IMF Member Research Articles

Article VIII Acceptance by IMF Members - Recent Trends and Implications for the Fund

This paper reports on the work undertaken in this area since the 1992 review and seeks to encourage further progress in current account liberalization among the membership. Section II provides an overview of the legal framework; Section III studies recent trends in members’ acceptance of Article VIII obligations, and analyzes the factors underlying these trends; Section IV outlines the possible economic (and financial) benefits of current account liberalization for Fund members; finally, Section V lays out the implications for surveillance, the enforcement of compliance with Article VIII obligations and technical assistance.

Pacific Island Countries: Possible Common Currency Arrangement

This paper examines the potential advantages and disadvantages of adopting a common currency arrangement among the six IMF member Pacific island countries that have their own national currency. These countries are Fiji, Papua New Guinea, Samoa, Solomon Islands, Tonga, and Vanuatu. The study explains that the present exchange rate regimes-comprising pegging to a basket of currencies for five countries and the floating arrangement for Papua New Guinea-have generally succeeded in avoiding inflationary, balance of payments, external debt, and financial system problems. The study concludes that adopting a common currency in the Pacific would require greater convergence of domestic policies and substantial strengthening of regional policies, which would take time to achieve.

Pacific Island Countries - Possible Common Currency Arrangement

This paper examines the potential advantages and disadvantages of adopting a common currency arrangement among the six IMF member Pacific island countries that have their own national currency. These countries are Fiji, Papua New Guinea, Samoa, Solomon Islands, Tonga, and Vanuatu. The study explains that the present exchange rate regimes - comprising pegging to a basket of currencies for five countries and the floating arrangement for Papua New Guinea - have generally succeeded in avoiding inflationary, balance of payments, external debt, and financial system problems. The study concludes that adopting a common currency in the Pacific would require greater convergence of domestic policies and substantial strengthening of regional policies, which would take time to achieve.

Asset-Liability-Matrix Analysis Derived from the Flow-of-Funds Accounts: The Bank of Japan's Quantitative Monetary Policy Examined

The first purpose of this paper is to present the compilation procedure of the Asset- Liability-Matrix (ALM) from the Flow-of-Funds (FOF) accounts in the balance sheet format that is widely available in IMF member countries. The introduction of ALM into the framework of FOF analysis enables us to utilize the affluent assets of input-output analysis, notably the concept of Leontief inverse. The second purpose of this article is to demonstrate the application of ALM to the examination of the quantitative monetary policy introduced by the Bank of Japan (BOJ) in March 2001. It can be said, as a conclusion, that there was a tactical error in the quantitative monetary policy adopted by BOJ in terms of the combination of money market operations. We believe that the ALM framework of FOF analysis is a powerful and practical device to fulfil this kind of examination.

The Evolution of Exchange Rate Regimes Since 1990: Evidence from de Facto Policies

This paper presents a monthly database on de facto exchange rate regimes that covers all IMF members since 1990. Information from IMF country reports and other sources, including exchange rate data, is utilized to determine de facto exchange rate policies. Countries are categorized based on these policies using the IMF nomenclature adopted in 1999. This approach ensures the forward compatibility of the database. The database is then used to examine whether the view of exchange regimes holds with de facto regimes. It is found that the proportion of countries adopting intermediate regimes has indeed been shrinking in favor of greater flexibility or greater fixity, especially for countries more integrated with international markets. Analyses based on Markov chains of regime transitions, however, provide (mixed) evidence against the bipolar view.

Cross-Country and Cross-Sector Analysis of Transparency of Monetary and Financial Policies

In this paper we construct indices of transparency of monetary and financial policies, based on self-evaluations carried out by 135 IMF member countries in 1999, and use them to identify transparency patterns across different policies and country groups. We find that across all countries, transparency is highest in the formulation and conduct of monetary policy and lowest in insurance supervision and deposit-insurance oversight. Across country groups having similar political/economic characteristics, the average degree of transparency is highest in advanced countries and lowest in developing ones for both monetary policy and those financial policies for which there are differences between country group means.

The Evolution of Exchange Rate Regimes Since 1990

This paper presents a monthly database on de facto exchange rate regimes that covers all IMF members since 1990. Information from IMF country reports and other sources, including exchange rate data, is utilized to determine de facto exchange rate policies. Countries are categorized based on these policies using the IMF nomenclature adopted in 1999. This approach ensures the forward compatibility of the database. The database is then used to examine whether the view of exchange regimes holds with de facto regimes. It is found that the proportion of countries adopting intermediate regimes has indeed been shrinking in favor of greater flexibility or greater fixity, especially for countries more integrated with international markets. Analyses based on Markov chains of regime transitions, however, provide (mixed) evidence against the bipolar view.

