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Annual Reporton

Exchange Arrangementsand Exchange Restrictions

2011

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Internat ional Monetar y Fund

©2011 International Monetary Fund

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International Monetary Fund.

Annual Report on exchange arrangements and exchange restrictions

[electronic resources]. 1979–

Continues: International Monetary Fund. Annual Report on exchange restrictions, 1950–1978

1. Foreign exchange—Law and Legislation—Periodicals.2. Foreign exchange administration—Periodicals. 1. Title

K4440.A13 157 2007 341.7’5179-644506ISSN 0250-7366ISBN 978-1-61635-203-5

C o n t e n t s

International Monetary Fund | September 2011 iii

Contents

Preface . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .vi

Abbreviations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . vii

Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Overall Developments during 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

Developments in Exchange Arrangements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4Table 1. De Facto Classification of Exchange Rate Arrangements and Monetary Policy Frameworks, April 30, 2011 . . . . . . . . 4Table 2. Exchange Rate Arrangements, April 30, 2008–April 30, 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8Table 3. Changes and Resulting Reclassifications of Exchange Rate Arrangements, January 2010–April 30, 2011 . . . . . . . . . . . 9Table 4. Monetary Policy Frameworks and Exchange Rate Anchors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

Foreign Exchange Interventions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15Table 5. Changes in Exchange Rate Arrangements, Official Exchange Rate, and Monetary Policy Framework, 2010–11 . . . . 16Table 6. Foreign Exchange Market Structure, 2009–11 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18Table 7. a. Changes in Foreign Exchange Markets, 2010–11 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19Table 7. b. Changes in Currency and Exchange Rate Structures, 2010–11 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24Table 7. c. Changes in Exchange Subsidies and Exchange Taxes, 2010–11 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

Member Countries’ Obligations and Status under Article VIII . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26Table 8. Exchange Restrictions and Multiple Currency Practices, as of December 31, 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . 29Table 9. Exchange Restrictions and/or Multiple Currency Practices by Country, as of December 31, 2010 . . . . . . . . . . . . . . . 30

Regulatory Framework for Foreign Exchange Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34Table 10. Distribution of Capital Controls, January 2009–July 2011 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37

Provisions Specific to Commercial Banks and Institutional Investors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40Table 11. Provisions Specific to the Financial Sector, January 2009–July 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41

Special Topic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44

Policy Responses for Managing Large Capital Inflows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44

References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47

Compilation Guide . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48

Summary Features of Exchange Arrangements and Regulatory Frameworks for Current andCapital Transactions in IMF Member Countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60

Country Table Matrix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69

A N N U A L R E P O R T O N E X C H A N G E A R R A N G E M E N T S A N D E X C H A N G E R E S T R I C T I O N S S E P T E M b E R 2011

iv International Monetary Fund | September 2011

Country Chapters on CD-RoM1

Islamic Republic of AfghanistanAlbania Algeria AngolaAntigua and BarbudaArgentina ArmeniaArubaAustraliaAustriaAzerbaijanThe BahamasBahrainBangladesh BarbadosBelarus BelgiumBelizeBenin BhutanBoliviaBosnia and HerzegovinaBotswana Brazil Brunei DarussalamBulgariaBurkina FasoBurundiCambodia CameroonCanada Cape VerdeCentral African RepublicChadChileChinaColombia ComorosDemocratic Republic of CongoRepublic of CongoCosta RicaCôte d’IvoireCroatiaCuraÇao and Sint MaartenCyprusCzech RepublicDenmark

DjiboutiDominicaDominican RepublicEcuadorEgypt El Salvador Equatorial Guinea EritreaEstonia EthiopiaRepublic of FijiFinland FranceGabonThe GambiaGeorgia GermanyGhanaGreeceGrenadaGuatemalaGuineaGuinea-Bissau Guyana HaitiHonduras Hong Kong SARHungaryIcelandIndiaIndonesia Islamic Republic of IranIraq IrelandIsraelItalyJamaica Japan JordanKazakhstan KenyaKiribati Republic of Korea KosovoKuwaitKyrgyz RepublicLao People’s Democratic Republic

1 The term “country,” as used in this publication, does not in all cases refer to a territorial entity that is a state as understood by international law and practice; the term also covers some territorial entities that are not states but for which statistical data are maintained and provided internationally on a separate and independent basis.

C o u n t R y C h a p t e R s o n C D - R o M

International Monetary Fund | September 2011 v

LatviaLebanonLesotho LiberiaLibyaLithuania Luxembourg Former Yugoslav Republic of MacedoniaMadagascarMalawi MalaysiaMaldivesMaliMalta Marshall Islands MauritaniaMauritius Mexico Federated States of MicronesiaMoldovaMongolia Montenegro MoroccoMozambiqueMyanmar NamibiaNepal NetherlandsNew ZealandNicaraguaNiger Nigeria Norway Oman PakistanPalauPanama Papua New GuineaParaguayPeruPhilippines PolandPortugalQatarRomaniaRussian FederationRwandaSt. Kitts and Nevis

St. LuciaSt. Vincent and the GrenadinesSamoaSan Marino São Tomé and PríncipeSaudi ArabiaSenegal SerbiaSeychellesSierra Leone SingaporeSlovak Republic SloveniaSolomon Islands SomaliaSouth Africa Spain Sri Lanka SudanSuriname SwazilandSweden SwitzerlandSyrian Arab RepublicTajikistanTanzaniaThailandTimor-LesteTogoTongaTrinidad and TobagoTunisia TurkeyTurkmenistanTuvaluUganda Ukraine United Arab Emirates United KingdomUnited StatesUruguayUzbekistan VanuatuVenezuela VietnamRepublic of YemenZambia Zimbabwe


vi International Monetary Fund | September 2011

preface

The Annual Report on Exchange Arrangements and Exchange Restrictions has been published by the IMF since 1950. It draws on information available to the IMF from a number of sources, including that provided in the course of official staff visits to member countries, and has been prepared in close consultation with national authorities.

This project was coordinated in the Monetary and Capital Markets Department by a staff team directed by Karl F. Habermeier and comprising Roy Baban, Mehmet Ziya Gorpe, Ivett Jamborne, Annamaria Kokeny, and Maria Zenaida M. de Mesa. It draws on the specialized contribution of that department (for specific countries), with assistance from staff members of the IMF’s five area departments, together with staff of other departments. The report was edited by Linda Griffin Kean of the External Relations Department. Lucy Scott Morales and John Gregg Forte provided editorial assistance. Design and composition by Urszula Witherell of JetSet Communications, Inc.

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International Monetary Fund | September 2011 vii

abbreviations

ACU Asian Clearing Union (Bangladesh, Bhutan, India, Islamic Republic of Iran, Myanmar, Nepal, Pakistan, Sri Lanka)

AD Authorized dealerAFTA ASEAN Free Trade Area (see ASEAN, below)AGOA African Growth and Opportunity Act (United States)AMU Asian monetary unitASEAN Association of Southeast Asian Nations (Brunei Darussalam, Indonesia, Malaysia,

Philippines, Singapore, Thailand)BCEAO Central Bank of West African States (Benin, Burkina Faso, Côte d’Ivoire, Guinea-

Bissau, Mali, Niger, Senegal, Togo)BEAC Bank of Central African States (Cameroon, Central African Republic, Chad, Republic

of Congo, Equatorial Guinea, Gabon)CACM Central American Common Market (Costa Rica, El Salvador, Guatemala, Honduras,

Nicaragua)CAEMC Central African Economic and Monetary Community (members of the BEAC)CAFTA Central American Free Trade AgreementCAP Common agricultural policy (of the EU)CARICOM Caribbean Community and Common Market (Antigua and Barbuda, Barbados,

Belize, Dominica, Grenada, Guyana, Haiti, Jamaica, Montserrat, St. Kitts and Nevis, St. Lucia, St. Vincent and the Grenadines, Suriname, Trinidad and Tobago); The Bahamas is also a member of CARICOM, but it does not participate in the Common Market

