Seminar guest speakers reflected on two topics close to Polak's heart: exchange rate policies and open financial markets. Sir Andrew Crockett, President of JPMorgan Chase International, who worked under Polak on the principles of exchange rate policy surveillance in the IMF Research Department in the late 1970s and who was subsequently deputy director of that department, focused his remarks on a recent paper by Michael Dooley (University of California at Santa Cruz), David Folkerts-Landau, and Peter Garber (both of Deutsche Bank) that deals with a topic that has also been a theme of much of Polak's research.
Their paper posits that the current international monetary system in a way resembles the postwar fixed exchange rate system, known as the Bretton Woods system, which collapsed in 1973. In this "revived" Bretton Woods system, they argue, the United States finds itself once again at the center of the international monetary system, with East Asia at the periphery playing the same role that Europe did in the 1950s and 1960s. The center and the periphery both benefit from the relationship and have an interest in maintaining it-therefore, the system is sustainable and stable, the authors say.
In Crockett's view, however, the comparison between the two eras is flawed. He pointed out that the Bretton Woods system developed an elaborate set of mechanisms around adjustment policies to avoid the emergence of prolonged balance of payments deficits or surpluses-unlike today's system. The current system, Crockett argued, is unsatisfactory. We have forgotten our principles for surveillance of exchange rate policies, he said, but "we have not replaced them with anything that would provide us with a satisfactory alternative."
Michael Mussa, a successor to Polak as the IMF Director of Research and Economic Counsellor and now a Senior Fellow at the Institute for International Economics, also stressed the need for more effective surveillance of exchange rate policies. Mussa noted that the exchange rate policies of many Asian emerging market countries have not received intense scrutiny from the IMF but perhaps should, given these countries' high accumulation of foreign exchange reserves in recent years. Citing the IMF's Articles of Agreement, which state that the organization "shall exercise firm surveillance over the exchange rate policies of its members," Mussa argued that IMF surveillance could afford to be firmer.
When Polak himself took the...