrangement, effective October 1, 2013.FloatingStabilized arrangement
SwitzerlandIn 2013, the Swiss National Bank’s commitment to defending the minimum exchange rate remained unchanged. After a short period of volatility, the Swiss franc has followed an appreciating trend within a 2% band against the euro since May 31, 2013. Therefore, the de facto exchange rate was reclassified to a crawl-like arrangement from other managed, effective May 29, 2013.Other managedCrawl-like arrangement
UkraineBetween March 2010 and December 31, 2013, the hryvnia remained stable against the U.S. dollar within a 2% band, with a slight shift of the band in the second half of 2012. In January 2014, the market exchange rate began depreciating, despite National Bank of Ukraine (NBU) interventions. In February 2014, the NBU discontinued massive interventions in support of the hryvnia, adjusted its official hryvnia–U.S. dollar exchange rate broadly in line with the market exchange rate, and resumed the practice of setting the official exchange rate based on the weighted average rate for the foreign exchange transactions of the previous day. Accordingly, the de facto exchange rate arrangement was reclassified to floating from a stabilized arrangement, effective February 7, 2014.Stabilized arrangementFloating
Source: AREAER database.
1

This column refers to the arrangements as reported in the 2012 AREAER, except in cases when a reclassification took place during January 1–April 30, 2013, in which case it refers to the arrangement preceding such a reclassification.

2

The exchange rate arrangement was reclassified retroactively, overriding a previously published classification for the entire reporting period or part of the period.

3

Cells in the column “Previous Arrangement” are blank if there was a subsequent reclassification during the reporting period.

Table 5.Monetary Policy Frameworks and Exchange Rate Anchors, 2008–141(Percent of IMF members as of April 30)
U.S. DollarEuroCompositeOther CurrencyMonetary AggregateInflation TargetingOther2
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
201422.513.66.34.213.117.822.5
Source: AREAER database.
1

Includes 188 member countries and 3 territories: Aruba and Curaçao and Sint Maarten (all in the Kingdom of the Netherlands) and Hong Kong SAR (China).

2

Includes countries that have no explicitly stated nominal anchor but instead monitor various indicators in conducting monetary policy. This category is also used when no relevant information on the country is available.

3

Does not include Kosovo, Tuvalu, and South Sudan, which became IMF members on June 29, 2009, June 24, 2010, and April 18, 2012, respectively.

4

Does not include Tuvalu and South Sudan, which became IMF members on June 24, 2010, and April 18, 2012, respectively.

5

Does not include South Sudan, which became an IMF member on April 18, 2012.

Table 6.Changes in Exchange Rate Arrangements, Official Exchange Rate, and Monetary Policy Framework, January 1, 2013–July 31, 2014
CountryChange
BoliviaEffective June 11, 2013, the Regulation on Foreign Exchange Transactions provided that the official selling exchange rate should apply for the same-day sale of U.S. dollars to the general public and financial institutions debiting the accounts in domestic currency and crediting to accounts in U.S. dollars held with financial institutions (Board Resolution No. 063/2013).
BurundiEffective April 12, 2013, with the replacement of the Marché des Enchères Symétriques en Devises (MESD) with the Marché Interbancaire des Devises, calculation of 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 further sharp fluctuations, bank operations whose exchange rate deviates from the defined band are systematically excluded from the calculations. Previously, the BRB based the reference rate each morning on the weighted average of commercial banks’ foreign exchange purchases and sales with their customers on the previous day, excluding BRB transactions through the MESD.
ChinaEffective July 14, 2014, the middle rate of the renminbi against the pound sterling is determined based on the average of the day’s market makers’ quotes. Previously, the rate was determined through the cross-rates by the China Foreign Exchange Trade System based on the day’s middle rate for the renminbi against the U.S. dollar and the exchange rates for the U.S. dollar against the pound sterling.
Costa RicaEffective March 12, 2014, the board of directors of the Central Bank of Costa Rica broadened exchange rate intervention policies and approved a form of “interday” intervention in response to significant deviations in the exchange rate relative to the long-term trend in its fundamentals.
GuatemalaEffective January 1, 2013, the annual inflation target is announced as a central target plus a margin; it is set at 4.0% ±1%, which is the medium-term target as of 2013.
IndonesiaEffective May 20, 2013, Bank Indonesia introduced the Jakarta interbank spot dollar rate (JISDOR) to serve as a credible spot reference rate in the domestic market. The JISDOR is the weighted average of U.S. dollar–rupiah spot transactions in the interbank market within a specific window, captured in real time through Bank Indonesia’s monitoring system.
IranEffective July 3, 2013, the rial was devalued and a new official exchange rate was introduced, which is published on the Central Bank of Iran website. This rate is used for the settlement of oil and petrochemical product exports and for imports of priority goods and services.
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.
IraqEffective December 1, 2013, the Central Bank of Iraq set the cash exchange rate at ID 1,177 per U.S. dollar, the letter of credit exchange rate at ID 1,172 per U.S. dollar, and the transfer transaction rate at ID 1,179 per U.S. dollar.
IraqEffective February 16, 2014, the commissions added to the currency selling window exchange rate of ID 1,166 per U.S. dollar to determine the selling rate of the Central Bank of Iraq were increased to ID 18 per U.S. dollar from ID 9 for import payments through letters of credit; ID 21 per U.S. dollar for drafts; and ID 24 per U.S. dollar from ID 13 for cash sales.
IraqEffective February 16, 2014, the Central Bank of Iraq set the cash exchange rate at ID 1,190 per U.S. dollar, letter of credit exchange rate at ID 1,184 per U.S. dollar, and transfer transaction rate at ID 1,187 per U.S. dollar.
IraqEffective February 16, 2014, the Central Bank of Iraq uses the official selling rate (previously buying rate) of the day minus 0.001% (previously 1%) to purchase the government’s foreign exchange receipts.
JapanEffective January 22, 2013, the Bank of Japan introduced the “price stability target” under the framework for the conduct of monetary policy. The newly introduced price stability target is the inflation rate the Bank of Japan judges to be consistent with sustainable price stability. The Bank of Japan recognizes that the inflation rate consistent with sustainable price stability will rise as efforts by a wide range of entities toward strengthening Japan’s competitiveness and growth potential progress. Based on this recognition, the Bank of Japan set the target at 2% in terms of the year-over-year rate of change in the consumer price index.
JapanEffective April 4, 2013, the Bank of Japan introduced “quantitative and qualitative monetary easing,” aiming to achieve the target of 2% year-over-year change in the consumer price index as soon as possible, with a horizon of about two years. To do so, it decided to double the monetary base and the amount of outstanding Japanese government bonds and exchange-traded funds in two years and more than double the average remaining maturity of Japanese government bond purchases.
KoreaEffective January 1, 2013, the inflation target for 2013 onward is in the range of 2.5%–3.5% based on the year-over-year average change in the consumer price index. The target horizon is three years (currently, 2013–15).
Kyrgyz RepublicEffective March 1, 2014, pursuant to National Bank of the Kyrgyz Republic (NBKR) Executive Board Resolution No. 51/9, of December 20, 2013, on the Discount Rate of the National Bank of the Kyrgyz Republic, the NBKR switched to a new monetary framework in which interest rates serve as an intermediate target in the development and implementation of monetary policy. Pursuant to this resolution, the arrangement for determining the discount rate changed from being pegged to the average value of an NBKR 28-day note for the previous four auctions to setting of the rate by decision of the NBKR Executive Board.
LatviaEffective January 1, 2014, the de jure exchange rate arrangement of the euro area is free floating. Latvia participates in a currency union (EMU) with, as of January 1, 2014, 17 other members (previously 16) of the EU and has no separate legal tender. The euro, the common currency, floats freely and independently against other currencies. The European Central Bank (ECB) publishes information regarding its interventions; it last intervened in March 2011. When it intervenes, the ECB intervenes at the quotes of the market makers.
New ZealandEffective May 30, 2013, as outlined in a speech delivered by the Reserve Bank of New Zealand (RBNZ) governor on May 30, 2013, the RBNZ initiated foreign exchange transactions to dampen some of the spikes in the exchange rate in the earlier months and is prepared to scale up foreign exchange activities if there are opportunities to have greater influence.
ParaguayEffective January 6, 2014, the policy objective for inflation is 5%, and the inflation target for 2014 is 5% with a tolerance band of ±2% (previously 2.5%), as determined by Resolution No. 15, Minute No. 1, of January 6, 2014. The monetary policy instrument used by the Central Bank of Paraguay is the overnight fixed interest rate, and the current monetary policy target rate is 6.75% (previously 5.5%).
RussiaEffective September 9, 2013, the Bank of Russia decreased the cumulative amount of interventions triggering a shift in the boundaries of the operating interval by 5 kopeks, from US$450 million to US$400 million.
RussiaEffective October 7, 2013, the Bank of Russia broadened symmetrically the range in which it does not perform currency interventions from Rub 1.00 to Rub 3.10.
RussiaEffective October 21, 2013, the Bank of Russia decreased the daily volume of targeted interventions from US$120 million to US$60 million.
RussiaEffective December 10, 2013, the Bank of Russia decreased the cumulative amount of interventions triggering a shift in the boundaries of the operating interval by 5 kopeks, from US$400 million to US$350 million.
RussiaEffective January 13, 2014, the daily volume of targeted interventions was decreased from US$60 million to zero.
RussiaEffective March 3, 2014, given the increasing volatility in the financial market, with the aim of maintaining financial stability, the Bank of Russia began to set the parameters of exchange rate policy daily. The cumulative amount of interventions triggering a shift in the boundaries of the operating interval by 5 kopeks was increased to US$1.5 billion.
RussiaEffective May 22, 2014, the amount of interventions in all sub-bands was reduced by US$100 million, from US$400 million to US$300 million and from US$200 million to US$100 million, with the aim of reverting to greater flexibility in the foreign exchange market.
RussiaEffective June 17, 2014, the cumulative volume of interventions leading to a shift in the floating operational band was reduced from US$1.5 billion to US$1 billion.
RussiaEffective June 17, 2014, the US$ 100 million intervention sub-band was eliminated, leading to an increase in the non-intervention zone by 2 rubles.
RussiaEffective June 17, 2014, the amount of interventions in the remaining sub-band was reduced from US$300 million to US$200 million.
Sierra LeoneEffective January 23, 2013, the weekly auction amount was reduced to US$0.70 million from US$1 million.
Sierra LeoneEffective July 10, 2013, the amount of foreign exchange sold at the weekly auctions was reduced from US$0.70 million to US$0.50 million.
Solomon IslandsEffective January 1, 2013, the new Central Bank Act–Central Bank of Solomon Islands Act 2012–went into effect. Section 16 states that without compromising the primary objective of domestic price stability, the government may after consultation with the Central Bank of the Solomon Islands determine the exchange rate regime and that the Central Bank of the Solomon Islands may, after consultation with the minister of finance, determine and implement the exchange rate policy and enter into foreign exchange arrangements.
Solomon IslandsEffective June 26, 2013, the Central Bank of the Solomon Islands made a downward adjustment to the base rate from SI$7.35 to SI$7.28 per U.S. dollar while maintaining the ±1% band around the base rate in accordance with the appreciation policy.
Solomon IslandsEffective May 27, 2014, the value of the Solomon Island dollar (SI$) per U.S. dollar (US$) is the value of the index times the SI$ per US$ value on the day the basket peg was introduced. The exchange rate (midrate) is expressed in SI$ per US$ and is determined by the total index of the basket multiplied by the initial base rate expressed in SI$ rather than in US$ as was done previously. The midrate is announced as the official rate.
TunisiaEffective December 27, 2013, in conducting monetary policy, the regulatory framework of the Central Bank of Tunisia uses currency swaps as monetary policy instruments according to Circular No. 2013-19.
UkraineEffective April 4, 2014, the National Bank of Ukraine implemented a new method of calculating the official exchange rate. The official exchange rate is set as the weighted average of the buying and selling exchange rates of the hryvnia against the U.S. dollar confirmed in the System for the Confirmation of Agreements on the Interbank Foreign Exchange Market of Ukraine (Agreement Confirmation System) of the same day instead of the exchange rates of the previous day.
UruguayEffective June 27, 2013, from September 2007 to June 2013 the Central Bank of Uruguay used the one-day interest rate as an operational target of the monetary policy within the inflation-targeting framework. The Central Bank of Uruguay switched to using the trajectory of monetary aggregate M1-plus (M1+)–the sum of the issuance of money held by the public, demand deposits, and savings of the public in the banking system–as a monetary policy reference indicator. It also set the indicative reference range of year-over-year growth for M1+ for 2013:Q3 at 12.5%–13%.
UruguayEffective October 7, 2013, the Monetary Policy Committee fixed the indicative reference range of year-over-year growth for M1-plus (M1+) for 2013:Q4 at 15%–17%, forecasting aggregate growth for that aggregate gradually converging at about 8% year over year for the quarter ending in June 2015 (which refers to the policy evaluation horizon). The 12-month growth rate of M1+ was 14.8% in 2013:Q3 and 13.7% in 2013:Q4. The M1+ data are published monthly on the Central Bank of Uruguay website.
UruguayEffective April 8, 2014, the Macroeconomic Coordination Committee, composed of members from the Central Bank of Uruguay and the Ministry of Finance, announced a widening of the inflation-target band to 3%–7% starting in July 2014 from the current range of 4%–6%. It also increased the monetary policy horizon to 24 months.
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.
Source: AREAER database.

Exchange Rate Arrangements

  • Other managed arrangements. There was a slight decline during 2013 in the number of countries following an exchange rate arrangement classified in this residual category, against the backdrop of a shift toward more predictable exchange rate management since 2009. The number of countries in this category decreased to its lowest level since 2011. This exchange rate arrangement is characteristic of periods during which volatile foreign exchange market conditions hinder the use of more clearly defined exchange rate arrangements. Its use has diminished with the slow recovery of global growth and the slow improvement of financial conditions since the worst of the global financial crisis. Although the number of other managed arrangements declined only by 1 to 18, there were 13 changes in the reporting period. Six countries joined this group: Cambodia (previously stabilized), Costa Rica (previously stabilized), Czech Republic (previously free floating), The Gambia (previously floating), Pakistan (previously floating), and Rwanda (previously crawl like). Of the 7 countries that left this group, 2 (Malawi and Paraguay) meet the criteria for a floating arrangement, 3 moved to a stabilized arrangement (Bangladesh, Burundi, Guinea), and 2 were classified as having a crawl-like arrangement (Belarus and Switzerland).

  • No separate legal tender; currency boards. There were no changes among the countries that have no separate legal tender or have currency boards. This is not surprising given that countries with these arrangements tend to maintain their exchange rate policies unless there are large structural changes in their economies that force a change.

  • Soft pegs. Recurring pressures on the currencies of many emerging market economies as a result of capital flow volatility may have contributed to an overall shift toward increased exchange rate management since 2008. A few of the member countries that had previously used a soft peg stopped doing so between April 2011 and April 2012, but the number of soft pegs increased again between April 2013 and April 2014, reaching its highest level since 2008 (Table 3). Countries with soft pegs represent the single largest exchange rate arrangement category—equal to the combined number of floating and other managed arrangements and accounting for 43.5 percent of all members.

  • Conventional pegs. The number of countries with a conventional peg arrangement declined by 1, to 44, when Latvia adopted the euro on January 1, 2014, and its exchange rate arrangement changed from a conventional peg to de jure free floating. Latvia is the 18th member of the European Economic and Monetary Union (EMU).

  • Stabilized arrangements. The number of countries with stabilized arrangements increased from 19 to 21. There were 12 changes in this category between April 2013 and April 2014, and most of this movement involved other soft pegs. One country moved to a stabilized arrangement from floating (Sri Lanka), and 1 moved from stabilized to floating (Georgia). Six other countries joined this group: 3 previously classified as crawl like (Egypt, Kazakhstan, Singapore) and 3 previously classified as other managed (Bangladesh, Burundi, Guinea). Two countries (Costa Rica, Georgia) returned to their exchange rate arrangement in the previous reporting period—other managed arrangement and floating, respectively. The other 3 countries that left the stabilized arrangement moved to a crawl-like arrangement (Lao P.D.R.), other managed arrangement (Cambodia), and floating arrangement (Ukraine). The large number of changes involving other soft pegs may reflect the tendency of countries with such arrangements to change the way they manage their exchange rate in response to events in the external environment, including differences in inflation across countries, capital flow pressures, and new trends in world trade.