CB Central bankCEFTA Central European Free Trade Area (Bulgaria, Hungary, Poland, Romania, Slovak

Republic, Slovenia)CEPGL Economic Community of the Great Lakes Countries (Burundi, Democratic Republic

of Congo, Rwanda)CET Common external tariffCFA Communauté financière d’Afrique (administered by the BCEAO) and Coopération

financière en Afrique centrale (administered by the BEAC)CIMA Code Chartered Institute of Management Accountants Code of Ethics for Professional

AccountantsCIS Commonwealth of Independent States (Armenia, Azerbaijan, Belarus, Georgia,

Kazakhstan, Kyrgyz Republic, Moldova, Russian Federation, Tajikistan, Turkmenistan, Ukraine, Uzbekistan)

CITES Convention on International Trade in Endangered Species of Wild Fauna and FloraCMA Common Monetary Area (a single exchange control territory comprising Lesotho,

Namibia, South Africa, and Swaziland)CMEA Council for Mutual Economic Assistance (dissolved; formerly Bulgaria, Cuba,

Czechoslovakia, German Democratic Republic, Hungary, Mongolia, Poland, Romania, U.S.S.R., Vietnam)

Note: This list does not include acronyms of purely national institutions mentioned in the country chapters


viii International Monetary Fund | September 2011

COMESA Common Market for Eastern and Southern Africa (Burundi, Comoros, Democratic Republic of Congo, Djibouti, Egypt, Eritrea, Ethiopia, Kenya, Madagascar, Malawi, Mauritius, Namibia, Rwanda, Seychelles, Sudan, Swaziland, Uganda, Zambia, Zimbabwe)

EAC East African CommunityEBRD European Bank for Reconstruction and DevelopmentEC European Council (Council of the European Union)ECB European Central BankECCB Eastern Caribbean Central Bank (Anguilla, Antigua and Barbuda, Dominica,

Grenada, Montserrat, St. Kitts and Nevis, St. Lucia, and St. Vincent and the Grenadines)

ECCU Eastern Caribbean Currency UnionECOWAS Economic Community of West African States (Benin, Burkina Faso, Cape Verde,

Côte d’Ivoire, The Gambia, Ghana, Guinea, Guinea-Bissau, Liberia, Mali, Niger, Nigeria, Senegal, Sierra Leone, Togo)

ECSC European Coal and Steel CommunityEEA European Economic AreaEFSF European Financial Stability FacilityEFSM European Financial Stability MechanismEFTA European Free Trade Association (Iceland, Liechtenstein, Norway, Switzerland)EIB European Investment BankEMU European Economic and Monetary Union (Austria, Belgium, Cyprus, Estonia,

Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Malta, Netherlands, Portugal, Slovak Republic, Slovenia, Spain)

EPZ Export processing zoneERM Exchange rate mechanism (of the European monetary system)EU European Union (formerly European Community); Austria, Belgium, Bulgaria,

Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland, Portugal, Romania, Slovak Republic, Slovenia, Spain, Sweden, United Kingdom)

FATF Financial Action Task Force on Money Laundering (of the OECD)FDI Foreign direct investmentFEC Foreign exchange certificateFSU Former Soviet UnionG7 Group of Seven advanced economies (Canada, France, Germany, Italy, Japan, United

Kingdom, United States)GAFTA Greater Arab Free Trade AgreementGCC Gulf Cooperation Council (Cooperation Council for the Arab States of the Gulf;

Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, United Arab Emirates)GSP Generalized System of PreferencesIBRD International Bank for Reconstruction and Development (World Bank)IMF International Monetary FundLAIA Latin American Integration Association (Argentina, Bolivia, Brazil, Chile, Colombia,

Ecuador, Mexico, Paraguay, Peru, Uruguay, Venezuela)LC Letter of creditLIBID London interbank bid rate

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International Monetary Fund | September 2011 ix

LIBOR London interbank offered rateMERCOSUR Southern Cone Common Market (Argentina, Brazil, Paraguay, Uruguay)MFN Most favored nationMOF Ministry of FinanceNAFTA North American Free Trade AgreementOECD Organization for Economic Cooperation and DevelopmentOECS Organization of Eastern Caribbean States (Antigua and Barbuda, Dominica,

Grenada, Montserrat, St. Kitts and Nevis, St. Lucia, St. Vincent and the Grenadines)OGL Open general licenseOTC Over the counterPACER Pacific Agreement on Closer Economic Relations (of the Pacific Islands Forum;

Australia, Cook Islands, Republic of Fiji, Kiribati, Marshall Islands, Federated States of Micronesia, Nauru, New Zealand, Niue, Palau, Papua New Guinea, Samoa, Solomon Islands, Tonga, Tuvalu, Vanuatu)

PICTA Pacific Island Countries Trade Agreement (of the Pacific Islands Forum); Cook Islands, Republic of Fiji, Kiribati, Marshall Islands, Federated States of Micronesia, Nauru, Niue, Palau, Papua New Guinea, Samoa, Solomon Islands, Tonga, Tuvalu, Vanuatu)

RCPSFM Regional Council on Public Savings and Financial Markets (an institution of WAEMU countries that is involved in issuance and marketing of securities authorization)

RIFF Regional Integration Facilitation Forum (formerly Cross-Border Initiative); Burundi, Comoros, Kenya, Madagascar, Malawi, Mauritius, Namibia, Rwanda, Seychelles, Swaziland, Tanzania, Uganda, Zambia, Zimbabwe)

SACU Southern African Customs Union (Botswana, Lesotho, Namibia, South Africa, Swaziland)

SADC Southern Africa Development Community (Angola, Botswana, Democratic Republic of Congo, Lesotho, Malawi, Mauritius, Mozambique, Namibia, Seychelles, South Africa, Swaziland, Tanzania, Zambia, Zimbabwe)

SDR Special drawing rightUCITS Undertakings for the Collective Investment of Transferable SecuritiesUDEAC Central African Customs and Economic Union (Cameroon, Central African

Republic, Chad, Republic of Congo, Equatorial Guinea, Gabon)UN United NationsUNSC UN Security CouncilVAT Value-added taxWAEMU West African Economic and Monetary Union (formerly WAMU; members of the

BCEAO)WAMA West African Monetary Agency (formerly WACH)WAMZ West African Monetary ZoneW-ERM II Exchange rate mechanism (of the WAMZ)WTO World Trade Organization

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International Monetary Fund | September 2011 1

overview

This volume (62nd issue) of the Annual Report on Exchange Arrangements and Exchange Restrictions (AREAER) provides a description of the foreign exchange arrangements, exchange and trade systems, and capital controls of all IMF member countries.1 The AREAER reports on restrictions in effect under Article XIV, Section 2, of the IMF’s Articles of Agreement in accordance with Section 3 of Article XIV, which mandates annual reports on such restrictions. It also provides information related to Paragraph 16 of the 2007 Surveillance Decision, which restates the obligation under the IMF’s Articles of Agreement of each member country to notify the IMF of the exchange arrangement it intends to apply and of any changes in the arrangement.

The AREAER attempts to provide a comprehensive description of exchange and trade systems, going beyond exchange restrictions or exchange controls. It provides information related to restrictions on current interna-tional payments and transfers and multiple currency practices (MCPs) maintained under Article XIV of the IMF’s Articles of Agreement. It includes restrictions and MCPs subject to the IMF’s jurisdiction in accordance with Article VIII, Sections 2(a) and 3.2 The report also provides information on the operation of foreign exchange markets and controls on international trade. It describes controls on capital transactions and mea-sures implemented in the financial sector, including prudential measures. In addition, it reports on exchange measures imposed by members for security reasons, including those notified to the IMF in accordance with relevant decisions by the IMF Executive Board.3

This report provides detailed information on the de jure and de facto exchange rate arrangements of member countries. The de jure arrangements are reported as described by the countries. The de facto exchange rate arrangements are classified into 10 categories.4 The classification is based on the information available on members’ de facto arrangements, as analyzed by the IMF staff, which may differ from countries’ officially announced (de jure) arrangements. The methodology and the characteristics of the categories are described in the Compilation Guide.5

The AREAER aims to provide timely information. In general, the report includes a description of exchange and trade systems as of December 31, 2010. However, changes in member countries’ exchange rate arrange-ments are reflected as of April 30, 2011, and in some cases, reference is made to other significant develop-ments through August 31, 2011.

