Front Matter

Front Matter

Richard Bart, and Chorng-Huey Wong
Published Date:
June 1994
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Approaches to Exchange Rate Policy

Choices for Developing and Transition Economies


Richard C. Barth

Chorng-Huey Wong

Papers presented at the seminar on exchange rate policies in developing and transition economies December 3–11, 1992

IMF Institute

International Monetary Fund

Washington, D.C.

© 1994 International Monetary Fund

Library of Congress Catalogìng-in-Publication Data

Approaches to exchange rate policy : choices for developing and transition economies / IMF institute: Richard C. Barth and Chorng-Huey Wong, editors.

  • p. cm.

  • “Papers presented at the seminar on exchange rate policies in developing and transition economies. Dec. 3–11, 1992.”

  • Includes bibliographical references.

  • ISBN 9781557753649

1. Foreign exchange—Government policy—Developing countries—Congresses. 2. Foreign exchange—Government policy—Europe, Eastern—Congresses. 3. Foreign exchange—Government policy—Europe, Eastern—Congress. 4. Foreign exchange rates—Developing countries—Congresses. 5. Foreign exchange rates—Central Europe—Congresses. 6. Foreign exchange rates—Europe Eastern—Congresses. I. IMF Institute. II. Barth, Richard C. III. Wong, Chorng-Huey.

HG3877. A67 1994




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This volume is the first published set of proceedings from one of the IMF Institute’s seminars. The seminars are designed to provide a forum where high-level officials from member countries can discuss issues of current interest with IMF staff and outside lecturers, and also among themselves. The Institute tries to include in the seminar program leading theoreticians and researchers, as well as practitioners who can present individual case studies, in order to ensure that each subject is approached from both the conceptual and the practical sides. General discussions serve the purpose of associating the participants more closely with the seminar by giving them an opportunity to relate the presentations to their own countries’ experiences.

The seminar on Exchange Rate Policy in Developing and Transition Economies was presented in Washington on December 3–11, 1992 for senior officials from 35 countries. Events themselves pressed the Institute to choose this important topic. External sector policies in general, and exchange rate policy in particular, are central both to a country’s economic performance and to IMF surveillance functions. In recent years, a number of developing countries have attempted to liberalize their external sector policies and adapt their exchange rate systems to a rapidly changing international environment, in part by adopting measures designed to achieve currency convertibility. At the same time, countries in Eastern and Central Europe, the Baltics, and the former Soviet Union have begun entering into new monetary and exchange arrangements, often as a part of IMF-supported macroeconomic adjustment and structural reform programs. The seminar covered both types of policy initiatives, with the purpose of highlighting common themes and problems.

Like the seminar itself, the sections in this volume include presentations on specific topics, followed by commentaries and discussion, and proceed from theoretical issues to actual country experiences. The papers are the best evidence of the variety of topics discussed in the seminar and the diversity of views expressed there. In the final session, however, there was general agreement with two principles spelled out by Michael Mussa, Director of the IMF Research Department, namely (1) that it is impossible to maintain an exchange rate policy independent of other key elements of economic policy, in particular monetary policy, but also fiscal and trade policies; and (2) that “one size does not fit all,” because exchange rate policy must take into account not only the nature of a country’s economy, but also any existing constraints on domestic economic policy. In the subsequent discussion, participants agreed on a third principle—that transparency is key to an effective exchange rate policy in the long term. This principle argues, among other things, for the adoption of a single exchange rate.

One caveat is in order here: in the time that has elapsed between the seminar and the publication of this book, many institutional changes have taken place that are not reflected in the papers. Czechoslovakia is now two separate entities. Many countries have their own national currencies, and the European Community has become the European Union. For the most part, references in these papers to monies and political units are current as of the end of 1992, unless otherwise noted.

As in many of its regular activities, the IMF Institute relies heavily on other departments of the IMF for its seminar program. A glance at the table of contents of this volume shows that this seminar was no exception. Special thanks is also due to Chorng-Huey Wong of the Institute, who organized the seminar and served as moderator. It is important to remember, however, that neither the seminar nor the book would have been possible without the interest and cooperation of all the participants.

Patrick de Fontenay, Director

IMF Institute


Many people contributed to the success of the seminar on Exchange Rate Policy in Developing and Transition Economies and to the ensuing book. Much of the credit belongs to our colleagues in the IMF and World Bank who participated in the seminar. In addition, Liam Ebrill, Thomas Reichman, and Tessa van der Willigen helped review some of the case studies. Pat Bielaski transcribed the tapes of the seminar, and Evelyn McClung typed the manuscripts. Emily Chalmers provided editorial assistance and saw the volume through production. And finally, the authors gave generously of their time in revising the material presented at the seminar.

Guillermo Calvo and Carlos Végh’s “Inflation Stablization and Nominal Anchors” was originally published in Contemporary Economic Policy (formerly Contemporary Policy Issues) in April 1994. W. Max Corden’s “Exchange Rate Policy in Developing Countries” first appeared in Trade Theory and Economic Reform: North, South, and East, edited by Jaime DeMelo and Andre Sapier (Oxford: Basil Blackwell, 1991). And Sebastian Edwards’ “Exchange Rate Misalignment in Developing Countries” appeared in The World Bank Research Observer (January 1989). These articles are reprinted by kind permission of the publishers.

Richard C. Barth

Chorng-Huey Wong

IMF Institute

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