  • Crawl-like arrangements. The number of countries with these arrangements remained at 15, unchanged from the previous reporting period, but 5 countries moved into this category, while 5 left it. The number of crawl-like arrangements has increased significantly since 2008, which may reflect increased interventions in response to one-sided exchange rate pressure or the unintentional outcome of foreign exchange reserve management in a shallow market. One country, Seychelles, maintained a crawl-like arrangement temporarily but then returned to its previous arrangement (floating). The other 4 that were classified as crawl-like arrangements are Lao P.D.R. (previously stabilized), Armenia and Guatemala (previously floating), and Switzerland (previously other managed). Of the 5 countries that left this group, 2 (Kazakhstan and Singapore) moved to a stabilized arrangement, 1 (Rwanda) moved to other managed, and 2 reverted to their arrangement in the previous reporting period: stabilized (Egypt) and floating (Indonesia).

  • Pegged exchange rate within horizontal bands. Only Tonga has this arrangement. Two additional countries have de jure pegged exchange rates within horizontal bands, but 1 has a de facto stabilized arrangement (Maldives) and the other a de facto other managed arrangement (Syria).

  • Floating arrangements. The number of countries with floating arrangements increased by 1 to 36, and there were also 13 changes in the composition of the group. Seven countries entered this category. Two of these (Georgia, Ukraine) previously had stabilized arrangements; 2 (Indonesia, Seychelles) previously had crawl-like arrangements; 2 (Malawi, Paraguay) previously had other managed arrangements; and 1 (Israel) previously had a floating arrangement. Six countries left this category: 3 (Armenia, Guatemala, Seychelles—temporarily) moved to crawl-like arrangements; 2 (The Gambia, Pakistan) moved to other managed arrangements; and 1 (Sri Lanka) was reclassified to a stabilized arrangement.

  • Free floating. The number of countries with free-floating arrangements declined by 1, to 29. There were 3 changes in this group: 2 countries (Israel, Czech Republic) were reclassified as floating and other managed, respectively, and Latvia (previously conventional peg) was reclassified as free floating when it joined the EMU. The reclassification of the exchange rate arrangements of Israel and the Czech Republic is a reflection of increased intervention. Israel announced a multiyear foreign exchange purchase plan to offset the effect of natural gas production on the exchange rate to complement its discretionary interventions. With inflation below target and continued undershooting expected, the Czech National Bank announced November 7, 2013, that it would intervene in the foreign exchange market to weaken the koruna so that the exchange rate against the euro remained close to CZK 27 per euro. The target is asymmetric: the Czech National Bank will not intervene to strengthen the currency toward that level.

Monetary Anchors8

The exchange rate remained the anchor for monetary policy for fewer than half of member countries (Table 5). As in the previous reporting period, there were no significant changes in official monetary anchors.9 Only 3 changes were reported. Ethiopia abandoned the group of members using the U.S. dollar as a monetary anchor (43). Latvia joined the EMU and left the group of members anchored to the euro (26). Vanuatu was removed from the group of countries categorized as anchored to a composite (12) and recategorized retroactively as pursuing another monetary policy framework—thereby overriding the categorization reported in previous AREAERs. The number of members anchored to another single currency (8) remained the same (see Table 2).

Fifty-six 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, 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 between monetary aggregates (11), inflation targeting (30), and other (24, including the 18 EMU countries). Fourteen countries implementing soft pegs and other managed arrangements target monetary aggregates. Countries with either stabilized or crawl-like arrangements (36) rely on a variety of monetary frameworks, including monetary aggregates and inflation-targeting frameworks. The Czech Republic is the only country classified as other managed arrangement with an inflation-targeting framework; the remaining other managed arrangements are split between monetary aggregate targets (4) and other monetary policy frameworks (8).

  • The share of IMF members with the exchange rate as the main policy target decreased from 48.2 percent to 46.6 percent. Countries with hard pegs or conventional pegs make up three-quarters of this group. Three currency unions—the Central African Economic and Monetary Community (CEMAC), the Eastern Caribbean Currency Union (ECCU), and the West African Economic and Monetary Union (WAEMU)—have exchange rate anchors for their respective common currencies. 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. The share of countries using the U.S. dollar as an exchange rate anchor decreased slightly to 22.5 percent due to a change in Ethiopia’s monetary policy framework to a monetary aggregate target. With this change, the share of countries using the U.S. dollar as an exchange rate anchor resumed its earlier steady decline, which stopped in the previous reporting period when South Sudan adopted a monetary framework with an exchange rate anchor to the U.S. dollar. Countries that continue to anchor to the dollar also include those with moderate trade relations with the United States.

  • The share of countries using an exchange rate anchor to the euro decreased to 13.6 percent when the currency of Latvia changed from the lats to the euro upon Latvia’s entry to the EMU in January 2014. Countries whose currencies are anchored to the euro generally have historical ties with European countries, such as the Communauté Financière d’Afrique (CFA) franc area 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.

  • Twelve countries anchor their exchange rates to a currency composite. Three track the special drawing rights (SDRs) as the sole currency basket or as a component of a broader reference basket (Botswana, Libya, Syria). Morocco tracks a euro–U.S. dollar basket; Tonga tracks a composite that includes the Australian and New Zealand dollars in combination with major global currencies (Japanese yen and U.S. dollar); and the remaining 5 countries do not disclose the composition of their reference currency baskets (Algeria, Fiji, Islamic Republic of Iran, Kuwait, Samoa, Singapore, Vietnam).

  • The number of countries with an exchange rate anchor to another single currency remained unchanged (8). Two of these countries (Kiribati, Tuvalu) use the Australian dollar as their legal currency, and 1 (Brunei Darussalam) has a currency board arrangement with the Singapore dollar. The remaining 5 have conventional pegged arrangements, 3 (Lesotho, Namibia, Swaziland) with the South African rand and 2 (Bhutan, Nepal) 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 a specific target).

  • The number of countries targeting a monetary aggregate declined from 26 in April 2013 to 25 in April 2014. 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, 3 countries switched from monetary aggregate targeting to “other monetary framework” (Argentina, Kyrgyz Republic, Zambia) and 1 country to inflation-targeting framework (Uganda). Three countries targeted a monetary aggregate: Ethiopia (previously anchored to the U.S. dollar), Myanmar (previously other monetary policy framework), and Uruguay (previously inflation-targeting framework).

  • The number of countries that directly target inflation remained unchanged at 34. Uruguay switched to using the trajectory of the monetary aggregate M1-plus as a monetary policy reference indicator, and Uganda was categorized as inflation-targeting framework retroactively from July 2011 (previously monetary aggregate target). The countries in this group are mostly middle income but include some advanced economies as well. Of these, 30 have either floating or free-floating exchange rate arrangements, a policy framework that requires considerable monetary policy credibility to make up for the loss of transparent intermediate targets.10 A few countries refer to their monetary framework as “inflation targeting light,” suggesting that they also consider indicators other than inflation. Russia and Uganda are in the transition stage to full-fledged inflation targeting.11

  • Since 2008, the “other monetary policy framework” category has increased from 12 to 43, largely exceeding the 30 percent decline in countries anchored to the U.S. dollar and the 21 percent decline in countries targeting inflation. The number of countries that are not committed to a specific target (the “other” column in Table 2) increased by five in the reporting period. Argentina, Latvia, and Uruguay now report a multiple indicator approach to monetary policy. Myanmar left this group and adopted a monetary aggregate target framework. Vanuatu was categorized retroactively as “other” monetary policy framework after having been classified in previous AREAERs as anchored to a composite. 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. It is also used as a residual classification for countries for which no relevant information is available, and for those with alternative monetary policy frameworks not categorized in this report—for example, the Kyrgyz Republic, which switched to a monetary policy basis with interest rates as the target for developing and implementing 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 or determines whether a classification as a soft peg is appropriate (see the Compilation Guide).12 These assessments draw on information that is publicly available and also on information made available to the IMF through self-reporting, various market reports, significant changes in some members’ foreign exchange reserves, and other sources, including during official staff visits to member countries. This section summarizes developments in foreign exchange interventions since January 1, 2013, some of which are also depicted in Tables 6 and 8.a.

Intervention Purpose

A heterogeneous panorama emerges from official interventions over the past year. In major advanced economies such as Japan and the euro area there was no reported intervention, but increased intervention was observed in smaller advanced economies and in emerging market economies.

After intervening several times in 2011, Japan ceased its official foreign exchange activities in 2012. In contrast, New Zealand responded to heavy appreciation pressure by increasing its foreign exchange purchases during 2013. Israel intervened more than three times in a six-month period, and was no longer classified as free floating beginning in March 2013. The Czech Republic announced in November 2013 its intention to weaken the koruna to keep the exchange rate against the euro close to CZK 27 per euro. This measure aims to reach the inflation target in the face of a near-zero policy rate. Since then, the koruna has traded between 27.0 and 27.7 per euro.

In some countries, exchange rate pressure reflects domestic conditions rather than the global environment. Georgia’s loose fiscal policy in the fourth quarter of 2013 contributed to lari depreciation, prompting the National Bank of Georgia to sell more than US$400 million in reserves. Faced with significant volatility against the backdrop of political protests, Turkey resumed its intraday foreign exchange selling auctions in June 2013 (see Table 8.a) after suspending the regular selling auctions in January 2012 and the intraday auctions in January 2013. In December 2013, the Central Bank of the Republic of Turkey (CBRT) announced the general framework of the monetary and exchange rate policies envisaged for 2014. The CBRT may intervene directly or through flexible auctions in the market in both directions, in case of unhealthy price formation due to speculative behavior stemming from a loss of market depth. In that case, the CBRT may buy or sell foreign exchange at the rates quoted by the banks directly. Leaning the other way, Israel announced in May 2013 a foreign exchange purchase plan (see Table 4) to offset the effect of natural gas production on the exchange rate, estimating total purchases to be about $2.1 billion by the end of 2013 within the framework of this plan.

Intervention Techniques

Turkey’s central bank introduced the reserve option mechanism 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 reserve option mechanism, which largely replaced 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 large foreign exchange auctions in June 2013 when faced with significant volatility.

Russia eliminated its targeted foreign exchange interventions and widened its nonintervention band while reducing the cumulative level of interventions necessary to move the exchange rate corridor, increasing the flexibility of the ruble. During the first quarter of 2014, capital outflows persisted, spurred by expectations of continuing ruble depreciation. The onset of geopolitical tensions raised the ruble pressure considerably, and the Bank of Russia (CBR) sharply increased net intervention, which reached US$26 billion in March, almost matching the US$27 billion in net interventions for all of 2013. Moreover, in response to significant currency pressures in early March, the CBR lowered the flexibility of its foreign exchange rule. It increased more than fourfold, to US$1.5 billion, the cumulative intervention required to move the exchange rate corridor. In June 2014, the CBR, in an attempt to revert back to more flexibility, reduced the intervention threshold to US$1 billion, eliminated the US$100 intervention sub-band, and reduced the amount of interventions in the remaining sub-band from US$300 to US$200. Although the CBR announced that it could determine its foreign exchange policy parameters daily, increasing discretion in its intervention policy, shifts in the bands have so far occurred in accordance with the new rule. Similarly, Guatemala widened the fluctuation margin, triggering interventions from 0.65 percent to 0.70 percent. The Bank of Guatemala may also intervene on a discretionary basis whenever the nominal exchange rate shows unusual volatility.

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 (see the Compilation Guide). 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 guideline for market participants or for accounting and customs valuation purposes, in exchange transactions with the government, and sometimes mandatorily in specific exchange transactions.

During the 2013–14 reporting period, El Salvador joined the group of countries reporting an official exchange rate, while there was no reference exchange rate published by the Bank of Japan. Several countries adopted new methods for calculating their official exchange rates (Burundi, China, Indonesia, the Islamic Republic of Iran, Solomon Islands, Ukraine). Countries from all income levels and various geographic regions are represented among the 22 members that report no official or reference exchange rates; more than half (12) are countries with no separate legal tender; the rest include the 5 with a floating or free-floating de facto exchange rate arrangement and the 6 advanced economies (Japan, Korea, San Marino, Singapore, Switzerland, United States). Among the countries that do not compute an official exchange rate, some publish the market-determined rates on their monetary authority’s website to promote information transparency, including Japan, Peru, and Singapore.

Foreign Exchange Markets

The modernization of foreign exchange market structures continued during 2013 and through July 2014, although there were only minor changes in the reported foreign exchange market structure of members (Table 7). There was a decline in the number of countries with a foreign exchange standing facility (by 2) or with an allocation system (by 4) as foreign exchange markets developed and market-based arrangements increased. Other noteworthy developments include an increase in the number of countries with over-the-counter interbank markets (by 4) and those with interbank markets based on market makers (by 2). The number of countries with a forward foreign exchange market decreased by 2 to 127, the same number as in 2012. Table 8.a includes detailed descriptions of changes concerning foreign exchange market arrangements.

Table 7.Foreign Exchange Market Structure, 2011–141(Number of IMF members as of April 30)
20112201220132014
Spot exchange market186187188188
  Operated by the central bank117115118119
    Foreign exchange standing facility80777675
    Allocation31303127
    Auction26293132
    Fixing5556
  Interbank market157159161161
    Over the counter109115122127
    Brokerage45464950
    Market making73717375
Forward exchange market128127129127
Source: AREAER database.
1

Includes 188 member countries and 3 territories: Aruba and Curaçao and Sint Maarten (all in the Kingdom of the Netherlands) and Hong Kong SAR (China).

2

Does not include South Sudan, which became an IMF member on April 18, 2012.