To facilitate an easy comparison, a single table provides an overview of the characteristics of the exchange and trade systems of all IMF member countries (see Summary Features of Exchange Arrangements and Regulatory Frameworks for Current and Capital Transactions in IMF Member Countries). The Country Table Matrix lists the categories used in the database, and the Compilation Guide includes definitions and explanations

1 In addition to the 187 IMF member countries, the report includes information on Hong Kong SAR (China) as well as Aruba and Curaçao and Sint Maarten (both Netherlands).

2 The information on restrictions and MCPs consists of verbatim quotes from each economy’s most recent published IMF staff report as of December 31, 2010, and represents the views of the IMF staff, which may not necessarily have been endorsed by the IMF Executive Board. In cases of unpublished IMF staff reports, the quotes have been included verbatim in the AREAER with the express consent of the member. In the absence of such consent, the relevant information is reported as “not publicly available.” If countries implement changes to these restrictions after the relevant IMF report has been issued, these changes will be reflected in a subsequent issue of the AREAER, covering the year during which the IMF staff report with information on such changes is issued.

3 The information on exchange measures imposed for security reasons is based solely on information provided by country authorities.

4 The categories of exchange rate arrangements are (1) hard pegs comprising (a) exchange arrangements with no separate legal tender and (b) currency board arrangements; (2) soft pegs consisting of (a) conventional pegged arrangements, (b) pegged exchange rates within horizontal bands, (c) crawling pegs, (d) stabilized arrangements, and (e) crawl-like arrangements; (3) float-ing regimes, under which the exchange rate is market determined and characterized as (a) floating or (b) free floating; and (4) the residual category, other managed arrangements. These categories are based on the flexibility of the arrangement and the way it operates in practice—that is, the de facto regime is described, rather than the de jure or official description of the arrangement. The individual categories are defined in detail in the Compilation Guide.

5 Effective February 2, 2009, the classification methodology was revised to allow for greater consistency and objectivity of classifications across countries and improved transparency, in the context of the IMF’s bilateral and multilateral surveillance.


2 International Monetary Fund | September 2011

used by member countries to report the data and for use in interpreting this report. There are two recent technical changes in the Country Table Matrix to help better organize the report: introduction of a separate category for the monetary framework and a more detailed breakdown of foreign exchange market operations.

The AREAER is available in several formats. This summary overview of the year’s developments is available in print and on the Internet, and the detailed information for each of the 190 member countries and territories is included on a CD enclosed with the printed summary and in an online database, AREAER Online. In addition to the information on the exchange and trade system of IMF member countries in 2010, AREAER Online contains historical data published in previous issues of the AREAER. It is searchable by year, country, and category of measure and allows cross-country comparisons for time series.

overall Developments during 2010Apart from a significant strengthening of prudential measures in the financial sector, the previously observed general trend of foreign exchange liberalization continued during 2010. Against this backdrop, developments in the global financial system determined the changes in member countries’ exchange and trade systems. The early stages of recovery from the global crisis have been characterized by slack economic growth and abun-dant liquidity in advanced economies and by surging capital inflows to emerging market economies, which prompted many countries to adjust their foreign exchange regimes. The global crisis also raised concern about the stability of financial systems, inciting a marked tightening of the financial sector regulatory framework. Even though financial markets stabilized significantly, this has not yet reversed the shift that occurred after the early months of the crisis to less flexible exchange rate arrangements, while countries continued during 2010 to roll back restrictions and controls on foreign exchange transactions.

The 2011 AREAER documents the following major trends and significant developments:

• The number of IMF member countries increased by one, to 187, when Tuvalu joined the IMF on June 24, 2010. The Netherlands Antilles ceased to exist: Bonaire, Saba, and Sint Eustatius became municipalities of the Netherlands, and Curaçao and Sint Maarten now have one joint central bank and a common currency. The IMF member country remains the Netherlands, but beginning with the 2011 AREAER changes in the exchange and trade systems of Bonaire, Saba, and Sint Eustatius are tracked within the report for the Netherlands, and those of Curaçao and Sint Maarten are tracked in a separate, joint country report that replaces the report on the Netherlands Antilles.

• The shift to more stable exchange rate arrangements and the erosion of market-determined exchange rates continued against the backdrop of continued stabilization in international financial markets and strong capital inflows to emerging market economies. There was a significant increase in crawl-like arrangements, which is a result of an increased need by many countries to fend off appreciation or depreciation pressures. The number of countries using “other managed” regimes (the residual classification category) is almost entirely back to the precrisis level, after surging in response to heightened financial market conditions dur-ing the crisis.

• The exchange rate retains its dominant, albeit slightly decreased, role as the monetary anchor for most countries’ monetary policy frameworks. The number of countries anchoring their exchange rate to the U.S. dollar, to another currency, or to a basket of currencies remained relatively stable during the past year, as did the number of countries using an inflation- or monetary-aggregate-targeting framework to direct monetary policy. Continuing a trend that began in the wake of the financial crisis, more countries are using discre-tionary rather than rule-based interventions, especially to implement auctions. The surge in capital flows to emerging market economies also prompted many of these countries to intervene to dampen exchange rate appreciation and thus preserve their external competitiveness.

• Country officials relied less on foreign exchange auctions than during the previous year, suggesting that some auctions had been implemented primarily to deal with heightened market stress during the crisis. As financial markets stabilize, fewer countries may feel a need to rely on such auctions, although these arrange-ments often provide a useful framework for small foreign exchange markets.

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• Quite a few measures introduced during the crisis have been removed, and others have been introduced to address vulnerabilities exposed by the crisis. For example, there has been some tightening in forward for-eign exchange markets to address concerns about the potential for derivative transactions to cause financial instability. Taxes on foreign exchange transactions have also been raised, in part to dampen capital inflows.

• The number of IMF member countries accepting the obligations of Article VIII, Sections 2(a), 3, and 4, increased by two to 168: Lao People’s Democratic Republic accepted them as of May 28, 2010, and Mozambique accepted them as of May 20, 2011. Nineteen member countries, including new member Tuvalu, continue to avail themselves of the transitional arrangements under Article XIV.

• After marked increases in 2009 in the number of countries that imposed restrictive exchange measures and in the number of such measures, developments in 2010 suggest that the impetus for such measures may have peaked. Even as fewer countries maintained such restrictions, however, the actual number of restrictions and MCPs increased slightly, because some existing measures were only recently identified as restrictions or MCPs. The removal of exchange restrictions created more favorable conditions for import payments in particular. The primary motivation for many such restrictions is to prevent capital flight and manage foreign exchange shortages resulting from deterioration in the balance of payments position; their removal suggests that such concerns have dissipated.

• There was a continuing trend toward greater trade openness. The regulatory framework eased considerably for exports and imports and for current invisible transactions. The surrender and repatriation requirements for export proceeds were eased and local currency was more widely accepted for international trade, sug-gesting that more countries are seeking external sources of growth by facilitating exports.