The Evolution of Exchange Rate Regimes Since 1990 Evidence from De Facto Policies

This paper presents a monthly database on de facto exchange rate regimes that covers all IMF members since 1990. Information from IMF country reports and other sources, including exchange rate data, is utilized to determine de facto exchange rate policies. Countries are categorized based on these policies using the IMF nomenclature adopted in 1999. This approach ensures the forward compatibility of the database. The database is then used to examine whether the bipolar view of exchange regimes holds with de facto regimes. It is found that the proportion of countries adopting intermediate regimes has indeed been shrinking in favor of greater flexibility or greater fixity, especially for countries more integrated with international markets. Analyses based on Markov chains of regime transitions, however, provide (mixed) evidence against the bipolar view.

The Legalization of International Monetary Affairs

For the first time in history, international monetary relations were institutionalized after World War II as a set of legal obligations. The Articles of Agreement that formed the International Monetary Fund contain international legal obligations of the rules of good conduct for IMF members. Members were required to maintain a par value for their currency (until 1977), to use a single unified exchange-rate system, and to keep their current account free from restrictions. In this article I explore why governments committed themselves to these rules and the conditions under which they complied with their commitments. The evidence suggests that governments tended to make and keep commitments if other countries in their region did so as well. Governments also complied with their international legal commitments if the regime placed a high value on the rule of law domestically. One inference is that reputational concerns have a lot to do with international legal commitments and compliance. Countries that have invested in a strong reputation for protecting property rights are more reluctant to see it jeopardized by international law violations. Violation is more likely, however, in the face of widespread noncompliance, suggesting that compliance behavior should be understood in its regional context.

Hegemons, IOs, and markets: the case of the substitution account

For eighteen months between 1978 and 1980, the International Monetary Fund and IMF members attempted to reform the international monetary system by establishing a substitution account. Designed to enhance the stability of the monetary system, the proposed substitution account would have accepted dollar deposits from foreign central banks, in return issuing certificates denominated in special drawing rights. The collapse of negotiations about the account in early 1980 confirms the hypothesis of hegemonic stability theorists that the distribution of systemic costs is problematic in the absence of a hegemonic power. The case thereby qualifies recent assertions that a small group of nations can supply stability to the international economy. However, two factors outside the realm of hegemonic theory also helped produce the outcome of the negotiations: the division of power within the United States between Congress and the Executive, and changes in international market conditions during 1979 and early 1980.

Power Relationships in the International Monetary Fund: The Consequences of Quota Changes

THERE is a widespread agreement that the International Monetary (IMF) has played a central role in fostering a dynamic and open international economy in the postwar period. As the world economy evolved, the consensus has also emerged, however, that substantial changes were required in the Fund's rules so as to make them better reflect the changing power relationships among its members. In an attempt to make these changes, the Proposed Second Amendment to the Articles of Agreement of the International Monetary Fund (IMF, 1976) was offered to the IMF's members for ratification along with a change in the distribution of the members' quotas. The new rules became effective as of April 1, 1978, when the amendment was ratified by the required 60% of members with 80% of the total vote. It is the purpose of this paper to demonstrate, using some simple game theoretical tools, that in many cases the framers of these amendments and quota changes have achieved a result that may be exactly the opposite of their intentions. More specifically, we will show that 1) Under the proposed changes 38 countries in the IMF have their percentage of the total vote decreased and yet their voting power within the organization increased when power is measured by the Banzhaf power index. 2) With the new vote weight distribution and voting rules, four major countries-Belgium, Holland, West Germany and Japan have their percentage of the total vote increased and yet have their percentage of the total power decreased. Paradoxical results of this variety were discussed theoretically by Fischer and Schotter (1978) and labeled the Paradox of Redistribution.' 1 3) Under the previous distribution of votes and voting rules, smaller countries had voting powers that were out of proportion to their voting weights, and the newly introduced changes would generally aggravate this disproportion. 4) The power of the United States within the increases substantially on issues where most countries vote through their Executive Directors (as groups), as opposed to issues where they vote through their Governors (individually). 5) Under both the previous and current voting system, significant diminishing returns to voting weights exist and the tendency is more pronounced under the new system. In most voting situations power is a concave function of voting weight with large linear segments. 6) Although these results are in many instances not quantitatively substantial, qualitatively they indicate a noticeable discrepancy between what one would think the consequences of the voting changes would be and what they actually are. In this paper we will proceed as follows: Section I will present some background material about the voting procedures at the IMF. Section II will discuss the index that we are using to measure power. Section III will present the results of our calculations and discuss their significance. Finally, section IV will offer some conclusions and consider the relevance of our findings.

How helpful is compensatory financing?

IN INTERECONOMICS, No. 11/12, 1977, Klaus-Peter Treydte discussed the European Communities’ “STABEX“ system for export earnings stabilisation. The following contribution compares Stabex with the Compensatory Financing Facility for IMF member countries.