Table 8.a.Changes in Foreign Exchange Markets, January 1, 2013–July 31, 2014
CountryChangeType
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, successful bidders who fail to settle their account within T+1 day must pay a fine, which was raised to US$20,000 from US$10,000.Tightening
AfghanistanEffective July 11, 2013, successful bidders who fail to settle their account within T+1 day are fined the total cash collateral of Af 1,500,000.Tightening
BoliviaEffective January 2, 2013, 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 at 0.6% (Board Resolution No. 212/2012).Tightening
BoliviaEffective June 11, 2013, direct intraday sales (ventas directas adjudicadas en el día) were introduced as a new mechanism for selling U.S. dollars to the financial and nonfinancial private sector. The Monetary and Exchange Policy Committee established (1) a daily amount of US$30 million for intraday sales, with a minimum bid of US$100,000 and in multiples of US$100,000; and (2) the sales hours as 10:00 a.m. to 12:00 p.m. (Board Resolution No. 063/2013).Neutral
BoliviaEffective June 12, 2013, the nonfinancial private sectors were given access to the bolsín in addition to the financial sector, with a bid of US$120 million and overnight execution (adjudicación al día siguiente).Easing
BurundiEffective March 1, 2013, the Bank of the Republic of Burundi set a fluctuation margin on foreign currency purchases and sales by commercial banks and exchange bureaus of ±1% of the reference rate it publishes each morning. Previously, authorized dealers could set their exchange rates according to the reference rate.Tightening
BurundiEffective April 12, 2013, the Bank of the Republic of Burundi established an interbank foreign exchange market, the Marché Interbancaire des Devises, to replace the Marché des Enchères Symétriques en Devises. To encourage banks to trade currencies and promote the interbank market, the Bank of the Republic of Burundi acted to prevent exchange bureaus from procuring foreign exchange from commercial banks. The new regulations governing the interbank foreign exchange market allow the Bank of the Republic of Burundi to intervene on its own initiative in accordance with market conditions.Easing
BurundiEffective April 12, 2013, the Bank of the Republic of Burundi replaced the Marché des Enchères Symétriques en Devises, which had lost its symmetry. Only the Bank of the Republic of Burundi was intervening in the Marché des Enchères Symétriques en Devises despite the assumption that it was driven by commercial banks, with the Bank of the Republic of Burundi intervening only as a last resort.Easing
ChinaEffective March 17, 2014, the floating band of the renminbi’s (RMB’s) trading prices against the U.S. dollar in the interbank foreign exchange market was widened from 1% to 2%. That is, on each business day, the trading prices of the RMB against the U.S. dollar in the market may fluctuate within a band of ±2% around the central parity released that day by the China Foreign Exchange Trade System. The range of the spread between the highest offer price and the lowest bid price for RMB–U.S. dollar spot transactions at foreign-exchange-designated banks and their customers was widened from 2% to 3% of the central parity.Easing
ChinaEffective March 19, 2014, the interbank foreign exchange market launched direct trading of the renminbi against the New Zealand dollar.Neutral
ChinaEffective July 14, 2014, the People’s Bank of China has allowed banks to set exchange rate quotes to their clients based on supply and demand in the market (PBC No. 2014/188). Previously, the difference between the maximum cash selling prices offered and the minimum cash buying prices of the renminbi against the U.S. dollar could not exceed 4% of the daily middle rate. The difference between the highest spot exchange (cash) selling price and the lowest spot exchange (cash) buying price had to contain the day’s middle rate. Within the official spread range, banks could independently decide the buying and selling prices for spot and cash transactions.Easing
Czech RepublicEffective November 1, 2013, act No 277/2013 Coll., on Foreign Exchange Activities, replaced the provisions of foreign currency exchange activities of Act No. 219/1995 Coll., Foreign Exchange Act.Tightening
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-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, in the interbank foreign exchange 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 February 4, 2013, the restrictions regarding bid-ask spreads were revised as follows: (1) The interbank bid and offer rates may vary between ±1 piastre (one piastre is 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 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 as follows: (1) staple commodities (tea, meat, poultry, fish, wheat, oil, milk powder and infant milk, beans, lentils, butter, corn); (2) capital goods spare parts; (3) intermediate production components and raw materials; and (4) pharmaceuticals and vaccines.Neutral
EgyptEffective May 22, 2013, the Central Bank of Egypt announced and held an exceptional auction for the sale of US$800 million. Banks were required to apply with the amount of their clients’ outstanding import needs as follows: (1) staple commodities (tea, meat, poultry, fish, wheat, oil, milk powder and infant milk, beans, lentils, butter, corn); (2) capital goods spare parts; (3) intermediate production components and raw materials; and (4) pharmaceuticals and vaccines.Neutral
EgyptEffective September 4, 2013, the Central Bank of Egypt announced and held an exceptional auction for the sale of US$1.3 billion. Banks were required to apply with the amount of their clients’ outstanding import needs as follows: (1) staple commodities (tea, meat, poultry, fish, wheat, oil, milk powder and infant milk, beans, lentils, butter, corn); (2) capital goods spare parts; (3) intermediate production components and raw materials; and (4) pharmaceuticals and vaccines.Neutral
EgyptEffective December 18, 2013, banks were instructed by the Central Bank of Egypt to reduce the bid-ask spread on non-U.S. dollar currencies to levels, in line with the spread for the U.S. dollar.Tightening
EgyptEffective January 27, 2014, the Central Bank of Egypt offered about US$1.5 billion to the market at its fourth exceptional auction.Neutral
EgyptEffective May 14, 2014, the Central Bank of Egypt offered about US$1.1 billion to the market at its fifth exceptional auction, where banks were required to apply with the amounts of their clients’ entire outstanding staple food commodities import needs.Neutral
GhanaEffective February 4, 2014, foreign exchange bureaus may not sell or buy more than US$10,000 or its equivalent a transaction (BG/GOV/SEC/2014/01).Tightening
GhanaEffective February 4, 2014, offshore foreign exchange deals by resident and nonresident companies, including exporters and nonresident banks, are strictly prohibited (BG/GOV/SEC/2014/03).Tightening
GuatemalaEffective January 1, 2014, the fluctuation margin (added to or subtracted from the five-day moving average of the reference exchange rate) that determines whether the Bank of Guatemala (BOG) may intervene in the exchange market was increased from ±0.65% to ±0.70%. The BOG may intervene if the reference rate reaches or exceeds these limits around the moving average of the reference rates for the previous five business days, pursuant to Monetary Board Resolution No. JM-121-2013.Easing
GuineaEffective December 26, 2013, the central bank sets the weekly auction market rate as the reference rate every Thursday.Neutral
HondurasEffective July 4, 2013, the Central bank of Honduras maintains an operational band requiring all bid prices for purchases of foreign exchange to be within a range of 7% above or below the base price, with a requirement that auction bids not exceed 1% of the average base price (previously 0.075% of the average reference exchange rate) derived from auctions during the preceding seven business days (Resolution No. 271-7/2013 of July 3, 2013).Easing
IraqEffective February 17, 2013, authorized banks’ spreads were capped at ID 10 per U.S. dollar over the exchange rate at which banks may buy foreign exchange at the Central Bank of Iraq currency selling window.Tightening
IraqEffective April 15, 2013, banks may buy foreign exchange up to US$500,000 for import payments provided the bank submits to the Central Bank of Iraq a statement of the amounts to be transferred together with the documents that prove the entry of the goods in Iraq. The exchange rate for such payments may not exceed ID 1,179 per U.S. dollar.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
IraqEffective February 16, 2014, the total amount sold monthly to a bank (for their direct sales window and sales to financial transfer and intermediary companies for buying and selling foreign exchange) may not exceed 25% of its capital, calculated in U.S. dollars, for banks with capital less than ID 250 billion. Demand from banks with capital greater than ID 250 billion is met. U.S. dollars sold for documentary credits are transferred according to payment conditions after the bank confirms the receipt of the required documents.Easing
JordanEffective January 16, 2013, a Cabinet decision increased the paid-up capital requirement of foreign exchange bureaus (money exchange companies), and the Central Bank of Jordan announced compliance procedures for the higher capital requirements.Tightening
KoreaEffective January 1, 2013, the limits on banks’ foreign exchange derivatives contracts were reduced from 40% to 30% of bank capital (for domestic banks) and from 200% to 150% (for foreign bank branches).Tightening
KoreaEffective January 1, 2014, spot foreign exchange transactions are allowed between security brokerages.Easing
Kyrgyz RepublicEffective April 26, 2013, per the Law of the Kyrgyz Republic of April 26, 2013, on Amendments and Additions to Certain Kyrgyz Republic Legislative Acts, and to the Law on Transactions in Foreign Currency, credit unions, specialized financial and credit institutions, and microfinance and microcredit companies were authorized to perform professional foreign currency transactions with individuals and legal entities.Easing
LatviaEffective January 1, 2014, the Bank of Latvia’s foreign exchange standing facility ceased to exist with Latvia’s adoption of the euro.Neutral
LebanonEffective June 30, 2013, the Banque du Liban 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 money dealers whose capital was raised to LBP 500 million may deal in cash and traveler’s checks up to the equivalent of US$10,000, uncollected traveler’s checks, and gold bars not exceeding 1,000 grams. Category B money dealers established before December 7, 2011, may opt to raise their capital to LBP 500 million in order to expand their operations to include the above (BDL Basic Circular No. 4).Tightening
LebanonEffective September 20, 2013, only money dealers with capital greater than US$ 500,000 may make hawala transactions. The maximum amount of each hawala transaction (inward or outward) is US$20,000. The total amount of hawala transactions a year may not exceed 10 times the capital of the money dealer (BDL Basic Circular No. 111, as amended).Tightening
LiberiaEffective September 11, 2013, the Central Bank of Liberia closed the noncompetitive window for foreign exchange bureaus and requires all businesses to participate through the regular auction.Neutral
FYR MacedoniaEffective March 11, 2014, the National Bank of the Republic of Macedonia Council adopted the Decision on Amendments of the Decision on Currency Exchange Operations. A principal amendment is cancellation of repurchases. Foreign exchange bureaus may now sell foreign currency cash to foreign natural persons in the same way as to domestic natural persons. In addition, foreign exchange operations were modernized through introduction of ATMs with a foreign exchange operations function for banks.Easing
MalaysiaEffective June 30, 2013, residents may undertake anticipatory hedging involving ringgit for financial account transactions with licensed onshore banks, except licensed International Islamic Banks. Nonresidents may (1) undertake anticipatory hedging involving ringgit for current account transactions with licensed onshore banks, except licensed International Islamic Banks; and (2) hedge ringgit exposure arising from investments acquired prior to April 1, 2005 with licensed onshore banks, except licensed International Islamic Banks.Easing
MauritaniaEffective November 14, 2013, the ouguiya equivalent of the cumulative bids submitted by banks at an exchange market session may not exceed their free reserves (previously 130% of their free reserves) in ouguiyas at the previous day’s close. All bids that exceed the limit are automatically rejected.Tightening
MexicoEffective April 8, 2013, the auctions were suspended because the conditions of national and international financial markets indicated that the volatility of the exchange rate had decreased.Neutral
MoldovaEffective March 1, 2013, the National Bank of Moldova launched interbank foreign exchange auctions (in the form of multiple price auctions) for purchases and sales of foreign currency against lei with licensed banks through a unique trading platform (based on Bloomberg).Neutral
MoldovaEffective September 14, 2013, resident investment firms were allowed to perform foreign exchange buying and selling transactions related to the provision of investment services.Easing
MoldovaEffective September 14, 2013, the Law on Payment Services and Electronic Money and Law on Capital Market went into effect allowing resident nonbank payment service providers and electronic money institutions to perform foreign exchange buying and selling operations related to the issuance of electronic money and the provision of payment services.Easing
MoroccoEffective June 26, 2013, rules governing the establishment of foreign exchange counters by licensed intermediary banks on sea ferries operating between Morocco and other countries were liberalized. Banks (1) may bring aboard the ferry, under customs control, a stock of dirham banknotes for each crossing; and (2) must limit such transactions to the purchase of foreign banknotes against dirhams from Moroccan citizens and foreign residents or nonresidents traveling to Morocco. For this purpose, the bank must execute with customs a dirham export declaration at the time of the ferry’s departure.Easing
MoroccoEffective August 30, 2013, nonresident individuals (foreigners and Moroccans residing abroad) are not required to show a foreign currency receipt when reselling surplus dirhams up to DH 2000 to foreign exchange bureaus, funds transfer intermediation companies, and authorized intermediary banks at ports and airports.Easing
MyanmarEffective August 5, 2013, authorized private banks participate in the interbank foreign exchange market, which commenced operations on August 5, 2013. Thus far, 21 banks have accessed the interbank market.Easing
NigeriaEffective October 2, 2013, the wDAS was replaced by the rDAS due to an increase in non-import-related demand for U.S. dollars, which was considered to be associated with money laundering activities. Foreign exchange is sold through the rDAS twice a week.Tightening
PakistanEffective February 12, 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
PeruEffective January 23, 2013, transactions in the foreign exchange market by private pension funds–Administradoras Privadas de Fondos de Pensiones–may not exceed a daily limit of 0.75% (previously 0.85%) of the value of the fund and of 1.75% (previously 1.95%) for the preceding five days (Superintendence of Banks, Insurance Companies, and Pension Funds Resolution No. 561-2013).Tightening
South AfricaEffective July 22, 2013, ADs in foreign exchange with limited authority are classified as follows: Category one–authorized to operate as a bureau de change; Category two–authorized to operate as a bureau de change and offer money remittance services in partnership with external money transfer operators; and Category three–authorized to operate as an independent money transfer operator. During the lifetime of its operations, an AD in foreign exchange with limited authority must maintain a minimum unimpaired capital fund in a savings/investment type bank account in foreign exchange separate from its own or its clients’ funds as follows: Category one: R 2 million; Category two: R 3 million; Category three: R 5 million.Neutral
Sri LankaEffective January 2, 2013, the 90-day limit on the maturity of forward foreign exchange contracts was eliminated.Easing
Trinidad and TobagoEffective May 23, 2014, authorized dealers were allowed to resell foreign exchange proceeds obtained from a competitive auction up to a maximum price equal to their successful bidding rates. Previously, a cap determined with relation to the latest allocation exchange rate applied on the exchange rate at which banks could sell foreign exchange purchased at the auction to their clients.Easing
TunisiaEffective March 1, 2014, an electronic bank interlinking platform and a market-making agreement are in place.Neutral
TurkeyEffective January 2, 2013, intraday foreign exchange selling 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 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 CB 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 Central Bank of the Republic of Turkey 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 the 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 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 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 on which funding is provided from the policy rate, and the auction amount is set to a of 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 was limited to 10% (previously 20%) of the total auction amount.Neutral
TurkeyEffective July 24, 2013, foreign exchange selling auctions were suspended on additional monetary tightening days.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
TurkeyEffective August 21, 2013, the minimum amount for the foreign exchange selling auctions was changed from US$50 million to US$100 million.Neutral
TurkeyEffective August 22, 2013, the daily minimum sale amount for the foreign exchange selling auctions began to be announced at 10:30 a.m.Neutral
TurkeyEffective September 20, 2013, the intraday foreign exchange selling auction amount was changed to minimum US$20 million.Neutral
TurkeyEffective December 11, 2013, the intraday foreign exchange selling auction amount was changed from US$20 million to at least US$50 million.Neutral
TurkeyEffective December 20, 2013, the Central Bank of the Republic of Turkey announced that on days when excessive volatility in the exchange rates is observed, the foreign currency sales amount may be raised up to 10 times the announced minimum amount.Neutral
TurkeyEffective December 24, 2013, the Central Bank of the Republic of Turkey announced that the planned minimum foreign exchange selling auction amount would be US$450 million every day for the rest of December 2013 and US$100 million every day in January 2014.Neutral
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
UkraineEffective April 29, 2014, non-trade-related international transfers in foreign exchange by individuals were limited to HRV 150,000 a month from foreign exchange accounts and to HRV 15,000 otherwise with certain exceptions, including for medical and educational expenses.Tightening
UkraineEffective April 29, 2014, the daily limit on individuals’ foreign currency cash purchases was reduced from HRV 150,000 to HRV 15,000.Tightening
UkraineEffective June 1, 2014, the registration of exchange offices by the regional offices of the NBU was discontinued.Tightening
UzbekistanEffective February 1, 2013, foreign exchange operations with residents must take place through conversion operations departments in authorized 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 payment card.Tightening
VenezuelaEffective March 25, 2013, the Central Bank of Venezuela launched the first foreign currency auction with a first offer of US$200 million through the Complementary System to the Administration of Foreign Exchange.Neutral
VenezuelaEffective January 1, 2014, petróleos de Venezuela, S.A. oil export revenues are sold to the Central Bank of Venezuela at the National Foreign Exchange Administration Commission rate of Bs 6.3 per U.S. dollar; all non-export revenues from Petróleos de Venezuela, S.A., its branches, and joint ventures may be sold at the Complementary System to the Administration of Foreign Exchange rate, minus 0.25%.Tightening
Source: AREAER database.

Foreign Exchange Standing Facilities, Auctions, Allocations, and Fixing

More than half of IMF member countries (119) report maintaining some type of official facility by the central bank in the spot foreign exchange market, an increase of 1 from the previous year. Mauritius introduced interventions on both an auction basis and at fixed rates, while Burundi discontinued its use of official foreign exchange auctions during the reporting period.

  • Foreign exchange standing facilities. Almost two-thirds of members with foreign exchange markets fully or partially operated by the central bank reported maintaining a foreign exchange standing facility (75), a reduction of 2 that continues a downward trend that started in 2011. 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. The countries with foreign exchange standing facilities include all those with currency boards (12); conventional pegs, with the exception of South Sudan (43); crawling pegs (2); or a pegged exchange rate within horizontal bands (1). 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 16 countries with foreign exchange standing facilities are those with stabilized arrangements (9), with other managed arrangements (5), or whose foreign exchange markets are less developed. Bolivia reported a foreign exchange standing facility in which market participants may buy foreign currency at the central bank, but only private financial institutions may sell it. Bolivia is experiencing a rising real effective exchange rate in the face of large public investment and relatively high inflation, so this facility helps support its management of foreign exchange liquidity and its maintenance of the sliding rate of the official crawling peg exchange rate regime, which was set at zero to prevent misalignment of the real exchange rate with its long-term trend. Two countries reported the elimination of their foreign exchange standing facilities: Latvia, after it joined the EMU, and Malawi.

  • Foreign exchange auctions. The changes to auctions were overwhelmingly toward easing across the membership during the reporting period. There was an increase (by 1) in the number of countries holding official foreign exchange auctions (32). In a significant majority of those countries (26) foreign exchange auctions are the only mechanism operated by central banks. Half (16) have exchange rate regimes classified as floating; among these, more than half (9) hold foreign exchange auctions, and 6 of those 9 have de facto stabilized arrangements. Auctions are also used to influence the exchange rate rather than solely to manage foreign reserves. For example, Mexico suspended its auctions when exchange rate volatility diminished with changing national and international financial market conditions. For similar reasons, Turkey held foreign exchange selling auctions to support short-term additional monetary tightening. These auctions were used to slow the depreciation of the lira after Turkey’s heavy reliance on short-term capital inflows became apparent when global demand for emerging market assets fell markedly when the Federal Reserve signaled it would take steps to normalize monetary policy. In response, Turkey suspended the intraday foreign exchange auctions in January 2013, following a year without such intervention. It reinstated the mechanism in June 2013, a time of significant volatility, and changed the auction rules and daily limits several times during the reporting period to improve its capacity to intervene in the foreign exchange market. Similarly, Moldova launched two-way multiple-price foreign exchange auctions, and Venezuela introduced foreign exchange auctions to expand the mechanisms its central bank already had in place (foreign exchange standing facility and allocation system). Bolivia gave the nonfinancial private sector access to the daily competitive foreign exchange auction, and Burundi discontinued the Marché des Enchères Symmétriques en Devises, a platform the central bank used to hold foreign exchange auctions as part of an effort to revamp its foreign exchange market. Afghanistan increased the auction settlement period (easing) but twice increased the penalty for bidders’ failure to settle accounts within the prescribed time frame (tightening). Trinidad and Tobago relaxed the rules for resale of foreign exchange obtained from auctions.