• The long-standing trend toward capital account liberalization continued despite the crisis-led disturbances in global financial markets. The surge in capital flows posed significant challenges for the recipient emerg-ing market economies, which responded with a variety of policies, including allowing the exchange rate to appreciate, intensifying interventions to decrease appreciation pressure on their currencies, and rebalancing the policy mix by tightening fiscal policy. Some even resorted to intensified controls on capital transactions (mostly in the financial sector) to dampen capital inflows, but even these were more than offset by sig-nificant liberalization in other countries. The trend toward liberalization was less pronounced in portfolio capital transactions, however, which probably reflects the fact that the surge in capital flows during 2010 was mainly in the form of portfolio investments.

• There was a significant tightening of prudential measures, probably reflecting concern over weaknesses in the financial regulatory framework that were brought to light by the crisis. Many countries applied more stringent regulatory limits on commercial banks and institutional investors and continued to reverse earlier monetary and prudential easing. Some emerging market economies undertook prudential tightening in response to large capital inflows.

The remainder of this overview highlights the major developments covered in this issue of the AREAER. Details of member countries’ exchange arrangements and their regulatory frameworks for current and capi-tal transactions are presented in the individual country chapters (which, as noted, are available on the CD enclosed with the printed summary overview or from AREAER Online).



Developments in exchange arrangementsThis section documents major changes and trends in the following related areas: exchange rate arrangements, intervention, monetary anchors, and the operation and structure of foreign exchange markets. It also reports on significant developments with respect to exchange taxes, exchange rate structures, and national currencies.

exchange Rate arrangementsTable 1 lists monetary policy frameworks, as reported by country officials, and the classification of de facto exchange rate arrangements. This table outlines the main features of each country’s exchange rate arrangements and monetary frameworks, summarizing the more detailed descriptions in the country chapters. Table 2 breaks down the de facto exchange rate arrange-ments of IMF member countries for 2008–11. Table 3 highlights changes in the reclassification of the de facto exchange rate arrangements between April 30, 2010, and April 30, 2011. Table 4 outlines IMF member countries’ monetary anchors, and Table 5 reports other changes related to the exchange rate and monetary policy frameworks.

table 1. De Facto Classification of exchange Rate arrangements and Monetary policy Frameworks, april 30, 2011

The classification system is based on the members’ actual, de facto arrangements, as identified by IMF staff, which may differ from their officially announced, de jure arrangements. The system classifies exchange rate arrangements primarily on the basis of the degree to which the exchange rate is determined by the market rather than by official action, with market-determined rates being on the whole more flexible than others. The system distinguishes between hard pegs (such as exchange arrangements with no separate legal tender and currency board arrangements); soft pegs (including conventional pegged arrange-ments, pegged exchange rates within horizontal bands, crawling pegs, stabilized arrangements, and crawl-like arrangements); floating regimes (such as floating and free floating); and a residual category, other man-aged arrangements.

The table presents members’ exchange rate arrangements against alter-native monetary policy frameworks in order to highlight the role of the exchange rate in broad economic policy. The monetary policy frame-works listed are as follows.

Exchange rate anchorThe monetary authority buys or sells foreign exchange to maintain the exchange rate at its predetermined level or within a range. The exchange rate thus serves as the nominal anchor or intermediate target of mone-tary policy. These frameworks are associated with exchange rate arrange-ments with no separate legal tender, currency board arrangements, pegs

(or stabilized arrangements) with or without bands, crawling pegs (or crawl-like arrangements), and other managed arrangements.

Monetary aggregate targetThe monetary authority uses its instruments to achieve a target growth rate for a monetary aggregate, such as reserve money, M1, or M2, and the targeted aggregate becomes the nominal anchor or intermediate target of monetary policy.

Inflation-targeting frameworkThis involves the public announcement of numerical targets for infla-tion, with an institutional commitment by the monetary authority to achieve these targets, typically over a medium-term horizon. Additional key features normally include increased communication with the public and the markets about the plans and objectives of monetary policymak-ers and increased accountability of the central bank for achieving its inflation objectives. Monetary policy decisions are often guided by the deviation of forecasts of future inflation from the announced inflation target, with the inflation forecast acting (implicitly or explicitly) as the intermediate target of monetary policy.

OtherThe country has no explicitly stated nominal anchor but instead moni-tors various indicators in conducting monetary policy. This category is also used when no relevant information on the country is available.

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Exchange rate arrangement (number of countries)

Monetary Policy Framework

Exchange rate anchorMonetary aggregate

target(29)

Inflation-targeting

framework(31)

Other1(33)

U.S. dollar (48)

Euro (27)

Composite (14)

Other (8)

No separate legal tender (13)

EcuadorEl SalvadorMarshall

IslandsMicronesia,

Fed. States of

PalauPanamaTimor-LesteZimbabwe

(01/10)

KosovoMontenegro

San Marino KiribatiTuvalu

Currency board (12)

ECCUAntigua and

BarbudaDominicaGrenadaSt. Kitts and

NevisSt. Lucia

St. Vincent and the Grenadines

DjiboutiHong Kong SAR

Bosnia and Herzegovina

Bulgaria

Lithuania2 Brunei Darussalam

Conventional peg (43)

ArubaBahamas,

TheBahrainBarbadosBelizeCuraçao

and Sint Maarten

Eritrea

JordanOmanQatarSaudi ArabiaTurkmenistanUnited Arab

EmiratesVenezuela

Cape VerdeComorosDenmark2Latvia2São Tomé and

Príncipe (01/10)

WAEMUBeninBurkina FasoCôte d’IvoireGuinea-BissauMali Niger

SenegalTogo

CAEMCCameroonCentral

African Rep.

ChadCongo,

Rep. ofEquatorial Guinea Gabon

Fiji, Rep. ofKuwaitLibyaMorocco3Samoa

BhutanLesothoNamibiaNepalSwaziland

Stabilized arrangement (23)

CambodiaGuyanaHondurasIraqJamaicaLao People’s

Dem. Rep.Lebanon

Malawi4 (02/10)

Maldives (04/11)

SurinameTrinidad and

TobagoVietnam

Macedonia Belarus (05/10)

Iran, Islamic Rep. of

Syrian Arab Rep.

Tunisia

Burundi5Pakistan5

(06/10)Tajikistan5 Ukraine4,5

(03/10)

Azerbaijan5 Bolivia5

Crawling peg (3)

Nicaragua Botswana Uzbekistan5

Crawl-like arrangement (12)

EthiopiaKazakhstan

Croatia (06/10)

Argentina4,5 (01/10)

Bangladesh5 (10/10)

Congo, Dem. Rep. of5 (05/10)

China5 (06/10)

Dominican Rep.4,5 (02/10)

Rwanda4,5 (01/10)

Sri Lanka4,5 (03/10)

Egypt4,6 (03/09)

Haiti4,5 (03/10)



Table 1 (continued)




target(29)

Inflation-targeting

framework(31)

Other1(33)

U.S. dollar (48)

Euro (27)

Composite (14)

Other (8)

Pegged exchange rate within horizontal bands (1)

Tonga

Other managed arrangement (17)

AngolaLiberia Sudan4

(12/09)

AlgeriaSingaporeVanuatu

GuineaNigeriaParaguaySolomon

Islands (02/11)

Yemen, Rep. of

Costa Rica Kyrgyz Rep.MalaysiaMauritania MyanmarRussian

Federation

Floating (36) Afghanistan, Islamic Rep. of (04/11)

Gambia, TheKenyaMadagascar MongoliaMozambiquePapua New

GuineaSeychellesSierra LeoneTanzaniaUgandaZambia

AlbaniaArmenia6Brazil ColombiaGeorgia4,7

(01/10)GhanaGuatemalaHungaryIceland Indonesia

(02/11)IsraelKorea, Rep.

ofMexico MoldovaPeru

(04/11)Philippines RomaniaSerbia South Africa ThailandTurkey

(10/10)Uruguay

IndiaMauritius

(07/10)

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Table 1 (concluded)




target(29)

Inflation-targeting

framework(31)

Other1(33)

U.S. dollar (48)

Euro (27)

Composite (14)

Other (8)

Free floating (30)

AustraliaCanadaChileCzech Rep.New

ZealandNorwayPolandSwedenUnited

Kingdom

JapanSomaliaSwitzerland

(06/10)United

States

EMUAustriaBelgiumCyprusEstonia

(01/11)FinlandFranceGermanyGreeceIrelandItalyLuxembourg MaltaNetherlandsPortugalSlovak

RepublicSloveniaSpain

Source: IMF staff.Note: If the member country’s de facto exchange rate arrangement has been reclassified during the reporting period, the date of change is indicated in parentheses.1 Includes countries that have no explicitly stated nominal anchor, but rather monitor various indicators in conducting monetary policy.2 The member participates in the European Exchange Rate Mechanism (ERM II).3 Within the framework of an exchange rate fixed to a currency composite, the Bank Al-Maghrib (BAM) adopted a monetary policy framework in 2006 based on various

inflation indicators with the overnight interest rate as its operational target to pursue its main objective of price stability. Since March 2009, the BAM reference interest rate has been set at 3.25%.

