The contribution of the IMF to exchange rate stability: efforts in monetary diplomacy

Abstract

Under this optimistic title1, I intend to trace the efforts which the International Monetary Fund (hereafter called ‘the Fund’) has made in recent years to ‘promote exchange stability’ and to ‘avoid competitive exchange depreciation’, as the Articles of Agreement require the Fund to do. Under the Bretton Woods regime, members agreed to a constraint, a fixed exchange rate, and the international community (the Fund) administered discretion. The current Articles of Agreement, amended in 1978, put into effect exactly the opposite framework: members have underwritten the predominance of discretion (the exchange arrangement of their choice), while the international community is left with the task of administering the constraints (surveillance) to which the discretion is to be made subject.2 Thus, the world moved from ‘a system of stable exchange rates’, the Bretton Woods regime, to an agreement to collaborate with the Fund and other members ... to promote ‘a stable system of exchange rates’ (Article iv of the Articles of Agreement). Some groups of countries have voluntarily accepted the constraints of a fixed exchange rate regime on a regional basis amongst themselves: the European Monetary System’s Exchange Rate Mechanism (hereafter called the ERM) and the Zone franc countries, for example.