  • Foreign exchange allocation systems. The composition of countries with allocation systems changed, and their number decreased by 4 to 27. Most of the countries (21) 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. Given South Sudan’s 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. It currently provides foreign exchange only for public services, such as medical, travel, and study needs, and these are subject to weekly or currency-specific limits. In addition, a special foreign exchange facility applies to essential imports. Nepal and Iraq joined the group of countries with allocation systems, but the Bank of Central African States (Cameroon, Central African Republic, Chad, Republic of Congo, Equatorial Guinea, Gabon) no longer reports exchanging CFA francs for euros at the official exchange rate or, in the case of other currencies, at the fixed CFA franc–euro and euro cross-rate against those currencies. During the reporting period, Iraq introduced 2 tightening and 1 easing measure with respect to banks’ purchases of foreign exchange at the Central Bank of Iraq currency selling window. These measures reflected the authorities’ twin goals of liberalizing the foreign exchange market over the medium term on the one hand and fully implementing anti-money-laundering and combating the financing of terrorism measures on the other.

  • Fixing sessions. 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. The number of countries holding such sessions increased by 1 to 6, but only Belarus and Mauritania continue to do so 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 the Islamic Republic of Iran indicated that it held fixing sessions during the reporting period, the extent and regularity of such operations are unknown.

Interbank and Retail Foreign Exchange Markets

There has been no change in the number of countries (161) that reported a functioning interbank market. The main types of interbank markets in these countries include over-the-counter markets, brokerage arrangements, and market-making arrangements. Thirty-five members allow operation of all three types of systems. Of the 161 countries with a functioning interbank market, more than two-thirds (127), 5 more than in the previous year, operate over the counter: 64 of those operate exclusively over the counter; 75 employ a market-making arrangement; and 50 allow for intermediation by brokers. Six members reported an inactive interbank market, the same number as in the previous reporting period. The Democratic Republic of the Congo left and the Solomon Islands joined this group.

  • Over-the-counter operations. These account for the majority of interbank markets (126) because in a number of economies, particularly small economies, market participants cannot undertake the commitments involved in being 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. Morocco liberalized the establishment of over-the-counter operations on ferries, allowing licensed banks to purchase foreign exchange against dirhams from travelers to Morocco. Over-the-counter foreign exchange markets also operate in developed economies, where the market is sufficiently liquid to operate without the support of specific arrangements or institutions.

  • Brokerage arrangements. Fifty members reported using brokers (including Korea and Singapore), 1 more than in the previous period. Italy now reports broker participation in the foreign exchange market. During the reporting period, Korea allowed spot foreign exchange transactions between security brokerages.

  • Market-making agreements. Seventy-five members reported using market-making agreements in the interbank market, an increase of 2. This form of market arrangement is used both in developed economies (including Switzerland) and developing economies (including Zambia) and across all types of exchange rate arrangements.

More than two-thirds of member countries report a framework for the operation of foreign exchange bureaus, with the majority imposing some type of licensing requirement. However, there are no bureaus in operation in a number of these countries. Several changes, which were overwhelmingly toward tightening, affected exchange bureaus during the reporting period. The Bank of the Republic of Burundi set a fluctuation margin on foreign currency transactions of ±1 percent of its reference rate and acted to prevent exchange bureaus from procuring foreign exchange from commercial banks to promote the interbank market. The Czech Republic introduced customer protection measures in relation to foreign exchange activities. Ghana imposed a per-transaction limit on foreign exchange bureau transactions, and Jordan and Lebanon increased money dealers’ capitalization requirements. As part of a comprehensive program to stabilize the domestic financial system, Ukraine implemented a series of tightening measures: it decreased the limits on non-trade-related international transfers in foreign exchange by individuals and on daily foreign currency cash purchases; imposed additional identification restrictions, requiring physical identification of individuals for transactions exceeding HRV 50,000; and discontinued required registration of exchange offices by the regional offices of the National Bank of Ukraine. Uzbekistan now seeks to encourage the use of payment cards with a view to modernizing and enhancing the monitoring of foreign exchange operations, by requiring that conversion by residents of sum to foreign exchange 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. In contrast, the former Yugoslav Republic of Macedonia further liberalized the operations of exchange bureaus by cancelling repurchases and unifying the conditions for selling foreign exchange to residents and nonresidents. Morocco eased the documentation requirements for nonresidents when they resell surplus dirhams.

A series of easing measures were introduced in a number of member countries that expanded the scope of operation of financial intermediaries. The Kyrgyz Republic authorized credit unions, specialized financial and credit institutions, and microfinance and microcredit companies to perform professional foreign currency transactions with individuals and legal entities. Moldova allowed resident nonbank payment service providers and electronic money institutions to perform foreign exchange buying and selling operations related to the issuance of electronic money and the provision of payment services. Myanmar authorized private banks to participate in the newly established interbank foreign exchange market. In contrast, Ghana strictly prohibited offshore foreign exchange deals by resident and nonresident companies, including exporters and nonresident banks, to reduce foreign exchange market pressure by enhancing the repatriation of foreign exchange earnings and the use of the domestic currency.

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 categories A and B) spreads between the buying and selling rates of foreign currencies to 25 paisas. Iraq capped authorized banks’ spreads at ID 10 per U.S. dollar over the exchange rate at which they may buy foreign exchange at the Central Bank of Iraq currency selling window. Egypt progressively tightened the limits on bid-ask spreads in the interbank and spot markets. On the easing side, China raised the bid-ask spread for renminbi–U.S. dollar spot and interbank transactions and allowed banks to base their exchange rate quotes on supply and demand in the market.

Among the countries reporting controls on interbank foreign exchange pricing are Botswana, China, Haiti, the former Yugoslav Republic of Macedonia, Nigeria, Tanzania, and Zambia. During the reporting period, Egypt tightened the interbank bid-ask spread to ±1 piastre around the weighted average of the latest auction held by the Central Bank of Egypt; at the same time, an insufficient supply of foreign exchange at the daily exchange rate fixed by the central bank contributed to the development of a parallel foreign exchange market. Many of the spread limits are agreed upon 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 but may also be found in countries with floating exchange rate arrangements.

There were several other developments in currency pricing. China further widened the interbank renminbi–U.S. dollar trading fluctuation band from ±1 percent to ±2 percent around the central parity released on the same day by the China Foreign Exchange Trade System. 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 forward and swap operations (Table 8.a), exchange rate structure (Table 8.b), and taxes and subsidies on foreign exchange transactions (Table 8.c).

  • Forward and swap operations. There was continued easing of forward transactions. Sri Lanka eliminated the 90-day limit on the maturity of forward foreign exchange contracts. Malaysia allowed residents to undertake anticipatory hedging involving ringgit for financial account transactions and allowed nonresidents to do so for current account transactions with licensed onshore banks, except licensed international Islamic banks. In contrast, to decrease banks’ heavy reliance on short-term foreign funding, Korea reduced the limit on foreign exchange derivatives contracts from 40 percent to 30 percent of bank capital for domestic banks and from 200 percent to 150 percent for foreign bank branches. Algeria did not report having a forward exchange market.

  • Exchange rate structure. There were several changes in the number of countries maintaining a dual or multiple exchange rate structure (see Table 8.b). Currently, 22 countries are classified as having more than one exchange rate, of which 16 are dual and 6 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. Madagascar’s exchange rate structure was changed back to unitary from dual after the suspension of a preferential exchange rate for oil importers. Georgia also eliminated its multiple currency practice through unification of the government–central bank and market rates. Myanmar abolished the use of foreign exchange certificates as part of its plan to remove its multiple exchange rate structure. In contrast, Sudan and Venezuela implemented tightening measures. Finally, a series of neutral changes were recorded: Latvia adopted the euro; the government of Zambia rebased the kwacha by removing three zeros; and Venezuela took several steps to improve its multiple exchange rate structure.

  • Taxes and subsidies on foreign exchange transactions. There were more than twice as many tightening (7) as easing (3) changes with respect to foreign exchange subsidies and taxes (see Table 8.c). Overall, 32 emerging market and developing economies (the same as the previous year) tax foreign exchange transactions. Bolivia introduced a foreign exchange tax of 0.7 percent on a temporary basis for 36 months and doubled the taxable base of exchange bureaus’ foreign currency sales. The measure is intended to increase tax revenues, further the dedollarization process, and contain the profitability of the private financial sector. Palau imposed a 4 percent tax on remittance outflows by foreign workers, which was also aimed at increasing public revenues as well as enhancing anti-money-laundering and combating the financing of terrorism efforts. Ukraine levied a 0.5 percent foreign exchange tax on all cash and noncash foreign exchange purchases (net of transaction fees) by residents and nonresidents for the two-part objective of increasing tax revenues and discouraging capital outflows during a time of political and economic turbulence. In response to changes in capital inflows, Brazil continued to take steps that ease the taxing of foreign-exchange-related transactions. At the same time, the tax was increased on expenditures and ATM withdrawals abroad using credit cards, operations abroad with debit cards and traveler’s checks, and foreign exchange operations related to prepaid cards, providing a disincentive for spending abroad. In contrast to the broad use of foreign exchange taxes, only 2 countries have foreign exchange subsidies in place, Serbia where the subsidies target certain agricultural and food exports and the Islamic Republic of Iran. Sudan discontinued its foreign exchange subsidies during the reporting period.

Table 8.b.Changes in Currency and Exchange Rate Structures, January 1, 2013–July 31, 2014
CountryChangeType
GeorgiaEffective March 15, 2013, an amendment was introduced to the 2010 agreement between the National Bank of Georgia (NBG) and Treasury Service of the Ministry of Finance on the Participation in the Real Time Gross Settlement System, which eliminates Georgia’s multiple currency practice. The 2013 amendment ensures that foreign exchange transactions between the government and the NBG are priced at the market exchange rate of the day when the foreign exchange order is submitted to the NBG.Easing
LatviaEffective January 1, 2014, the currency of Latvia changed from the Latvian lats to the euro when Latvia joined the European Economic and Monetary Union.Neutral
MadagascarEffective July 19, 2013, the preferential exchange rate previously introduced for oil importers (MGA 2,000 per U.S. dollar) was suspended.Neutral
MyanmarEffective April 1, 2013, with the aim of eliminating multiple currency practices, a plan to redeem foreign exchange certificates was announced to the public on March 21, 2013, and the process for their redemption was established April 1, 2013. Foreign exchange certificates were used for payments until June 30, 2013.Neutral
MyanmarEffective March 31, 2014, the process for redemption of foreign exchange certificates was successfully completed.Easing
SudanEffective September 24, 2013, the Central Bank of Sudan (CBOS) modified Sudan’s multiple exchange rate regime adopted June 24, 2012, to include (1) a central rate of SDG 5.68 per U.S. dollar (previously SDG 4.42) that also applies to fuel imports, payment of government obligations, and customs valuation; (2) a gold exchange rate used by the CBOS in its gold transactions; and (3) a managed floating rate (MFR) used mainly by the commercial banks and exchange bureaus. The MFR applies to all other transactions and has two components: (1) an indicative rate; and (2) a flexibility factor that allows banks to deviate from the average of the indicative rate and the incentive by ±4%.Neutral
SudanEffective September 24, 2013, the variable incentive premium set by the CBOS of 15% from the average of the indicative rate was eliminated.Tightening
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 determined by the central bank, which identifies the industrial sectors authorized to bid for the foreign currencies offered at a particular auction. It is restricted to importers selling food, medicine, and other basic goods.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
ZimbabweEffective January 30, 2014, the Reserve Bank of Zimbabwe announced the adoption of four additional official currencies: the Australian dollar, Chinese renminbi, Indian rupee, and Japanese yen.Neutral
Source: AREAER database.
Table 8.c.Changes in Exchange Subsidies and Exchange Taxes, January 1, 2013–July 31, 2014
CountryChangeType
BoliviaEffective January 1, 2013, law No. 291 of September 22, 2012, imposed a tax on the sale of foreign currency (Impuesto a la Venta de Moneda Extranjera) for a period of three years (until September 2015).Tightening
BoliviaEffective August 26, 2013, the Impuesto a la Venta de Moneda Extranjera (IMVE) rate for exchange bureaus was equalized with that of financial institutions, 0.70% on foreign exchange sales. The tax base is the sum of all foreign currency sales transactions expressed in local currency. Previously, the taxable base was only 50% of exchange bureaus’ foreign currency sales. The sale of foreign currency by the Central Bank of Bolivia and by taxpayers to the Central Bank of Bolivia is exempt from the IMVE.Tightening
BrazilEffective June 4, 2013, the financial operations tax (Imposto sobre Operações Financeiras [IOF]) was reduced to zero on nonresidents’ fixed-income instruments, and the derivative margin deposit was reduced to zero (previously 6%).Easing
BrazilEffective June 13, 2013, the IOF was reduced to zero on foreign exchange derivative transactions (previously 1%).Easing
BrazilEffective December 24, 2013, the IOF was reduced to zero (previously 1.5%) on trades linked to overseas depository receipts issued by Brazilian companies.Easing
BrazilEffective December 27, 2013, the IOF was increased to 6.38% on expenditures and ATM withdrawals abroad using credit cards, operations with debit cards and traveler’s checks cashed abroad, and foreign exchange operations related to prepaid cards.Tightening
BrazilEffective June 4, 2014, the maximum maturity of external loans subject to 6% IOF rate was reduced from 360 days to 180 days.Easing
PalauEffective November 1, 2013, remittance outflows by foreign workers working in Palau are subject to a 4% tax.Tightening
SudanEffective September 23, 2013, exchange subsidies for fuel imports were discontinued.Easing
SudanEffective September 23, 2013, a SDG 2.9 per U.S. dollar subsidized rate for wheat was eliminated.Easing
UkraineEffective April 1, 2014, the law on Mandatory Pension Insurance Tax imposed a 0.5% foreign exchange transaction tax in order to replenish the state pension fund. The tax applies to all cash and noncash foreign exchange purchases (net of transactions fees) by residents and nonresidents in Ukraine. Banks must accrue, withhold, and remit to the Special Fund of the State Budget the proceeds of the tax. Banks must also report monthly to the National Bank of Ukraine the amount of accrued/withheld foreign exchange transaction tax.Tightening
Source: AREAER database.Note: Includes changes from January 1, 2013, through July 31, 2014.

Member Countries’ Obligations and Status under Articles VIII and XIV

This section provides an overview of the status of IMF members’ acceptance of the obligations of Article VIII, Sections 2(a), 3, and 4, of the IMF’s Articles of Agreement and of the use of the transitional arrangements of Article XIV. It also describes recent developments in 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 or international security reasons. This section refers to changes in restrictive exchange measures in 2013 and to members’ positions as reported in the latest IMF staff reports as of December 31, 2013.13

Of 188 members of the IMF, 168 have accepted Article VIII status (Figure 1). 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, except with IMF approval. Following the period of increased acceptance in the first half of the 2000s, the share of Article VIII members has remained flat at about 90 percent of total members in recent years. The most recent acceptance by a member of Article VIII obligations was in 2011. The number of Article VIII members with restrictive exchange measures decreased by 1 to 31 in 2013.14

Figure 1.IMF Members That Have Accepted the Obligations of Article VIII, Sections 2(a), 3, and 4, 1945–20131

Source: AREAER database.

The latest IMF staff reports indicate that many members with Article XIV status maintain restrictions subject to IMF jurisdiction under Article VIII.15 Among the members with Article XIV status, 3 countries maintain no explicitly identified restrictions. Two countries maintain both Article XIV exchange measures and Article VIII restrictions. The exchange arrangements for Albania, South Sudan, and Tuvalu are under IMF staff review, and that of Somalia will be reviewed in due course. The remaining countries maintain exchange measures under Article VIII only.