4 The exchange rate arrangement was reclassified retroactively, overriding a previously published classification.5 The de facto monetary policy framework is an exchange rate anchor to the U.S. dollar.6 The de facto monetary policy framework is an exchange rate anchor to a composite.7 The central bank has taken preliminary steps toward inflation targeting and is preparing for the transition to full-fledged inflation targeting.

Postcrisis stabilization of international financial markets was accompanied by a shift toward more stable exchange rate arrange-ments and a corresponding decline in the share of flexible arrangements. The surge of capital inflows since mid-2009 also led some emerging market economies to intensify management of their exchange rate. One result has been an increase in intermedi-ate regimes (soft pegs), and in particular, a sharp rise in the number of crawl-like arrangements.



table 2. exchange Rate arrangements, april 30, 2008–april 30, 2011(Percent of IMF members)1

Exchange Rate ArrangementsEnd-April

20082End-April

20093End-April

20104End-April

2011Hard pegs 12.2 12.2 13.2 13.2

No separate legal tender 5.3 5.3 6.3 6.8Currency board 6.9 6.9 6.9 6.3

Soft pegs 39.9 34.6 39.7 43.2Conventional peg 22.3 22.3 23.3 22.6Stabilized arrangement 12.8 6.9 12.7 12.1Crawling peg 2.7 2.7 1.6 1.6Crawl-like arrangement 1.1 0.5 1.1 6.3Pegged exchange rate within horizontal bands 1.1 2.1 1.1 0.5

Floating 39.9 42.0 36.0 34.7Floating 20.2 24.5 20.1 18.9Free floating 19.7 17.6 15.9 15.8

ResidualOther managed arrangement 8.0 11.2 11.1 8.9

Source: AREAER database.1 Includes 187 member countries and three territories: Aruba (Netherlands), Curaçao and Sint Maarten (Netherlands), and Hong Kong SAR

(China).2 As retroactively classified February 2, 2009; does not include Kosovo and Tuvalu, which became members of the IMF on June 29, 2009, and

June 24, 2010, respectively.3 As published in the 2009 AREAER; does not include Kosovo and Tuvalu, which became members of the IMF on June 29, 2009, and

June 24, 2010, respectively.4 As published in the 2010 AREAER; does not include Tuvalu, which became a member of the IMF on June 24, 2010.

• One more country joined the ranks of those with no separate legal tender. Tuvalu, which uses the Australian dollar as its national currency, joined the IMF on June 24, 2010. This category is usually very stable. Zimbabwe suspended the use of its local currency in 2010, but the last time the AREAER reported that a country opted for an arrangement without its own currency was in 2001, when El Salvador adopted the U.S. dollar.

• One less country uses a currency board, after Estonia completed the ERM II and joined the euro area on January 1, 2011.

• One country left the conventional peg category, reducing the number of conventional pegs to 43. The exchange rate arrangement of Maldives is now classified as stabilized.

• The number of stabilized arrangements decreased from 24 as of April 30, 2010, to 23 as of April 30, 2011. However, the composition of the countries in this group changed more significantly. Five countries were reclassified as having stabilized arrangements: Maldives (previously conventional peg), Pakistan (previously floating), Malawi, Ukraine (both previously other managed), and Belarus (previously pegged exchange rate within horizontal bands). Two floating arrangements were classified as stabilized for part of the report-ing period and were reclassified back to floating: the Islamic Republic of Afghanistan and Indonesia. Six countries increased the flexibility of their regimes and were reclassified as having crawl-like arrangements: Bangladesh, China, Croatia, Dominican Republic, Rwanda, and Sri Lanka.

• The most notable change in this reporting year was the addition of 10 countries to the group with crawl-like arrangements. As of April 30, 2010, only Ethiopia and Kazakhstan were in this group. As noted, six countries’ arrangements were reclassified from stabilized to crawl-like after allowing gradual appreciation or depreciation in their exchange rates within a tightly controlled band. The group also added Argentina and Democratic Republic of Congo (both previously floating) and Egypt and Haiti (both previously other managed arrangements). All four of these countries closely followed a depreciating trend.

• Only Tonga is still classified as having a pegged exchange rate within horizontal bands after Belarus was reclassified to stabilized.

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• Six countries were reclassified out of the category other managed arrangement (the residual category). Malawi and Ukraine were reclassified as stabilized; Egypt and Haiti as crawl-like; and Georgia as floating. One country, Sudan (previously floating), joined this group, reflecting its increased management of the exchange rate.

• The number of countries with floating arrangements continued to decrease, with most moving toward increased exchange rate management. Five countries adopted stabilized, crawl-like, other managed, or free-floating arrangements (Argentina, Democratic Republic of Congo, Pakistan, Sudan, Switzerland); two were reclassified from free floating (Mauritius, Turkey); and one was reclassified from other managed (Georgia). For part of the reporting period, the Islamic Republic of Afghanistan and Indonesia were reclassified as having a stabilized arrangement and Peru as having a crawl-like arrangement, but all three subsequently increased the flexibility of their exchange rate regimes sufficiently to be reclassified as floating.

• The number of countries classified as having free-floating arrangements appears to have stabilized at about 16 percent, which is about 4 percentage points lower than before the crisis. Two countries joined this group: Estonia (previously currency board), after it graduated from the ERM II and joined the European Monetary Union; and Switzerland (previously floating), which discontinued its intervention in the foreign exchange market.

table 3. Changes and Resulting Reclassifications of exchange Rate arrangements, January 2010–april 30, 2011

Country ChangeArrangement in the

2010 AREAER1Arrangement in the

2011 AREAER

Afghanistan, Islamic Republic of

The Afghani remained stable against the U.S. dollar from September 2010 through March 31. Accordingly, effective September 6, 2010, the de facto exchange rate arrangement was reclassified to a stabilized arrangement from floating.

Floating Stabilized


Due to the increased flexibility in the Afghani–U.S. dollar exchange rate since the beginning of April 2011, the de facto exchange rate arrangement was reclassified to floating from a stabilized arrangement, effective April 1, 2011.

Floating

Argentina2 Despite the reduction in the volume of foreign exchange intervention by the Central Bank of the Argentine Republic, the peso closely followed a depreciating trend against the U.S. dollar since January 2010. Accordingly, effective January 1, 2010, the de facto exchange rate arrangement was reclassified retroactively to a crawl-like arrangement from floating.

Floating Crawl-like arrangement

Bangladesh The taka depreciated by nearly 1.6% on October 4, 2010, and subsequently followed a depreciating trend against the U.S. dollar. Therefore, effective October 4, 2010, the de facto exchange rate arrangement was reclassified to a crawl-like arrangement from stabilized arrangement.

Stabilized arrangement

Crawl-like arrangement

Belarus Since May 2010, the rubel remained in a 2% band against the U.S. dollar. Therefore, effective May 7, 2010, the de facto exchange rate arrangement was reclassified to a stabilized arrangement from a pegged exchange rate within horizontal bands.

