IMF strengthening exchange rate advice

• Author: Lynn Aylward
• Position: IMF Policy Development and Review Department
• Pages: 146-149

IMF strengthening exchange rate advice

Lynn Aylward

IMF Policy Development and Review Department

Page 146

The IMF is updating its policy framework for monitoring exchange rates and improving the analytical underpinnings for its surveillance. A critical initiative is updating 30-year-old guidance about the IMF's surveillance over exchange rate policies. Updated guidelines will take account of the globalization of financial markets and would encourage best practice by clarifying the IMF membership's expectations on the proper scope and conduct of surveillance.

Page 148

The emergence in recent years of large global imbalances and changes in global trading patterns have propelled exchange rates and related policies to the forefront of the public debate in many countries. Accusations of unfair currency practices are being waved at a number of countries with large trade surpluses, and calls for defensive measures- whether in the form of trade protectionism or of exchange rate policies-are heard in some countries running large deficits.

This has brought back into the spotlight a key mandate of the IMF, namely exchange rate surveillance-the focus of a recent report by the IMF's Independent Evaluation Office (IEO) that assesses the Fund's advice in this critical area. (See IMF Survey, May 28, 2007.)

Enhancing the IMF's work in this area is a key component of the Medium-Term Strategy (MTS)-Managing Director Rodrigo de Rato's strategic plan for enhancing the IMF's relevance and effectiveness in the 21st century. Under the MTS, a number of initiatives aim to ensure that exchange rate surveillance is as clear, candid, technically expert, and influential as it can be.

Part of original mandate

Since its creation, the IMF has been closely involved in exchange rate matters. Indeed, one of the main reasons for establishing the IMF and putting it in charge of the Bretton Woods system was to promote dialogue and cooperation among countries to rebuild international trade and finance.

The founders understood that the alternative could be a return to the vicious cycle of competitive depreciation and protectionism that contributed to the turmoil of the 1930s.

The current role of the IMF's exchange rate surveillance-or of surveillance more generally- is to assess how countries'...