Restrictive Exchange Measures

Exchange restrictions and multiple currency practices

The overall number of restrictive exchange measures continued to increase among Article VIII members, while the number remained unchanged among Article XIV members (Table 9). The total number of exchange restrictions or MCPs increased by 8, to 57, among Article VIII countries as a result of 13 newly introduced or identified measures (8 exchange restrictions and 5 MCPs) and 5 eliminations (2 exchange restrictions and 3 MCPs). Several restrictive measures were identified for Belarus, Cyprus, Sudan, and Zambia, reflecting the countries’ responses to a balance of payments crisis and improved reporting by member countries. Among Article XIV members, an equal number introduced and eliminated restrictive measures (6 exchange restrictions and 2 MCPs). In particular, Myanmar eliminated almost all previously identified restrictions (5 exchange restrictions and 2 MCPs) and replaced them with 2 exchange restrictions and 2 MCPs targeting more specific types of transactions, which effectively liberalized the system.

The composition of members maintaining exchange restrictions or MCPs has changed only slightly. In 2013, Cyprus introduced 3 exchange restrictions. Georgia and Hungary eliminated MCPs, so their exchange arrangements are now free of restrictions. In the other countries previously identified as having restrictions, some measures continue to give rise to exchange restrictions or MCPs subject to IMF jurisdiction, and additional measures were introduced (for example, in Iraq and Sudan) or partially eliminated (for example, in Colombia). The stable number of Article VIII members and an increased number of restrictions implemented by them led to a rise in the average number of measures to 2.5 a member country in 2013. Article XIV members still maintain a greater number of restrictive measures, on average, than Article VIII members, but the difference narrowed marginally.

The use of restrictions on payments for current invisible transactions increased noticeably in 2013. Four of the new measures are attributable to Iraq, which limited the availability of foreign exchange for firms, individuals, banks, money transfer companies, and money exchange bureaus. In other countries (Myanmar, Sudan, Zambia), a tax certification requirement for transfers of investment income and profits was found to give rise to exchange restrictions, because such measures limit the availability of foreign exchange for current account transactions based on noncompliance with obligations unrelated to the proposed transaction. Cyprus imposed limits on nonresident transfers of recently acquired net income from current international transactions and investment income. Colombia phased out a tax on outward remittances of nonresident profits earned before 2007.

Other types of newly identified exchange restrictions include limits on payments for certain import activities (Belarus, Cyprus) and on remittances abroad (Cyprus, Myanmar) and allocation of foreign exchange to certain priority items (Sudan). Exchange restrictions eliminated in 2013–all in Myanmar–include advance import deposit requirements, margin requirements, general restrictions on the availability and use of foreign exchange and on payments and transfers related to invisibles, taxes on exchange transactions, and payments for invisibles.

A majority of new MCPs arise from official action that can give rise to potential or actual differentials between exchange rates used in different exchange markets or required for certain official transactions. These practices can arise when there is no mechanism in place to prevent a deviation of more than 2 percent between auction and interbank rates (Belarus), official and commercial rates (Belarus, Sudan), or public and parallel market rates (Myanmar, Sudan), when official actions cause such deviations. Georgia eliminated an MCP arising from the lagged calculation of the official rate that is used for foreign exchange transactions between the government and the central bank. Hungary eliminated its MCP by discontinuing the program of foreign exchange sale tenders. Other changes in exchange measures giving rise to MCPs are an exchange tax (Colombia, eliminated in 2013) and a multiple-price auction (Myanmar, introduced in 2013). Multiple-price auctions are often implemented until a well-functioning interbank market develops.

Table 10 describes restrictive exchange measures by members as indicated in the latest IMF staff reports as of December 31, 2013. Excluded from Table 10 are member countries that have not consented to publication of such measures described in unpublished IMF staff reports.

Exchange measures maintained for security reasons

Some member countries impose measures solely for national or international security reasons, which can give rise to exchange restrictions under IMF jurisdiction. These restrictions, like others, require prior IMF approval under Article VIII, Section 2(a). However, because the IMF does not provide a suitable forum for discussion of the political and military considerations leading to measures of this kind, it established a special procedure for such measures to be notified and approved.16 In total, 12 members notified the IMF of measures introduced solely for security reasons during 2013, while 9 members did so during January–May 2014. 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.

Table 9.Exchange Restrictions and Multiple Currency Practices, January 1–December 31, 2013
Member under
Article XIV StatusArticle VIII StatusTotal
201120122013201120122013201120122013
Total number of restrictions and multiple currency practices maintained by members152545443495795103111
Restrictions on payments for imports464235699
  Advance import deposit and margin requirements2111131
  Restrictions on advance payments122122
  Requirement to balance imports with export earnings111111
  Restrictive rules on the issuance of import permits111111
  Tax clearance requirements111111
  Other1112113
Restrictions on payments for invisibles161519668222127
  Education111111
  Medical services111111
  Travel services43311543
  Income on investment889557131316
    Tax clearance requirement223113336
    Exchange tax on profits1111
    Interest on deposits and bonds111222333
    Profits and dividends333112445
    Foreign exchange balancing for profit remittances111111
    Clearance of debts to government to remit profits111111
  Other2251226
Restrictions on amortization on external loans111133244
Restrictions on unrequited transfers434112546
  Wages and salaries11111212
  Clearance of debt to government to remit wages111111
  Family remittances11
  Other222222
Nonresident accounts222222444
  Transferability of frozen or blocked deposits111222333
  Limits on use of foreign currency accounts111111
Restrictions arising from bilateral or regional payment, barter, or clearing arrangements: Unsettled debit balances333444777
Restrictions with general applicability81079910171917
  Administered allocations, rationing, and undue delay453334787
  Payments above a threshold111111
  Tax clearance certificates111111
  Exchange taxes111333444
  Surrender of export earnings to have access to foreign exchange00111111
  Other232111343
Multiple currency practices141414182123323537
  Exchange taxes44411554
  Exchange subsidies111111
  Multiple-price auctions223222445
  Differentials between official, commercial, and parallel rates776111417182123
  Margin requirements111111
  Non-interest-bearing blocked accounts111111
  Non-interest-bearing advance import deposits111111
  Exchange rate guarantees111111
Memorandum items:
Average number of restrictions per member3.73.93.91.41.51.82.12.22.5
Number of countries with restrictions141414313231454645
Sources: AREAER database; and IMF staff reports.
1

Includes 188 members and 3 territories: Aruba and Curaçao and Sint Maarten (all in the Kingdom of the Netherlands) and Hong Kong SAR (China).

Table 10.Exchange Restrictions and/or Multiple Currency Practices by Country, as of December 31, 2013
Country1Exchange Restrictions and/or Multiple Currency Practices2
AlbaniaThe IMF staff report for 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 million; 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 2013 Article IV consultation with the Kingdom of the Netherlands–Aruba states that, as of July 12, 2013, Aruba maintained a foreign exchange restriction arising from the foreign exchange tax on payments by residents to nonresidents (1.3% of the transaction value). (Country Report No. 13/258)
BangladeshThe IMF staff report for the 2013 Article IV consultation with Bangladesh states that, as of November 12, 2013, Bangladesh maintained an exchange restriction on the convertibility and transferability of proceeds of current international transactions in nonresident taka accounts. (Country Report No. 13/357)
BelarusThe IMF staff report for the Fifth Post-Program Monitoring Discussion with Belarus states that, as of November 26, 2013, Belarus maintained exchange restrictions and multiple currency practices (MCPs) subject to the IMF’s jurisdiction. The exchange restrictions arise from the requirement of a National Bank of the Republic of Belarus (NBRB) permit for (1) advance payments for imports and (2) payments for imports with delivery outside of Belarus. The MCPs arise from (1) the potential deviation by more than 2% of the exchange rates in the OTC market and the Belarusian Currency and Stock Exchange (BCSE), (2) the potential deviation by more than 2% of the exchange rates in the OTC market and the BCSE exchange rate or the official exchange rate with respect to the mandatory resale of unused foreign exchange by resident legal entities and foreign exchange amounts subject to mandatory sale requirement, and (3) broken cross-rates among the currencies for which the NBRB establishes official exchange rates with monthly frequency with respect to the mandatory resale of unused foreign exchange by resident legal entities and foreign exchange amounts subject to mandatory sale requirement. (Country Report No. 14/18)
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 Herzegovina 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 Second Review under the Extended Credit Facility Arrangement with Burundi states that, as of January 31, 2013, Burundi maintained one multiple currency practice (MCP) that is inconsistent with Article VIII, Section 2(a): the exchange rate used for government transactions differs at times by more than 2% from market exchange rates. (Country Report No. 13/64)
ColombiaThe IMF staff report for the 2012 Article IV consultation with Colombia states that, as of January 9, 2013, Colombia maintained an exchange restriction subject to IMF approval under Article VIII arising from the special regime for the hydrocarbon sector. The multiple currency practice and exchange restriction arising from a tax on outward remittances of nonresident profits earned before 2007 and retained in the country for less than five years phased out on January 1, 2012. (Country Report No. 13/35)
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 (MCP) 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 MCP relates to a fixed exchange rate set quarterly applying to transactions through a bilateral payments agreement with Zimbabwe. (Country Report No. 13/94)
CyprusThe IMF staff report for the Request for an Arrangement Under the Extended Fund Facility states that, as of April 30, 2013, Cyprus maintained three exchange restrictions subject to IMF approval under Article VIII, Section 2(a), arising from (1) limits on payments for certain transactions involving normal business activity, including the import of goods and services; (2) limitations on certain invisible payments by individuals, including firm limits on remittances for living expenses for certain family members; and (3) limits on access to certain funds deposited with financial institutions in Cyprus that prevent nonresidents from accessing, converting, and transferring out of Cyprus recently acquired net income from current international transactions and investment income. (Country Report No. 13/125)
EthiopiaThe IMF staff report for the 2013 Article IV consultation with Ethiopia states that, as of August 29, 2013, 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 the National Bank of Ethiopia to obtain import permits. (Country Report No. 13/308)
FijiThe IMF staff report for the 2013 Article IV consultation with Fiji states that, as of October 21, 2013, Fiji maintained exchange restrictions subject to Article VIII arising from the Fiji Revenue and Customs Authority tax certification requirements on the transfer abroad of profits and dividends, and on the proceeds of airline ticket sales, and on the making of external debt and maintenance payments, and from limits on large payments (e.g., oil imports and dividends repatriation of foreign banks). (Country Report No. 13/370)
GabonThe IMF staff report for the 2012 Article IV consultation with Gabon notes that, as of January 31, 2013, Gabon levies a tax on all wire transfers, including for the making of payments and transfers for current international transactions, which gives rise to an exchange restriction subject to IMF approval under Article VIII, Section 2(a), of the IMF’s Articles of Agreement. (Country Report No. 13/55)
GhanaThe IMF staff report for the 2013 Article IV consultation with Ghana states that, as of May 30, 2013, Ghana maintained a multiple currency practice (MCP), subject to IMF approval, whereby the Bank of Ghana calculates a reference rate and uses it for certain official transactions without having a mechanism in place to ensure that this exchange rate does not differ from the rate prevailing in the market by more than 2%. (Country Report No. 13/187)
GuineaThe IMF staff report for the Second Review under the Three-Year Arrangement under the Extended Credit Facility with Guinea states that, as of May 7, 2013, 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. 13/192)
IcelandThe IMF staff report for the 2013 Article IV consultation and Third Post-Program Monitoring Discussion with Iceland states that, as of July 18, 2013, 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) the principal payments from holdings of amortizing bonds, and (3) payments on the indexation of principal from holdings of amortizing bonds. (Country Report No. 13/256)
IndiaThe IMF staff report for the 2013 Article IV consultation with India states that, as of December 27, 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): (1) restrictions related to the nontransferability of balances under the India-Russia debt agreement; (2) restrictions arising from unsettled balances under inoperative bilateral payments arrangements with two eastern European countries; and (3) a restriction on the transfer of amortization payments on loans by nonresident relatives. (Country Report No. 13/37)
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 (MCP) subject to IMF jurisdiction under Article VIII, Sections 2(a) and 3. (1) The exchange restriction arises from limitations on the transferability of rial profits from certain investments under the Foreign Investment Promotion and Protection Act (FIPPA) and from limitations on other investment-related current international payments under this act. (2) The MCP arises from the budget subsidies for foreign exchange purchases in connection with payments of certain LCs opened prior to March 21, 2002, under the previous multiple exchange rate system. (Country Report No. 11/241)
IraqThe IMF staff report for the 2013 Article IV consultation with Iraq states that, as of April 30, 2013, Iraq maintained eight exchange restrictions and one multiple currency practice (MCP) subject to IMF jurisdiction and approval. The exchange restrictions are (1) the limitation that corporates can purchase foreign exchange in the auction for import transactions only; (2) limitation on the availability of foreign exchange cash for individuals (i.e., one request a month, this measure gives rise to an exchange restriction because the limitation of one request a month constitutes a governmental limitation on the availability of foreign exchange for payments and transfers by individuals for current international transactions, e.g., basic allocations for tourist or business travel abroad, family living expenses, etc. Furthermore, because of the limitation on the availability of foreign exchange in the non-cash auction to corporates and only for trade transactions, individuals who need to make payments and transfers for current international transactions beyond the maximum limit have no alternative means or channels to get access to foreign exchange, except for resorting to informal sources.); (3) maximum limits on the availability of foreign exchange cash in the auction for banks (This measure gives rise to an exchange restriction because the maximum cap constitutes a governmental limitation on the availability of foreign exchange for certain payments and transfers, e.g., repatriation of certain investment income by nonresidents, including remittances of profits, dividends or interest. Because of the limitation on the availability of foreign exchange in the non-cash auction by corporates to only trade transactions, they would have no other means or channels to get access to such foreign exchange beyond the maximum limits, except for resorting to informal sources.); (4) maximum limits on the availability of foreign exchange cash in the auction for money transfer companies and money exchange bureaus; (5) 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; (6) the requirement to submit a tax certificate and a letter of no 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; (7) 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 to legal obligations of these persons with respect to official entities, which must be settled before allowing any transfer; and (8) an Iraqi balance owed to Jordan under an inoperative bilateral payments agreement. The MCP arises from the absence of a mechanism to ensure that the official exchange rate and the market exchange rate do not deviate by more than 2 %. (Country Report No. 13/217)
Kyrgyz RepublicThe IMF staff report for the Fifth Review under the Three-Year Arrangement under the Extended Credit Facility with the Kyrgyz Republic states that, as of November 18, 2013, 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. 13/376)
MalawiThe IMF staff report for the Third and Fourth Reviews under the Extended Credit Facility Arrangement with Malawi states that, as of December 27, 2013, the IMF staff intends to conduct a comprehensive assessment of Malawi’s exchange rate system shortly. (Country Report No. 14/37)
MaldivesThe IMF staff report for the 2012 Article IV consultation with Maldives states that, as of January 22, 2013, Maldives maintained an exchange restriction and a multiple currency practice subject (MCP) 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 MCP subject to IMF approval under Article VIII, Section 3, and also to an exchange restriction given the additional cost involved for obtaining foreign exchange.
MongoliaThe IMF staff report for the 2013 Article IV consultation with Mongolia states that, as of November 4, 2013, Mongolia maintained two multiple currency practices (MCPs) subject to IMF jurisdiction. First, the modalities of the multi-price auction system give rise to an MCP since there is no mechanism in place that ensures that exchange rates of accepted bids at the multi-price 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. (Country Report No. 14/64)
MontenegroThe IMF staff report for the 2013 Article IV consultation with the Republic of Montenegro states that, as of July 8, 2013, 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. 13/271)
MyanmarThe IMF staff report for the 2013 Article IV consultation and First Review under the Staff-Monitored Program with Myanmar states that, as of June 17, 2013, Myanmar still maintained exchange restrictions and multiple currency practices (MCPs) subject to IMF approval under Article VIII. Exchange restrictions subject to IMF jurisdiction arise from (1) requirement of tax certification for authorizing transfers of net investment income abroad, (2) limitations on the remittance abroad of net salaries, (3) an MCP arising from the formal foreign exchange certificate rate, and (4) an MCP arising from the two-way multiple price foreign currency auction. (Country Report No. 13/250)
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 2012 Article IV consultation with Nigeria states that, as of January 24, 2013, multiple prices are a technical characteristic of the CB’s Dutch auction system and can give rise to multiple currency practices. (Country Report No. 13/116)
São Tomé and PríncipeThe IMF staff report for the 2013 Article IV consultation and Second Review under the Extended Credit Facility with São Tomé and Príncipe states that, as of December 2, 2013, São Tomé and Príncipe continues to avail itself of the transitional arrangements under Article XIV, but does not maintain restrictions under Article XIV. However, it 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. 14/02)
SerbiaThe IMF staff report on the 2013 Article IV consultation with Serbia states that, as of May 31, 2013, 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. 13/206)
Sierra LeoneThe IMF staff report for the 2013 Article IV Consultation and Request for a Three-Year Arrangement under the Extended Credit Facility with Sierra Leone states that, as of October 8, 2013, 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%. (Country Report No. 13/330)
SudanThe IMF staff report for the 2013 Article IV consultation with Sudan states that, as of September 6, 2013, Sudan maintained an exchange restriction and multiple currency practices (MCPs) arising from the cash margin requirement for imports, whereas the previously identified exchange restriction arising from the imposition of the absolute ceiling on foreign exchange for travel has been removed. The IMF staff has identified the following new exchange restrictions and MCPs subject to IMF jurisdiction under Article VIII: (1) an exchange restriction arising from the government’s limitations on the availability of foreign exchange and the Central Bank of Sudan’s (CBOS’) allocation of foreign exchange to certain priority items; (2) an exchange restriction arising from a tax certification requirement in respect of transfers abroad of profits generated by enterprises other than joint-stock companies; (3) an MCP arising from the establishment by the government of a system of multiple exchange rates used for official and commercial transactions, which gives rise to effective exchange rates that deviate by more than 2%; (4) an MCP and exchange restriction arising from the channeling of market participants to the parallel market due to the CBOS’ establishment of exchange rates that do not reflect market conditions and the limitations on availability of foreign exchange; and (5) an exchange restriction and an MCP arising from the imposition by the government of a cash margin requirement for most imports. The authorities have informed the IMF staff that they have removed an exchange restriction on tax certification requirement in respect to transfers abroad of profits generated by enterprises other than joint-stock companies. Also, the authorities informed the IMF staff that they issued a circular to clarify that there are no limitations on sale of foreign exchange by banks. (Country Report No. 13/317)
SurinameThe IMF staff report for the 2013 Article IV consultation with Suriname states that, as of September 9, 2013, Suriname maintained two 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. 13/340)
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 2013 Article IV consultation and First Post-Program Monitoring with Ukraine states that, as of December 2, 2013, 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 when foreign exchange was returned to the resident because the counterparty failed to fulfill its obligations under an import contract) shall transfer 100% of the positive difference from the sale price, on a quarterly basis, to the state budget. (Country Report No. 14/145)
UzbekistanThe IMF staff report for the 2012 Article IV consultation with Uzbekistan states that, as of February 4, 2013, Uzbekistan maintained at least two exchange restrictions and one multiple currency practice (MCP) subject to IMF jurisdiction. First, undue delays (of up to and exceeding 12 months) in the availability of foreign exchange for payments and transfers for current international transactions give rise to an exchange restriction. Second, the Central Bank of Uzbekistan’s practice of providing only limited foreign exchange for payments and transfers for current international transactions is considered direct rationing and gives rise to an exchange restriction. Third, the practice that no interest is paid on “blocked accounts” for conversion of sum to foreign exchange and that these transactions are delayed beyond the normal 5–7 business days, give rise to an MCP, since the lack of interest payments directly increases the cost of the exchange transaction. (Country Report No. 13/278)
ZambiaThe IMF staff report for the 2013 Article IV consultations with Zambia states that, as of November 27, 2013, Zambia maintained two exchange restrictions subject to IMF approval under Article VIII, Section 2(a), effective June 25, 2013 (Statutory Instrument 55 of 2013). The first exchange restriction arises from the requirement that a person making payments of dividends in foreign exchange to a foreign bank account or nonresident person provide a tax clearance certificate and evidence of payment of corporate or income tax. The measure gives rise to an exchange restriction subject to IMF approval under Article VIII, Section 2(a), because it imposes limitations on the availability of foreign exchange for the making of payments of current international transactions based on noncompliance with obligations that are unrelated to the proposed transaction. The second exchange restriction arises from the requirement that a person making payments for royalties, management fees, technical fees, commissions, or consultancy fees in foreign exchange to a foreign bank account or nonresident person be accompanied by evidence of corporate tax payments. This measure similarly gives rise to an exchange restriction subject to IMF approval under Article VIII, Section 2(a) because it imposes limitations on the availability of foreign exchange for the making of payments of current international transactions based on noncompliance with obligations that are unrelated to the proposed transaction. Further, Zambia continues to maintain an exchange restriction, which is subject to IMF approval under Article VIII, arising from limitations imposed by the government on access to foreign exchange for the making of payments and transfers for current international transactions, which is evidenced by the existence of external payments arrears accumulated prior to October 4, 1985. (Country Report No. 14/5)
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.
1