Pegged exchange rate within horizontal bands


China Effective June 21, 2010, the de facto exchange rate arrangement was reclassified to a crawl-like arrangement from a stabilized arrangement because the renminbi has gradually appreciated against the U.S. dollar (by 4.7% until April 30, 2011), while the rate has remained in a 2% crawling band. Previously, the renminbi had been stable within a range of ±1%, since mid-2008.







2011 AREAER

Congo, Democratic Republic of

The franc gradually depreciated against the U.S. dollar in a tight 2% band since May 2010. Therefore, effective May 5, 2010, the de facto exchange rate arrangement was reclassified to a crawl-like arrangement from floating.


Croatia Since June 2010, the kuna has gradually depreciated against the euro in a narrow band. Accordingly, effective June 17, 2010, the de facto exchange rate arrangement was reclassified to a crawl-like arrangement from a stabilized arrangement.



Dominican Republic2

The Central Bank of the Dominican Republic intervenes in the foreign exchange market to limit exchange rate volatility. Since February 2010, the peso depreciated gradually within a narrow band against the U.S. dollar. Accordingly, effective February 1, 2010, the de facto exchange rate arrangement was reclassified retroactively to a crawl-like arrangement from a stabilized arrangement.



Egypt2 From March 2009 through January 2010, the pound gradually appreciated against a euro–U.S. dollar basket, followed by a gradual depreciation since then. Therefore, the de facto exchange rate arrangement was reclassified retroactively to a crawl-like arrangement against a composite from other managed arrangement, effective March 12, 2009. However, the change is reflected as of January 1, 2010, corresponding to the first day of the period covered in this year’s AREAER.

Other managed arrangement


Estonia Estonia participates in a currency union with 16 other members of the EU and has no separate legal tender. The euro, the common currency, floats freely and independently against other currencies. Thus, the de facto exchange rate arrangement was reclassified to free floating from a currency board, effective January 1, 2011.

Currency board Free floating

Georgia2 Since May 25, 2009, the authorities have intervened only through auctions. In light of the improved functioning of the foreign exchange market and the enhanced flexibility of the exchange rate, the de facto exchange rate arrangement was reclassified retroactively to floating from other managed arrangement, effective January 1, 2010.


Floating

Haiti2 Since March 2010, the gourde has gradually depreciated against the U.S. dollar in a 2% band, reverting to its pre-earthquake pattern. Therefore, the de facto exchange rate arrangement was reclassified retroactively to a crawl-like arrangement from other managed arrangement, effective March 3, 2010.



Indonesia From June 2010 through February 2011, the rupiah consistently remained within a 2% band against the U.S. dollar. Accordingly, the de facto exchange rate arrangement was reclassified to a stabilized arrangement from floating, effective June 21, 2010.

Floating Stabilized arrangement

Indonesia In February, the exchange rate left the stabilized band as the rupiah started appreciating against the U.S. dollar. Due to the increased flexibility of the exchange rate, the de facto exchange rate was reclassified to floating from a stabilized arrangement, effective February 14, 2011.

Floating

Table 3 (continued)

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Table 3 (continued)



2011 AREAER

Malawi2 Since February 2010, the kwacha remained in a 2% band vis-à-vis the U.S. dollar. Thus, the de facto exchange rate arrangement was reclassified retroactively to a stabilized arrangement from other managed arrangement, effective February 1, 2010.



Maldives Since the adoption of a pegged exchange rate within horizontal bands on April 11, 2011, the rufiyaa–U.S. dollar exchange rate had not diverged from its past pattern through April 30, 2011. Accordingly, the de facto exchange rate arrangement was reclassified to a stabilized arrangement from a conventional peg, effective April 11, 2011.

Conventional peg Stabilized arrangement

Mauritius After a period of no intervention between December 2008 and June 2010, the Bank of Mauritius started intervening again in the foreign exchange market in July 2010. As a result, the de facto exchange rate arrangement was reclassified to floating from free floating, effective July 1, 2010.

Free floating Floating

Pakistan2 The rupee closely followed a depreciating trend against the U.S. dollar within a 2% band from December 2008 through February 2010. Accordingly, the de facto exchange rate arrangement was reclassified retroactively to a crawl-like arrangement from floating, effective December 22, 2008. However, the change is reflected as of January 1, 2010, corresponding to the first day of the period covered in this year’s AREAER.


Pakistan In the beginning of March 2010, the rupee started to appreciate, leaving the crawling band, before weakening and returning to its previous level by May 31, 2010. Due to increased flexibility of the exchange rate during this period, the de facto exchange rate arrangement was reclassified to floating from a crawl-like arrangement, effective March 1, 2010.

Floating

Pakistan Since June 2010, the rupee has remained stable against the U.S. dollar in a 2% band. Market supply and demand play a role in determining the exchange rate, as does official action based on the observed path of the exchange rate and information on intervention and reserves buildup. Therefore, effective June 1, 2010, the de facto exchange rate arrangement was reclassified to a stabilized arrangement against the U.S. dollar from floating.


Peru2 From September 2009 through March 2011, the nuevo sol tracked an appreciating trend vis-à-vis the U.S. dollar. During this period, the Central Reserve Bank of Peru intervened in the foreign exchange market, which resulted in the nuevo sol consistently remaining within a 2% band. Accordingly, the de facto exchange rate arrangement was reclassified retroactively to a crawl-like arrangement from floating, effective September 16, 2009. However, the change is reflected as of January 1, 2010, corresponding to the first day of the period covered in this year’s AREAER.




Table 3 (concluded)



2011 AREAER

Peru Due to the increased flexibility in the nuevo sol–U.S. dollar exchange rate since the beginning of April 2011, the de facto exchange rate arrangement has been reclassified to floating from a crawl-like arrangement, effective April 1, 2011.

Floating

Rwanda2 Since January 2010, the franc gradually depreciated against the U.S. dollar in a 2% band. Therefore, the de facto exchange rate arrangement was reclassified retroactively to a crawl-like arrangement from a stabilized arrangement, effective January 1, 2010.



Solomon Islands2 Since April 2009, the Solomon Islands dollar has remained pegged to the U.S. dollar. Accordingly, the de facto exchange rate arrangement was reclassified retroactively to a conventional peg from other managed arrangement, effective April 1, 2009. However, the change is reflected as of January 1, 2010, corresponding to the first day of the period covered in this year’s AREAER.


Conventional peg

Solomon Islands After implementation of the updated basket in February 2011, the Solomon Islands dollar began to appreciate and move more freely against the U.S. dollar. Due to the increased flexibility, the de facto exchange rate arrangement was reclassified to other managed arrangement from a conventional peg, effective February 1, 2011.


Sri Lanka2 During 2010, despite increased capital inflows, a very stable exchange rate was maintained, and the rupee gradually appreciated (at an annualized rate of 3.35%) against the U.S. dollar within a narrow band since March 2010. Accordingly, the de facto exchange rate arrangement has been reclassified retroactively to a crawl-like arrangement against the U.S. dollar from a stabilized arrangement, effective March 1, 2010.



Sudan Given the focus of the Central Bank of Sudan on exchange rate stability and in line with recent exchange rate movements, the de facto exchange rate arrangement was reclassified retroactively to other managed arrangement from floating, effective December 1, 2009. However, the change is reflected as of January 1, 2010, corresponding to the first day of the period covered in this year’s AREAER.

Floating Other managed arrangement

Switzerland The Swiss National Bank intervened in the foreign exchange market through May 2010, but has not intervened since. Accordingly, the de facto exchange rate arrangement was reclassified to free floating from floating, effective June 1, 2010.

Floating Free floating

Turkey Effective October 4, 2010, the de facto exchange rate arrangement was reclassified to floating from free floating because of the discretionary nature of the modified auction system and its impact on the exchange rate.

