Exchange rate policy - imf, Microeconomics

Exchange Rate Policy:

After the second amendment to the Articles of Agreement of IMF which came into effect on April 1, 1978, every member is free to choose its own exchange rate arrangements. After this amendment, SDR has become the international reserve asset and unit of account of the IMF. Some of the countries have pegged their currencies to SDR, some others to currencies of other countries. Many others have adopted any of the variants of the fixed exchange rate systems. 

The members are free to adopt any system. But the IMF is required to exercise surveillance over the exchange rate policies of members and is free to express its opinion on the policies of the member. Each member is required to see that its foreign exchange policies: 

•  endeavour to direct its economic  and financial policies toward the objective of fostering orderly economic growth with reasonable price stability, with due regard to its circumstances; 

•  seek to promote stability by fostering orderly underlying economic and financial conditions and a monetary system that does not tend to produce erratic disruptions; and 

•  avoid manipulation of exchange rates or the international monetary system in order to prevent effective BOP adjustment or to gain an unfair competitive advantage over the other members. 

In order to enable member-countries to frame their respective economic policies within the parameters defined above, the Fund provides them with "finance" to meet their BOP deficits and pursue adjustment programmes.

Posted Date: 11/15/2012 1:04:11 AM | Location : United States

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