Includes 188 members and 3 territories: Aruba and Curaçao and Sint Maarten (all in the Kingdom of the Netherlands) and Hong Kong SAR (China).

2

The measures described in this table are quoted from IMF staff reports issued as of December 31, 2013, and may have changed since the date when they were reported. The table does not include countries maintaining exchange restrictions or multiple currency practices whose IMF staff reports are unpublished unless the authorities have consented to publication.

Regulatory Framework for Foreign Exchange Transactions

This section surveys the measures reported by members with respect to the regulatory framework for foreign exchange transactions from January 2013 through July 2014. The measures are 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

Unlike for other categories, members reported notably more restrictive trade-related measures from January 2013 through July 2014, in particular for export payments. The total number of exchange and trade controls on imports and exports amounted to 146, of which 59 were easing, 66 were tightening, and 21 were neutral.

Imports and import payments

Members continued to implement more liberalizing than tightening measures related to imports and import payments. Of 91 reported measures, 44 were easing, 33 were tightening, and 14 were neutral. About a third of the reported measures involve payments for imports, such as advance payments. For example, Turkmenistan removed the limit on advance payments for imports by private legal entities. Bangladesh no longer requires a repayment guarantee for advance payments up to a certain level for imports of permissible items. South Africa eliminated a document review requirement for advance payments for transactions below a threshold. India allowed authorized banks to make payments to third parties for imports of goods, with some conditions. Other easing measures include lowering of tariffs and easing of documentation and licensing requirements.

There were also a few tightening measures related to payments for imports. In particular, some members limited access to foreign exchange for import payments. For example, Cyprus restricted transfers abroad; Egypt issued a list of priority items for banks’ allocation of foreign exchange; and Iraq imposed charges on sales of foreign exchange to commercial banks for import letters of credit. Sri Lanka imposed, and later eliminated, a 100 percent margin deposit requirement against letters of credit for imports of certain goods. Morocco lowered the allowable amount for advance payments. However, the majority of tightening measures were tariff increases and import bans on certain products or from particular countries.

Exports and export proceeds

The number of tightening measures (33) exceeded the number of easing measures (15) and neutral measures (7) among the total 55 reported changes. In particular, there was a notable increase in the use of repatriation and surrender requirements. Struggling with significant economic and social issues, Egypt required the repatriation of export proceeds of certain products. To reduce foreign exchange market pressures, India, Madagascar, and Ukraine shortened the repatriation period of export proceeds. Indonesia required receipt of export proceeds through the domestic banking system but did not require conversion to local currency. As for surrender requirements, Ghana established a currency-conversion requirement on receipt of export proceeds, and Ukraine increased the surrender requirement for exporters to 50 percent of export proceeds. Most other tightening measures applied to export quotas, tax, and bans on specific products or to specific countries for national security reasons. As noteworthy exceptions, some members required a priority allocation of export proceeds to a specific sector (Sudan) or prohibited offshore foreign exchange deals by resident and nonresident companies, including exporters and nonresident banks (Ghana).

The number of reported easing measures dropped notably from 26 last year to 15 during this reporting period. Angola broadened the conditions under which foreign companies may retain their proceeds abroad. Argentina introduced exemptions from surrender requirements to facilitate the use of export proceeds for debt-service payments. Malawi lowered the percentage of export proceeds subject to the surrender requirement. Other easing measures took the form of the relaxation of export bans and export quotas.

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. This category includes income from investment (for example, profits, dividends, interest); payments for travel, education, and medical expenses, and subscription and membership fees; and unrequited transfers (for example, remittance of nonresidents’ salaries and wages).

There was a continued tendency toward substantial easing of measures in this category. During the reporting period, the relevant measures totaled 69–almost the same number as in the previous period–of which 54 were easing, 13 were tightening, and 2 were neutral. This compares with 70 measures in the previous reporting period, of which 45 were easing measures and 22 were tightening measures.

Payments for current invisibles and current transfers

Members continued to implement predominantly easing measures on payments for invisible transactions and current transfers. Of 63 measures related to payments for current invisibles, 50 measures were easing measures and 13 were tightening measures. Quantitative limits on transfers abroad were increased in some countries, including Egypt (for individuals and companies), Fiji (for education and medical expenses), Malawi (for travel expenses), the Philippines (for nontrade current account transactions without supporting documents), Sudan (removal of a restriction on foreign exchange sales for travel), and Cyprus (gradual relaxation of limits for transfers abroad and restrictions on payments abroad). Some measures were related to quantitative limits on outward remittances and repatriation (Bangladesh, India, Myanmar). Other types of easing measures include easing of documentation requirements (Fiji, Moldova) and exemptions from approval requirements below a certain threshold (China).

Tightening measures were, in some cases, introduced amid concern about balance of payments difficulties. Among others, Cyprus prohibited transfers abroad by legal entities and limited individuals’ transfers abroad and payments abroad by credit, debit, and prepaid cards. Many measures were quickly relaxed in steps or were removed. Argentina imposed approval requirements on several types of transactions (processing by financial institutions of foreign transactions by credit and debit cards issued in Argentina), identification requirements (transfers of funds abroad for both the payer and the recipient), and documentation requirements (foreign exchange sales for travel by tourism operators). Approval requirements are also used in Angola (transfers arising from services to the oil sector) and Iceland (dividend payments and interest payments exceeding thresholds). Ukraine strengthened the documentation requirement to verify identity for transactions up to a threshold and required physical identification of individuals for larger amounts. Palau imposed a tax on remittances outflows by foreign workers. Although the number of these tightening measures is relatively small, their effect can be significant because they can be more stringent or broad based than easing measures.

Proceeds from current invisibles and current transfers

Of the relatively limited number of measures related to proceeds from invisible transactions (7), 3 were easing measures, 3 were tightening, and 1 was neutral. Reported changes relate to both repatriation and surrender requirements. China lifted its repatriation requirement on proceeds from service trade abroad within an approved limit; Bangladesh permitted encashment of inward remittances for agency services without approval on a one-time basis; and Malawi lowered the percentage of proceeds from exports subject to a surrender (currency-conversion) requirement. In contrast, Madagascar shortened the deadline to repatriate proceeds from services, and Ukraine extended the implementation of the currency-conversion requirement on transfers exceeding a limit by individuals.

Account Transactions

The recent trend toward overall easing of regulations on account transactions continued during 2013 and the first half of 2014. Members reported 132 changes in regulations on resident and nonresident accounts, of which 100 were easing measures, 30 were tightening measures, and 2 were neutral. Many of the changes were made by Cyprus in response to financial crises and were subsequently gradually liberalized. Excluding the measures by Cyprus, there were 46 changes in regulations, of which 32 were easing measures and 14 were tightening measures.

Resident accounts

Easing and tightening measures of regulations on resident accounts took various forms. Of the 70 measures (27 with Cyprus excluded) reported for resident accounts, 55 (21) measures were easing and 14 (6) measures were tightening. Some members raised quantitative limits applicable to withdrawals in foreign currency or balances on accounts abroad. For example, Burundi lifted a ceiling on the withdrawal of foreign currency without supporting documents; Ghana allowed placement of foreign exchange purchased for payments of import bills in a margin account; India raised the maximum resident individuals may remit to their foreign exchange accounts abroad; and Thailand eliminated limits on amounts institutional investors may keep in foreign exchange accounts abroad. Some members authorized foreign exchange accounts domestically (Bangladesh for trade service providers, Moldova with nonbank payment service providers, Zimbabwe in various currency denominations) or abroad (Uzbekistan for legal entities). Tightening measures include, among others, a prohibition against accounts abroad for certain residents (Russia), limits on the withdrawal of banknotes from foreign exchange accounts (Sierra Leone), and quantitative limits on non-trade-related international transfers in foreign exchange by individuals (Ukraine).

Cyprus imposed and gradually eased a number of restrictive measures on resident accounts, resulting in a total of 34 easing measures, 8 tightening measures, and 1 neutral measure. Specifically, it imposed quantitative limits on transfers abroad within the normal business activity of the customer and on presentation of supporting documents. Before the imposition of these restrictive measures in March 2013, there were no restrictions on the maintenance of resident and nonresident accounts, and all balances could be freely transferred abroad. By mid-2014, many measures were relaxed or removed. The transfer limit was eventually raised to €1 million a transaction in October 2013. Approval is still required for amounts exceeding the thresholds and is based on a review of the documents justifying the transfer and the liquidity. Cyprus also imposed and subsequently eliminated restrictions on individuals’ payments abroad via debit, credit, and prepaid cards; daily limits on cash withdrawals from bank accounts; a ban on cashing checks; a ban on terminating fixed-term deposits before maturity; a ban on opening accounts for new customers; restrictions on transfers between accounts in credit institutions in Cyprus; and limits on noncash payments and transfers of deposits or funds to an account held in another credit institution within Cyprus. Funds transferred to Cyprus from abroad were exempt from restrictive measures. All measures were applied equally to resident and nonresident accounts.

Nonresident accounts

The number of reported measures for nonresident account transactions was smaller than for resident account transactions. Of 62 total measures (19 excluding those by Cyprus) reported for nonresident accounts, 46 (12) were easing, 15 (7) were tightening, and 1 was neutral. The measures implemented by Cyprus are the same as the ones described for resident accounts in the previous paragraph. As for account transactions, the types of measures vary by member. Easing measures include higher limits on transfers related to living expenses in Iceland, authorization for nonresident legal entities and individuals to open payment accounts with resident nonbank payment service providers in Moldova, broader sources of funding for nonresidents’ domestic currency accounts in the Philippines, and a broader range of investments for nonresidents’ securities investment accounts in Sri Lanka. India relaxed some regulations on interest rates on nonresident deposits in August 2013 to attract more capital inflows but reversed most of them in March 2014. For example, interest rates on nonresident rupee deposits were delinked from domestic deposit rates but became subject to a ceiling set by comparable domestic rupee deposits.

Capital Controls

The trend toward overall greater liberalization of capital transactions continued against a backdrop of slow global recovery and more volatile capital flows. Advanced economies grew at a slow pace in 2013, as in 2012, but unlike in 2012, growth moderated in emerging market and developing economies during 2013. Global growth moderated more than expected in the first quarter of 2014, and new geopolitical tensions are expected to have an adverse effect on growth outcomes for 2014. Capital flows to emerging markets were about the same in 2013 as in 2012. However, the flows were marked by greater volatility. Although the situation in Europe stabilized, volatility increased in early 2013 following the announcement in May of the tapering of the U.S. monetary stimulus. This resulted in depreciation of exchange rates and a rise in interest rates as inflows to emerging markets reversed. In another bout of volatility in late 2013 and early 2014, investors focused on countries with large external financing needs or macroeconomic imbalances. Countries responded with tighter monetary policy, capital flow measures, foreign exchange intervention, and in some cases fiscal tightening.

Easing measures predominated for both inflows and outflows, despite an increase in the overall number of measures reported. From January 2013 through July 2014, IMF members reported 251 measures compared with 202 during the previous period (January 2012–August 2013).17 Of the total, 169 measures (about 67 percent) were directed toward easing capital flows, similar to the previous reporting period (66 percent). Of the remaining measures, 67 (about 27 percent) were tightening measures, and the rest (about 6 percent) were deemed 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.18 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 in building the AREAER database.

Repatriation and surrender requirements

A handful of countries modified repatriation and surrender requirements with respect to capital transactions. About half the measures involved some form of tightening of both inflows and outflows. Facing a steady loss of foreign exchange reserves, Ukraine introduced surrender requirements on foreign currency receipts, including for nonbanks and individual business proprietors. The 50 percent surrender requirement for foreign currency proceeds from exports of goods was extended to all foreign currency proceeds of legal entities (other than authorized banks) and sole business proprietors, as well as to proceeds from authorized banks’ proprietary transactions under foreign economic agreements. Indonesia now requires that proceeds from the 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. Iceland eased outflows by extending the deadline for residents to deposit foreign exchange proceeds from eligible investments abroad to six months from two weeks before repatriating it or investing it in similar investments abroad. China eased conditions on flows: proceeds from the issuance of shares by an overseas-listed enterprise controlled by foreign shareholders may, after registration, be retained overseas. In addition, foreign exchange funds earned by the domestic equity holding unit of overseas-listed companies controlled by Chinese shareholders from sales of shares or assets of the listed company may be repatriated within two years of receipt instead of six months.