Free floating Floating

Ukraine2 Since March 2010, the hryvnia has been stable against the U.S. dollar in a tight 2% band. Accordingly, the de facto exchange rate arrangement was reclassified retroactively to a stabilized arrangement against the U.S. dollar from other managed arrangement, effective March 1, 2010.



Source: AREAER database.1 Fields in the column “Arrangement in the 2010 AREAER” are blank if there was a subsequent reclassification during the reporting period.2 The exchange rate arrangement was reclassified retroactively, overriding a previously published classification for the entire period or part of

the period.

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Monetary anchors6The exchange rate retains its dominant, albeit slightly decreased, role as the anchor for monetary policy. The relative role of each monetary and exchange rate anchor was largely unchanged from last year, with the number of countries using monetary aggregates for guiding their monetary framework increasing the most (Table 4). However, the overall shares mask the significant movements that occurred among the categories: 22 countries were recategorized, reflecting both developments in their official monetary anchors and improved information.7 The share of members with the U.S. dollar (48), euro (27), or a composite (14) as monetary anchors all decreased slightly, whereas the share of members with other single-currency exchange rate anchors increased slightly (8). Fifty-five members, comprising currency boards and conventional pegs, have an offi-cially announced fixed exchange rate policy, which implies the use of the exchange rate as the unique mon-etary anchor. The typical monetary anchor of floating exchange rate arrangements, however, is split among monetary aggregates (12), inflation targeting (31), and other (23, including 17 euro area countries) without referring to the exchange rate. Seventeen countries implementing soft pegs and other managed arrangements also target monetary aggregates. Stabilized and crawl-like arrangements appear more open to a variety of monetary frameworks, with four and seven of them, respectively, also targeting monetary aggregates and two from each group not announcing any specific targets. Other managed arrangements do not have a dominant monetary anchor.

table 4. Monetary policy Frameworks and exchange Rate anchors(Percent of IMF members)1

U.S. Dollar Euro CompositeOther

CurrencyMonetary Aggregate

Inflation Targeting Other2

April 30, 20093 28.7 14.4 7.4 4.3 13.3 15.4 16.5

April 30, 20104 26.5 14.8 7.9 3.7 13.2 16.4 17.5

April 30, 2011 25.3 14.2 7.4 4.2 15.3 16.3 17.4

Source: AREAER database.Note: When the de facto exchange rate arrangement differs from the de jure arrangement, the monetary anchor indicated in this table reflects the de facto arrangement.1 Includes 187 member countries and three territories: Aruba (Netherlands), Curaçao and Sint Maarten (Netherlands), and Hong Kong SAR

(China).2 Includes countries that have no explicitly stated nominal anchor, but rather monitor various indicators in conducting monetary policy. This

category is also used when no relevant information on the country is available.3 Does not include Kosovo and Tuvalu, which became members of the IMF on June 29, 2009, and June 24, 2010, respectively.4 Does not include Tuvalu, which became a member of the IMF on June 24, 2010.

• For more than half the IMF membership, the exchange rate remains the main policy target. Three cur-rency unions, the CAEMC, ECCU, and WAEMU, also opted for exchange rate anchors for their respec-tive common currency. However, these countries constitute less than one-fifth of global output and world trade. Exchange rate anchors are by far the first choice of small and open economies, as suggested in the economic literature.

• The U.S. dollar remains the dominant exchange rate anchor: almost half the arrangements have the dollar as their nominal anchor, including countries with moderate trade relations with the United States. Some members previously targeting a monetary aggregate changed to an exchange rate anchor vis-à-vis the U.S. dollar (Jamaica, Malawi, Sudan).

6 Monetary anchors are defined as the main intermediate target the authorities pursue to achieve their policy goal (which is overwhelmingly price stability). The inventory of monetary anchors is based mainly on members’ declaration in the context of the yearly AREAER update or Article IV consultations.

7 The officially announced monetary anchor may differ from the anchor implemented in practice as a result of the de facto exchange rate arrangement. Country officials were asked to report specific information about the monetary policy framework for this year’s report. Previously, information about the monetary policy framework was included in the description of the respective exchange rate arrangement in each country chapter.



• The euro is used mainly by countries that have a common history with European countries (for example, the CFA franc area countries) or with strong trade relations with western Europe (central and eastern Europe, Bulgaria, Macedonia, Montenegro, San Marino). Apart from Estonia’s adoption of the euro, no other change occurred in this group of countries.

• A euro–U.S. dollar basket captures most international foreign exchange flows for many countries, and so some members (Morocco, Tunisia) include both the euro and the U.S. dollar in their currency composites to stabilize their nominal or real effective exchange rate. Azerbaijan abandoned the euro–U.S. dollar basket. Belarus’s exchange rate arrangement, based on a euro–U.S. dollar basket, experienced considerable pressure, leading to discrete adjustments of the central parity of the band arrangement. The Russian Federation uses a bi-currency basket as the operating benchmark for transactions in the foreign exchange market, but it also monitors a range of indicators in conducting monetary policy.

The remaining members, which represent the overwhelming majority of global output, are almost equally split among inflation targeting, monetary aggregate targeting, and other (which includes monetary policy not committed to any specific target).

• The group of countries that are not committed to a specific target comprises the largest economies—the euro area, Japan, and the United States—where the monetary authorities have sufficient credibility to implement the monetary framework without a specific monetary anchor. Among countries in the other monetary policy framework category are also those with multiple monetary anchors, one of which is often an exchange rate anchor. For example, three members (Azerbaijan, Bolivia, Costa Rica), which previously had an exchange rate anchor vis-à-vis a basket or the U.S. dollar, were reclassified under the category “other monetary policy framework” because they included some monetary aggregates in their monetary policy mix along with an exchange rate anchor.

• The number of monetary aggregate anchors increased modestly following a decrease in 2009. Monetary aggregates are often the choice of economies with less developed financial markets. The objective of the arrangement is to influence consumer prices and eventually asset prices through the control of monetary aggregates. Reserve money is often used as the operational target to control credit growth through the credit multiplier. Countries that switched from monetary aggregate targeting to another monetary or exchange rate anchor were offset by those that declared monetary aggregate targeting as the sole monetary anchor. During this reporting period, these included Dominican Republic, Pakistan, Paraguay, Sri Lanka, Republic of Yemen (all previously in the “other” category) as well as China (previously in the “exchange rate anchor” category).

• Countries that target inflation directly include mostly middle-income economies, accounting for about 16 percent of the IMF membership. This group includes some advanced economies as well. The policy frame-work requires considerable monetary authority credibility to make up for the loss of transparent intermedi-ate targets.8 A few countries refer to themselves as to follow “inflation targeting light,” suggesting that they also consider indicators other than inflation in their monetary policy.

8 Inflation targeting aims to address the problem of exchange rates and monetary aggregates that do not have a stable relation-ship with prices, making intermediary targets less suitable for inflation control.

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Foreign exchange interventionsThe IMF staff regularly reviews publicly available and otherwise disclosed information on interventions to assess whether the frequency of intervention is consistent with free-floating arrangements (see the Compilation Guide).9 This section summarizes the developments in foreign exchange interventions as reported in the AREAER since January 1, 2010. Table 5 includes some of the changes regarding members’ intervention poli-cies, and Table 6 summarizes changes in foreign exchange market structure.

intervention purposeAgainst the backdrop of slack global economic recovery and surges in capital flows to emerging market economies during this reporting period, several members intervened to dampen exchange rate appreciation and thus preserve their external competitiveness. Intensified intervention was indicated by market reports and by significant increases in some members’ foreign exchange reserves. Interventions were often motivated by the absence of other immediately available policy responses, such as monetary or fiscal tightening, and by an exchange rate level considered out of sync with fundamentals. For example, under significant apprecia-tion pressure, Switzerland continued its large-scale euro purchases through mid-2010, and Peru intervened consistently throughout the reporting period.