Controls on capital and money market instruments

The total number of measures to adjust controls on capital and money market instruments more than doubled (to 84) compared with the 2013 reporting period. These were the most frequent measures implemented, as they were during the 2012 reporting period. Measures to ease (50) as opposed to tighten (24) controls on capital and money market instruments were aimed at easing outflows more than inflows, as during the previous year. This trend may reflect the globalization and financial deepening of emerging markets and the rise in the share of portfolio flows in total capital flows to emerging markets, particularly since the financial crisis, as investors searched for yield. Notably, the increased share of portfolio flows was driven by issuances by the emerging market corporate sector, rather than by emerging market sovereigns.

Measures to ease inflows included increased access to domestic securities markets, greater equity participation by foreigners, and relaxation of requirements for residents to receive the proceeds of sales of foreign securities and debt instruments. To promote further international use of the renminbi, China expanded the renminbi-qualified foreign investors program by permitting Hong Kong subsidiaries of Chinese banks, insurers, and financial institutions as well as renminbi-qualified foreign institutional investors in Taiwan Province of China, the United Kingdom, and Singapore to invest in the domestic securities market using renminbi proceeds raised abroad. In addition, renminbi-qualified foreign institutional investors were permitted to invest in a wider range of financial instruments, including on the stock exchange. After recording a small net outflow the previous year, China increased the investment limit of qualified foreign institutional investors to US$150 billion to bolster inflows. With Croatia’s accession to the European Union, Croatian resident entities may issue securities in EU countries by notifying the relevant authority. As global liquidity conditions tightened, India experienced significant portfolio debt outflows; pressure on its currency, equity, and bond markets; and widening of the current account deficit. In response, India took measures to attract additional portfolio inflows and increased and simplified limits for purchases of government debt and eligible corporate debt instruments by foreign institutional investors, qualified foreign investors, and long-term investors. The Kyrgyz Republic allowed nonresidents to invest in National Bank of the Kyrgyz Republic notes and to purchase government treasury bills and bonds. Tajikistan liberalized several inward transactions, including the issuance of securities abroad by residents. Thailand increased the scope of foreign equity participation in securities and asset management companies. When its international reserves doubled under an IMF-supported program, Bangladesh eliminated the one-year holding period for nonresident investors buying government bonds. South Africa permitted certain unlisted companies to list overseas or to raise foreign loans and capital.

Measures to tighten inflows included reserve requirements on nonresident holdings and stricter regulation of portfolio inflows. Portfolio flows into Uruguay surged owing to a new investment-grade rating, wider interest rate differentials, and an improvement in global risk appetite. To fend off the adverse macro-financial consequences of large capital inflows, Uruguay increased the reserve requirement on nonresidents’ holdings of central bank securities and imposed a similar requirement on government securities denominated in local currency and inflation-indexed units. Vietnam introduced requirements that inward portfolio investments be executed through local currency accounts at a local bank.

Easing outflow measures relaxed conditions on portfolio investment abroad by residents. With strong economic growth supported by hydrocarbon exports and accompanied by a current account surplus and rising international reserves, Bolivia eased the limits on foreign investment by insurance companies. When Croatia joined the European Union, entities from EU member countries became eligible to market securities in Croatia with approval from the relevant authority. 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. China eased the overall limits of insurance companies’ investment in foreign and domestic shares. Fiji relaxed the limit on individuals’ investment overseas and permitted commercial banks to open foreign currency accounts to facilitate such investment. Withdrawal, up to a limit, of investment by nonresidents from sales of shares and assets was delegated to authorized dealers and does not require central bank approval. Malaysian residents may now invest any amount in domestic foreign currency capital market securities, and nonresidents may issue foreign-currency-denominated securities in the domestic market. With a strong economy and a rising peso, the Philippines eliminated the central bank approval requirement, up to a limit, for purchases of foreign exchange for a number of investments abroad, including investment in foreign mutual funds and property. Poland relaxed the limit on open pension funds’ (private pension funds under Pillar II) investment in foreign-currency-denominated assets. Swaziland increased the limit on foreign bonds and debt and money market instruments that resident individuals may purchase. Tajikistan moved to an ex post reporting requirement on several outward resident transactions, including the purchase of foreign securities and shares of investment funds. Experiencing large foreign inflows, Thailand allowed individual and corporate investors to invest in foreign securities through private funds or securities companies without limit, subject to the guidelines of and not exceeding the limit set by the Securities and Exchange Commission. Later, Thailand liberalized investments by institutional investors–that is, the Government Pension Fund, Social Security Fund, provident funds, mutual funds, securities companies, insurance companies, specialized financial institutions, Thai companies with assets of at least B 5 billion, and companies listed on the Stock Exchange of Thailand–to allow them to invest in foreign securities abroad up to its own internal limit. Turkey eased regulations on investment services provided by foreign-based financial institutions to residents. Ukraine permitted international financial institutions to issue local currency bonds in the domestic market.

Tightening measures on outflows included measures to shore up reserves and ease pressure on the domestic exchange market. To strengthen the effectiveness of capital controls and provide incentives to investors with krona holdings to participate in the central bank’s foreign exchange auctions, Iceland further limited investment options for krona holders: nonresident krona balances may be invested only in securities on the central bank’s exemption list. Argentina reduced the number of days for advance payment on the principal of foreign debt. To deal with the financial crisis, Cyprus imposed temporary limits on the transfer of funds overseas; transfers of amounts above the limit were made subject to approval. India reduced the amount individuals may invest overseas under the Liberalized Remittance Scheme. Iraq strengthened documentary requirements for the transfer of funds abroad related to sales of securities or shares by nonresidents. Lebanon introduced an approval requirement for the sale of a host of financial products by banks, financial institutions, financial intermediation companies, and collective investment plans. Turkey strengthened the requirements for public disclosure and audits for foreign corporations and required approval of the prospectus or issue documents by the market regulator before the public offering or sale of foreign capital market instruments, depository receipts, and shares issued by foreign corporations that are traded on the stock exchange. In addition, it strengthened regulatory requirements for foreign mutual funds offered in Turkey. Vietnam introduced additional regulations on outward portfolio investments and transfer of original capital and profits from foreign portfolio investments.

Controls on derivatives and other instruments

The trend toward greater easing for such transactions (16 of 20) was up slightly during the past year. About the same number of countries reported changes this reporting period as in the previous period, and the total number of measures reported was very similar, with Cyprus accounting for about a third of the changes reported. One difference was that most of the easing measures applied to outflows.

The restrictions on outflows in Cyprus that were imposed in response to the economic crisis also limited derivative transactions. However, as the crisis abated these restrictions were gradually relaxed, allowing such transactions to resume. Malaysia permitted nonresidents to issue foreign-currency-denominated securities in the domestic market. Tajikistan eased regulations on residents’ purchases of foreign exchange to conduct transactions in derivative securities. Turkey eased regulations on investment services provided by foreign-based financial institutions to residents. Other easing measures affected both inflows and outflows. Argentina allowed authorized dealers to engage in arbitrage and swaps with foreign financial entities. Paraguay permitted nonresident agents to purchase and sell foreign exchange forward contracts. The Philippines removed the requirement for central bank approval of the sale of foreign exchange for forward contracts without full delivery of principal. Sri Lanka eliminated the 90-day limit on the period of maturity of forward foreign exchange contracts. Lebanon introduced an approval requirement for the marketing of financial derivatives. Korea reduced the limits on banks’ exposures to derivatives contracts.

Controls on credit operations

Controls on cross-border lending were mostly eased, a pattern similar to that during the previous reporting period. Although the total number of measures was lower, the easing trend was more pronounced, with about 80 percent of measures aimed at relaxing conditions. Controls on cross-border lending were the most common measure during the previous reporting period, but during this reporting period, they took second place to measures on capital and money markets. Easing measures tended more toward inflows than outflows, a reflection of changing external financial conditions, in particular, periods of significant outflows from emerging market economies. The majority of tightening measures targeted inflows.

Inflow easing measures were mostly related to external borrowing. India and Serbia accounted for just over half of the measures taken to ease inflows. In response to considerable portfolio outflows and balance of payments pressures, India further liberalized the external commercial borrowing regime. These measures included increased limits under the automatic route and expanded use of external commercial borrowing (for example, the hotel and manufacturing sectors may borrow under this scheme to repay rupee loans for capital expenditures up to a limit and under certain conditions; the definition of infrastructure sectors eligible for such borrowing was broadened). Use of external commercial borrowing by the aviation sector was extended through March 31, 2015. Serbia also continued liberalizing external borrowing to attract inflows and as part of its gradual liberalization of capital flows. 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; resident natural persons were allowed to obtain long-term cross-border financial loans for purposes other than imports of goods and services; and residents were allowed to borrow in dinars from international financial institutions, development banks, and foreign financial institutions. Bolivia eased the requirements for public enterprises to obtain external loans. Malaysia allowed resident entities to borrow from their nonresident shareholders, and residents may obtain guarantees, up to a limit, from nonresidents without approval. South Africa permitted certain unlisted companies to borrow from overseas with approval. 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 exempted foreign borrowing of commercial banks up to US$50 million each from regulatory limits for three years through December 31, 2015. Tajikistan eased conditions on obtaining commercial credits with maturity greater than a year. Zimbabwe permitted residents to borrow from abroad up to US$1 million with only a registration requirement.

About a third of the measures that eased outflows were taken by Cyprus, which had imposed temporary measures on outflows because of the financial crisis. When the situation stabilized, in part as a result of the IMF program, Cyprus gradually relaxed the controls put in place to prevent deposit outflows. Other outflow-easing measures included permitting credit in local currency to nonresidents. Malaysia permitted nonresident financial institutions to offer ringgit trade financing to nonresidents, and Serbia allowed banks to grant credits in dinars to international financial organizations, development banks, and foreign-government-owned financial institutions. Morocco permitted banks to issue guarantees in favor of nonresidents. Tajikistan eased conditions on granting commercial credit with maturity greater than one year. Argentina permitted the payment of interest on foreign debt up to five business days before the due date.

Tightening measures were mostly related to inflows, unlike last year. Colombia prohibited foreign currency loans to residents from nonresident individuals. Iceland moved to discourage short-term borrowing by requiring central bank approval for borrowing from nonresidents with maturity of less than two years. India tightened the conditions for eligible borrowers to use external commercial borrowing for the refinancing or rescheduling of existing loans. Lebanon prohibited correspondent and custodian banks from some transactions on Lebanese Eurobonds, credit-linked notes, and central bank certificates of deposit.

Only 2 countries reported measures to tighten outflows. As mentioned above, Cyprus imposed temporary measures to prevent deposit outflows, and Argentina shortened the time frame to make advance payment on principal of foreign debt.

Controls on direct investment

The liberalization trend continued, albeit with about 70 percent of measures directed at easing conditions compared with 80 percent during the previous reporting period. However, the total number of measures was greater. The number of outflow and inflow easing measures was roughly equal (excluding Cyprus).

Inflow easing measures included those that raised automatic threshold levels, broadened permissible sectors, and increased the level of equity participation. Australia, Canada, Mexico, and New Zealand increased the threshold below which certain investments are automatically permitted. South Africa permitted companies listed on the local stock exchange to establish one subsidiary in South Africa for African and offshore operations that are not subject to foreign exchange restrictions. To facilitate further foreign direct investment, South Africa also permitted certain unlisted companies to list overseas or to raise foreign loans and capital and companies listed on the local exchange to have a secondary listing or list depository receipt programs on foreign exchanges. Thailand broadened the scope and amount of equity participation in the securities business to include forms of business other than brokerage. Malaysia permitted nonresidents to participate in equity of domestic banks. Argentina extended the window for submission of documents related to capital contributions. Fiji delegated the approval of withdrawal of investment, up to a limit, to authorized dealers from the central bank.

A third of outflow easing measures are attributed to Cyprus as it gradually eased its temporary restrictions on outflows. Fiji further relaxed the limit on overseas investment by individuals (family or business) and permitted commercial banks to open foreign currency accounts for investments within the prescribed limit. It also permitted the transfer of profits and dividends, up to a limit, by authorized dealers without central bank approval. Iceland extended to six months the time within which residents may reinvest proceeds from investment in securities issued in foreign currency. Tajikistan and Thailand liberalized outward direct investments. South Africa eased some of the rules governing holding companies by permitting parent companies to transfer up to R 2 billion a year to a holding company; additional amounts require approval.

Only a handful of countries took measures to tighten inflows and outflows of direct investment. Canada stipulated that future bids by government-owned enterprises for control of a Canadian oil-sands business would be approved on an “exceptional basis only.” Ghana increased the minimum capital requirements for foreign direct investment. The Philippines further tightened the registration requirement on all foreign direct investment. Russia lowered the threshold for automatic investment in credit institutions. Ukraine imposed a surrender requirement of 50 percent on foreign direct investment. India reduced the limit (based on net worth of the resident investor) on foreign direct investment undertaken without approval. In addition, resident individuals also faced a lower limit because the limit under the Liberalized Remittance Scheme was reduced. Firms from Vietnam undertaking outward investment in the gas and petroleum sector faced additional requirements pertaining to bank accounts.

Controls on real estate transactions

There were a few more measures toward tightening than easing that affected real estate transactions (excluding Cyprus). This is slightly different from the previous year, when almost as many measures were implemented to tighten as ease flows. Singapore and Hong Kong SAR took measures to stem inflows to residential property markets in an attempt to reduce the pressure on real estate prices–both imposed additional stamp duties. In contrast, restrictions on nonresidents’ purchase of agricultural land and forestland were removed in Romania following a transition period after joining the EU. To contain capital outflows, India reduced the limit on transfers related to purchases of real estate abroad and discontinued use of the Liberalized Remittance Scheme for the purchase of real estate abroad. Iceland introduced an approval requirement for the purchase of foreign exchange for the purpose of buying real estate abroad for resettlement to prevent circumvention of the capital controls. Iraq introduced an approval requirement for the transfer of funds abroad related to the sale of property by nonresidents. Temporary controls imposed by Cyprus also affected real estate transactions, but like those affecting other transactions, they were later eased. Swaziland raised the limit that individuals may invest in real estate abroad with central bank approval. Argentina eased access to the local foreign exchange market to purchase assets overseas by eliminating the central bank’s approval requirement; however, these purchases are subject to Administration of Public Revenue Program approval.

Controls on personal transactions

More measures were implemented to ease controls on personal transactions than to tighten them (excluding Cyprus). This is somewhat different from the previous year, when the measures were more balanced. Both Colombia and Iceland took steps to reduce inflows. Colombia banned foreign currency loans to residents from nonresidents, whereas Iceland moved to discourage short-term borrowing by requiring central bank approval for loans from nonresidents with a maturity of less than two years. Argentina introduced a central bank approval requirement for credit and debit card transactions related to payments for gambling. India limited outflows of gifts and donations to the limit set by the Liberalized Remittance Scheme. The temporary controls imposed by Cyprus also affected personal transactions, but were gradually eased. Argentina eased access to the local foreign exchange market to purchase assets overseas by eliminating the central bank’s approval requirement; however, these purchases are subject to Administration of Public Revenue Program approval. Fiji allowed automatic access to an emigration allowance up to a limit and increased the limit on transfers related to gifts, maintenance, and wedding expenses. Iceland raised the limits on transfers related to living expenses and eased the conditions for lending to nonresidents. Sri Lanka simplified emigrants’ access to the migration allowance. Swaziland eased outflows by increasing the amount individuals may transfer abroad. Serbia eased inflows by allowing borrowing by natural persons from abroad at maturities of more than one year and for purposes other than imports of goods and services.

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.19 This category, Provisions specific to the financial sector, covers monetary and prudential measures in addition to foreign exchange controls.20 It includes, among other categories of financial institutions’ transactions, borrowing abroad, lending to nonresidents, purchase of locally issued securities denominated in foreign exchange, and regulations pertaining to banks’ and institutional investors’ investments. These provisions may be similar or identical to the 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, and Nonresident Accounts.

Reported measures in the financial sector indicate continued strengthening of the regulatory framework to advance the financial sector reform agenda. There was an increase in the number of measures introduced from January 2013 through July 2014 compared with the previous reporting period. Member countries reported 266 new measures with respect to commercial banks, other credit institutions, and institutional investors–an increase of 16 percent. Most of the increase involved institutional investors, for which the number of reported measures increased more than 70 percent. The measures mostly changed the regulatory framework for commercial banks and other credit institutions; of the 266 measures, 197 affected commercial banks and only 69 affected institutional investors.

As during the previous reporting period, prudential measures (179) outnumbered capital controls (87). While capital controls were overwhelmingly easing (68), prudential measures mostly had the effect of tightening the regulatory framework (89), compared with 52 easing measures and 38 neutral measures. During the previous reporting period, capital control measures mostly tightened the financial sector regulatory environment; in contrast, during this period more than three times as many measures eased capital controls (68) as tightened them (19). The number of neutral changes introduced remained only slightly below the number during the previous period, indicating a continuation of work to consolidate and update financial sector regulatory and institutional arrangements. The summary of the changes in this category is presented in Table 11.

Table 11.Provisions Specific to the Financial Sector, January 2013–July 2014
Provisions Specific to Commercial Banks and Other Credit InstitutionsProvisions Specific to Institutional InvestorsTotal
EasingTighteningNeutralTotalEasingTighteningNeutralTotal
Capital Controls471205921702887
Prudential Measures4878121384112641179
Total95901219725182669266
Source: AREAER database.

Commercial banks and other credit institutions

Capital controls on commercial banks and other credit institutions were eased with respect to both inflows and outflows, with slightly more measures easing conditions for capital inflows. These measures reflect regulatory responses in emerging market economies to bouts of capital flow volatility in 2013 and early 2014.

  • Controls on capital inflows. When India faced large capital outflows, including from the financial sector, it significantly improved the conditions for foreign currency nonresident accounts to attract foreign exchange deposits between August 24, 2013, and March 7, 2014. Banks were exempt from the cash reserve and statutory liquidity ratios on incremental deposits to such accounts with maturities of three years or more, and the interest rate ceiling was increased (the latter measure was partially reversed in March 2014). As part of the financial sector development agenda, nonresident participation in Malaysian banking institutions was relaxed. In Vietnam, participation of foreign strategic investors and foreign institutional investors was increased to 20 percent in Vietnamese commercial banks and to 15 percent of the charter capital of Vietnamese credit institutions. Several easing measures affected financial sector external borrowing. Further advancing its capital account liberalization agenda, Serbia allowed short-term financial loans to banks from nonresidents. Uzbekistan switched to registration with the Central Bank of Uzbekistan of external borrowing by authorized banks, and Zimbabwe permitted banks to borrow up to US$1 million without Exchange Control approval but continues to require External Loan Coordinating Committee approval for larger amounts. Large capital outflows followed the U.S. Federal Reserve’s tapering announcement, so beginning in May 2013, Peru gradually lowered the reserve requirements on long-term foreign liabilities of commercial banks to finance foreign trade operations.

  • Controls on capital outflows. After an extended period of sustained capital inflows, Tajikistan significantly eased exchange control requirements to require only ex post reporting but no advance approval of foreign direct investment, specific portfolio investments, lending to nonresidents, and accounts opened abroad. Sri Lanka granted general permission to authorized dealers to open and maintain nostro accounts abroad. Serbia further liberalized the use of its currency in capital transactions by allowing banks to extend unlimited credit in dinars to international financial organizations, development banks, and foreign governments’ financial institutions. Iceland continued to maintain strict controls on new capital outflows but extended the time frame during which residents may reinvest their existing foreign assets abroad and thus their exemption from the general repatriation requirement. Cyprus significantly relaxed, in several steps, the deposit withdrawal and transfer limitations introduced in March 2013.

In contrast to the previous reporting period, only a few measures (12) tightened capital controls, and these affected both capital inflows and outflows almost equally. One of the most notable changes was the introduction of wide-ranging limits on withdrawal of deposits and cross-border transfers in Cyprus in March 2013 to protect financial stability in the face of potentially destabilizing deposit outflows. These restrictions were later eased to reduce the impact on economic activity and were finally eliminated on domestic transactions. Although caps on large cross-border transactions remained in place, restrictions on payments for regular business operations were significantly eased. To protect the business services sector, the operations of foreign banks with international customers were exempted from the restrictions. Argentina prohibited advance payment on the principal of foreign financial debt exceeding 10 business days. This measure was added to the 365-day holding period for new foreign borrowing to reduce foreign exchange market pressure. To reduce reliance on more volatile short-term capital inflows, Korea further tightened the limit on banks’ derivatives positions, and Latvia introduced a liquidity ratio that increases with the share of a bank’s assets funded by nonresident deposits. Lebanon introduced regulatory changes to prevent short-selling operations of Lebanese securities and other money market instruments. With respect to capital outflows, Argentina introduced a limit on forward positions of 10 percent of regulatory capital in February 2014. Argentina also required financial institutions and other local card issuers to obtain Central Bank of Argentina approval of foreign transactions with credit and debit cards issued in Argentina for participation, through international payment networks, in gambling. Iceland also tightened capital controls first introduced in 2008 by removing an exemption to address potential balance of payments drains from the winding up of old bank estates. Venezuela introduced the Complementary System to the Administration of Foreign Exchange to reduce the economic and social effects of foreign exchange market pressure by supplying foreign exchange at the official rate of Bs 6.30 per U.S. dollar, mainly to importers of food, medicine, and other basic goods, as determined by the central bank.

Members continued to strengthen the prudential framework of banks’ operations to address the legacy of the global financial crisis and to advance the reform agenda. Almost half the measures that are not considered capital controls tightened existing regulations. Several EU countries reported implementation of the new EU legal framework governing access to the activity, supervisory framework, and prudential rules for credit institutions and investment and incorporating the new global standards on bank capital (Austria, Czech Republic, France, Hungary, Italy, Poland, Romania, Slovak Republic).21 A number of measures aimed at strengthening the anti–money laundering and combating the financing of terrorism framework (Argentina, Moldova, San Marino). Argentina also strengthened controls on transfers to and from countries and territories that are considered low-tax jurisdictions. Prudential requirements were revised to enhance the liquidity, solvency, and risk management of commercial banks and other credit institutions in Bolivia, Germany, Kosovo, Malaysia, Oman, and Poland. Armenia introduced new foreign exchange liquidity ratios based on the currency of liabilities, and financial requirements for issuers of over-the-counter derivatives to retail clients were increased in Australia. Rules on the classification of assets acquired through collection or assignment of receivables were amended in Serbia to facilitate resolution of a large number of nonperforming loans and to prevent them from building further.

Reporting and disclosure requirements were tightened to increase transparency and boost confidence in the banking system in Italy, Moldova, and San Marino. To enhance the effectiveness of early intervention in preventing banking crises, Austria instituted a requirement that financial institutions prepare and submit restructuring and liquidation plans to the Austrian Financial Market Authority. Prudential requirements with respect to the acquisition of shares in banks and related procedural rules were made more stringent in Korea, with the threshold for acquisition by nonfinancial business operators subject to Financial Supervisory Commission approval reduced back to 4 percent from 9 percent, reversing a change made in 2009. In Russia, the threshold for participation in credit institutions without Bank of Russia approval was lowered from 20 percent to 10 percent. Moldova continued strengthening prudential requirements for bank owners; residents of jurisdictions that do not implement international transparency standards may not hold equity shares directly or indirectly, and tools for assessment and ongoing monitoring of the ownership process were put in place.

The overwhelming majority of the easing measures not considered capital controls related to reserve requirements and open foreign exchange position limits (37). Among the remaining 11 measures, in Serbia some revised the regulatory framework for assigning bank receivables to other banks to facilitate cleaning up bank balance sheets. In Aruba, the percentage that defines a qualifying holding of a credit institution’s stake in other firms or institutions was increased from 5 percent to 10 percent. Belarus rolled back a previous limit on loans in foreign exchange except for short-term loans. The credit management fee was eliminated in El Salvador, and previously introduced caps on interest rates in Vietnam were increased.

Close to 40 percent of the reported changes in the regulatory framework for commercial banks and other credit institutions were related to reserve requirements, reflecting the importance of this tool to monetary policy and financial stability objectives and as part of the policy responses to increased capital flow volatility.22 Unlike in the previous reporting period, when easing and tightening measures were more balanced, easing measures predominated during 2013 and early 2014. The number of measures also reflects a few countries’ adjustment of their reserve requirements in several steps during the reporting period.23

  • To build a macroprudential liquidity buffer against external shocks, Argentina, Haiti, Suriname, Turkey, Uruguay, and the Philippines increased the ratio of required reserves on local and foreign-currency-denominated liabilities.24 All of these countries apply different reserve ratios to domestic and foreign currency liabilities. Bolivia introduced a temporary complementary reserve requirement to tighten liquidity in the economy with a view to reducing inflation pressure. The reserve requirement applies to excess reserves in both domestic and foreign currency and is remunerated at a rate of 1.8 percent. The United Kingdom introduced a 0.18 percent non-interest-bearing deposit requirement on banks’ net spot liabilities in foreign currency (that is, the net amount of foreign currency resources funding sterling assets). The required deposit is based on the average of reported eligible liabilities over a six-month period in excess of the equivalent of £600 million. 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 requirement as soon as the quarterly rate of coverage reaches 110 percent. The Kyrgyz Republic strengthened the required reserves framework by increasing the penalty for noncompliance.

  • Reserve requirements were lowered in Maldives and Sri Lanka. As part of their dedollarization efforts, Angola, Armenia, and the former Yugoslav Republic of Macedonia decreased required reserves on domestic currency liabilities while keeping them higher on foreign exchange liabilities. Brazil reduced to zero the reserve requirement on foreign exchange short positions, a move that aims for a macroprudential liquidity buffer against potential financial shocks from foreign exchange short positions within the banking system. Facing significant outflow pressure, India exempted banks from the cash reserve ratio on nonresidents’ incremental foreign exchange deposits with maturities of three years or more between August 24, 2013, and March 7, 2014. 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. Peru extensively varied the average and marginal reserve requirements according to changing external conditions. Reserve requirements on both domestic and foreign exchange liabilities were increased in several steps in the first half of 2013 against a backdrop of sustained capital inflows. As a result of large capital outflows following the Federal Reserve’s tapering announcement, all reserve requirements were gradually decreased from August 2013 to March 2014.

Changes with respect to commercial banks’ exchange rate risk management suggest alignment of the regulatory framework with new standards and adjustments to increased exchange rate volatility. The Czech Republic now requires credit institutions to report to the Czech National Bank if the net foreign exchange position exceeds a certain percentage of the credit institution’s capital (15 percent for a single currency and 20 percent for all currencies). France aligned its domestic regulations with the new EU financial sector regulatory framework and set own funds requirements for banks whose foreign exchange exposures exceed 2 percent of their own funds. Foreign exchange exposure limits, some of which are imposed in an asymmetric manner, were lowered in Honduras and Paraguay to reduce banks’ exchange rate risk and their ability to take a position against the currency.25 In contrast, with the stabilization of financial markets, position limits were increased in Bangladesh, Pakistan, and Sri Lanka. Argentina also raised the overall net positive foreign exchange position limit from 15 percent to 30 percent of capital.

Drawing on the lessons of the global financial crisis concerning the systemic risk banks’ unhedged foreign currency lending to residents may pose, the revision of the regulatory framework for foreign currency lending continued. To reduce the exposure of domestic private households to foreign currency loans Austria revised the risk management guidelines, imposing strict criteria on new foreign currency loans to unhedged private consumers and requiring banks to develop strategies to reduce the volume of outstanding foreign currency loans. Following the 2013 removal of a restriction on foreign currency loans introduced at the height of the domestic-born crisis, Belarus introduced stricter requirements for loans in foreign currency, clarifying that foreign currency loans may be granted to business entities only for settlements with nonresidents and for deliveries of natural gas. Ghana prohibited banks from granting foreign-currency-denominated loans and foreign-currency-linked credit to customers who do not earn foreign exchange. Poland continued strengthening the regulatory framework for foreign currency lending started in 2012 by requiring banks to extend foreign-exchange-denominated mortgage loans only in the currency of the borrower’s income and to apply stricter creditworthiness standards to foreign exchange credit exposure. In Vietnam, banks must obtain approval from the State Bank of Vietnam to lend in foreign exchange to certain eligible borrowers–for example, those with sufficient foreign exchange to repay the loan.

Twelve reported measures (19 fewer than in the previous period) continued modernization and harmonization of financial sector regulatory norms, with a neutral effect. 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. Argentina unified the definition in the foreign exchange and tax laws of countries not considered cooperating countries for the purposes of fiscal transparency. The regulation on the operation of the interbank leu market on a unique trading platform was approved in Moldova. To implement the monetary agreement with the European Union, San Marino enacted provisions on euro banknotes and coins and related measures to prevent fraud and forgery and adopted an EU directive on payment services to harmonize the national payment system with rules introduced at the EU level. The purpose is to provide services within the euro payments area that are secure, competitively priced, easy to use, and reliable, through the introduction of common technical and business requirements for credit transfers and direct debits in euros.

Institutional investors

The majority of the reported changes eased regulatory constraints on institutional investors, in contrast to the previous reporting period. As for changes with respect to commercial banks and other credit institutions, prudential measures were mostly tightened, and most capital controls were eased. Twenty-three members reported a total of 69 measures, significantly more changes than during the previous reporting period (40). Of these, 41 changes were prudential measures and 28 were capital controls.

With respect to capital controls, the majority of the reported changes relaxed constraints on capital outflows (18 of 28). Regulatory limits on institutional investors’ investments abroad were increased in Bolivia, Croatia, Malaysia, Peru, and Thailand. These changes reflect ongoing capital flow liberalization efforts, relaxation of outflows in the context of large capital inflows, and development of the insurance and pension sectors. Limits on external transfers introduced by Cyprus in March 2013 were subsequently increased, easing the constraints on institutional investors’ international operations. Iceland extended the period during which residents may decide to reinvest their foreign assets before repatriating the funds to Iceland. Among measures to ease controls on capital inflows, Thailand removed the Ministry of Commerce approval requirement for foreign equity participation exceeding 49 percent in the securities business (securities companies and asset management companies), and external borrowing by Vietnamese firms must now be registered only with the State Bank of Vietnam.

No changes tightened controls on capital inflows with respect to institutional investors: all such tightening measures affected outflows. 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. For example, foreign stock exchange mutual fund units that are not registered by the Capital Markets Board may comprise up to 10 percent of pension funds’ portfolios in Turkey. Romania amended and provided a more detailed breakdown of asset categories and corresponding limits for pension funds’ investments abroad. Croatia redefined the investment limits on mandatory and voluntary pension funds’ investments abroad, specifying the asset categories and the corresponding limits. Regulations on insurance companies’ real-estate-related operations were tightened in the Czech Republic.

Eleven reported measures (6 more 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’ investments in foreign exchange transactions were introduced in Croatia with respect to open-end investment funds and in Peru and Romania with respect to pension funds. Investment firms subject to the new EU financial sector regulatory framework became subject to risk requirements comprising foreign exchange components and own funds requirements relating to foreign exchange in France and the United Kingdom. As part of pension reform in the Czech Republic, prudential rules for pension funds and pension companies, including rules on eligible assets and investment limits and on the management of pension funds, were amended. The capital market law in Moldova redefined conditions governing investment of funds through Undertakings for the Collective Investment of Transferable Securities. Requirements were also adopted for professional clients and qualified investors in accordance with the provisions of EU directives.

Three reported measures eased the prudential rules for investment by institutional investors. Austria permitted insurance companies to cover up to 7 percent of their technical provisions with corporate loans subject to a strict set of conditions regarding credit quality and continuous risk analysis. Turkey allowed mutual funds to invest up to 20 percent of their portfolios in funds traded on foreign exchanges without registration with the Capital Markets Board. Poland gradually increased the limit on open pension funds, and China raised the limit on insurance companies’ equity and real estate investments.

Two-thirds of the reported changes in prudential measures specific to institutional investors were recorded as neutral (28). These changes cannot be linked directly to the easing or tightening of rules and reflect mainly institutional or procedural changes. Belarus revised the minimum equity capital for dealers and brokers, securities trustees, and organizers of securities trading and clearing organizations. New legislation on insurance operations went into effect July 1, 2013, when Croatia joined the European Union. Insurance and pension fund supervision were transferred from the National Bank of Georgia to the Insurance State Supervision Service. Kazakhstan overhauled its pension system through establishment of the single pension fund and the transfer to this fund of the pension assets of all existing pension funds. The existing pension funds may retain their own assets and, following the transfer of the pension assets, may continue operations as pension portfolio managers or voluntary pension funds. San Marino revised the regulations on collective investment plans, and several regulations on institutional investors were revised in Turkey to ensure consistency with the new Capital Markets Board Law and international implementation. The State Bank of Vietnam issued guidance on account opening and use, outward fund transfers, overseas debt collection, registration for lending and collection of overseas debts, and other fund transfers for overseas lending and debt-collection activities of economic entities.

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