Recent changes in intervention policies reflect a move away from rule-based interventions toward more discretion, especially in the implementation of auctions, often accompanied by an announcement meant to strengthen international reserve positions. For example, Costa Rica launched a program to substantially increase international reserves with a monthly ceiling and subsequently increased the monthly limit by 50 percent and 100 percent (see Table 5). Turkey raised the maximum daily auction purchase amount several times, in order to accelerate foreign exchange reserve accumulation (see Table 7a), and Uganda shifted its foreign exchange intervention from daily sales to daily purchases to build up reserves (see Table 5).

intervention transparencyCentral banks disclose information on their foreign exchange interventions to the market either for strategic reasons (that is, to maximize the impact of their intervention) or for transparency reasons. Among members that intervene in the foreign exchange market, the percentage that publishes some sort of intervention data remains about 65 percent. All free floaters and a large majority of floaters publish or disclose intervention data. Only five (up from four last year) conventional pegs (Barbados, Denmark, Latvia, Morocco, Nepal) and about half the members with stabilized and crawl-like arrangements publish information on their interven-tions. This year, the Central Bank of Tunisia started posting on its website the volume of transactions between authorized intermediaries and the volume of its daily interventions in the interbank foreign exchange market. Less frequent publication of intervention data, especially for the conventional pegs, may be a sign that inter-vention is not considered a particularly strategic variable, because the central bank is expected to intervene as needed to keep the exchange rate stable. Nonetheless, some countries (Denmark, Latvia) publish intervention data to support banks’ liquidity management.

Only a small minority of members disclose daily gross data on their interventions. Central banks usually disclose aggregated, partial, or delayed data on their interventions.

intervention techniquesDirect purchases and sales of foreign exchange remain the most popular form of intervention. Japan inter-vened in September 2010 for the first time since 2004 and again in March 2011 in a concerted effort with other G7 economies. Both Poland and Switzerland intervened directly in the foreign exchange market in 2010. On the other hand, the Russian Federation eased the rules regarding its interventions by widening the band for allowable fluctuations and reducing the size of interventions.

9 Preannounced programs of purchase and/or sale of foreign exchange typically do not qualify as intervention because the design of these programs minimizes the impact on the exchange rate. Very small, retail-type transactions are also disregarded.



Direct interventions often take the form of bilateral transactions between the central bank and authorized dealers. In some cases, however, the central bank uses particular platforms, such as auctions, which are more transparent and allow the central bank to identify the best bids. Turkey moved from a rule-based purchase auction to a discretionary one, with maximum auction amounts announced at the beginning of each week. Mexico reintroduced a put option auction in 2010 and continued to sell these options once a month.10 In contrast, Mozambique discontinued its multiple-price foreign exchange auctions and intervenes only bilaterally.

table 5. Changes in exchange Rate arrangements, official exchange Rate, and Monetary policy Framework, 2010–11

Country Change

Azerbaijan Effective January 20, 2011, the peg against the euro–U.S. dollar basket was abandoned, and a bilateral peg against the U.S. dollar was implemented.

Belarus Effective January 1, 2010, the central exchange rate of the band was adjusted to the actual value of the basket (Rbl 1,036.27) established on that date. Previously, it was Rbl 960.

Belarus Effective January 1, 2011, the central exchange rate of the band was adjusted to the actual value of the basket (Rbl 1,054.68) established on December 31, 2010. Previously, it was Rbl 1,036.27.

Brazil Effective July 1, 2011, the calculation of the reference exchange rate is based on the average of four daily surveys with the Central Bank of Brazil’s foreign exchange dealers.

Brunei Effective January 1, 2011, the Autoriti Monetari Brunei Darussalam (AMBD) replaced the Brunei Currency and Monetary Board (BCMB). All powers, assets, and liabilities of the BCMB were transferred to the AMBD.

Costa Rica Effective September 2, 2010, in order to strengthen the economy’s external assets position, the Banco Central de Costa Rica (BCCR) board approved a program to increase international reserves by US$600 million, with a maximum purchase of US$50 million a month, between September 2, 2010, and December 31, 2011.

Costa Rica Effective November 4, 2010, the BCCR board raised the ceiling on monthly purchases under the program from US$50 million to US$100 million a month for November and December 2010 and 2011 and to US$75 million a month for the remaining months of 2011. Under this program, the BCCR acquired US$265.3 million in 2010 and US$334.7 million in 2011.

Costa Rica Effective April 18, 2011, the foreign exchange purchase program for accumulating international reserves was concluded because the US$600 million target was reached.

Guatemala Effective January 1, 2010, the annual inflation target was set at 5.0% ±1% for 2010 and 2011 (previously, 5.5% ±1% for 2009).

Guatemala Effective January 1, 2011, the annual inflation target was maintained at 5.0% ±1% for 2011.

Indonesia Effective August 24, 2010, the government, in coordination with the Bank of Indonesia, raised its inflation targets for 2010 from 4.0% to 5.0% and set the targets for 2011 and 2012 at 5.0% and 4.5%, respectively, within a ±1% range.

Japan On September 15, 2010, for the first time since 2004, the MOF intervened in the foreign exchange market.

Japan On March 18, 2011, in the extraordinary circumstances following the earthquake and tsunami, the MOF, in coordination with other G7 countries, intervened in the foreign exchange market.

Kazakhstan Effective February 1, 2010, the National Bank of Kazakhstan widened the tenge trading band asymmetrically to a range between +10% and –15% from T 150 per U.S. dollar.

Kazakhstan Effective February 25, 2011, the fluctuation band of the tenge exchange rate was abandoned.

Kazakhstan Effective February 28, 2011, a transition to a managed floating exchange rate regime was announced. Accordingly, the de jure exchange rate arrangement became managed floating from a pegged exchange rate within horizontal bands.

Maldives Effective April 11, 2011, the Maldives government adopted a new exchange rate regime under which the rufiyaa will float in a band of 20% in either direction around a central parity of Rf 12.85 per U.S. dollar. Accordingly, the de jure exchange rate arrangement is a pegged exchange rate within horizontal bands. Previously, it was a conventional pegged arrangement, with the rufiyaa pegged to the U.S. dollar at a buying rate of Rf 12.75 per U.S. dollar and a selling rate of Rf 12.85 per U.S. dollar.

10 Put option auctions give option holders the right to sell U.S. dollars to the central bank, provided the exchange rate has appreciated by more than its 20-day moving average.

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Country Change

Paraguay Effective July 22, 2010, the Central Bank of Paraguay publishes daily the nominal average exchange rate for wholesale transactions between nonfinancial-sector customers and financial operators.

Peru Effective October 5, 2010, the BCRP began to issue CDs redeemable in U.S. dollars. This facilitated the sterilization of foreign currency preventing foreign exchange trades in the spot foreign exchange market.

Peru Effective October 11, 2010, the BCRP began to issue variable rate CDs indexed to the policy rate, currently 4.25%.

Romania Effective January 1, 2011, in connection with the monetary framework of inflation targeting, the inflation target was set at 3.0% ±1% for 2011 and 2012 (previously, 3.5% ±1% for 2010).

Russian Federation

Effective October 13, 2010, the Bank of Russia (BR) took the following actions: (1) It widened the moving intervention band from Rub 3 to Rub 4. (2) It reduced the size of accumulated interventions on the band’s edges by 5 kopeks, to US$650 million from US$700 million. (3) It eliminated the fixed foreign currency band of Rub 26–41 for the dual-currency basket in effect since January 2009.

Russian Federation

Effective March 1, 2011, the BR took the following actions: (1) It widened the moving intervention band from Rub 3 to Rub 4. (2) It reduced the size of the accumulated interventions on the band’s edges by 5 kopeks, to US$650 million from US$700 million. (3) It eliminated the fixed foreign currency band of Rub 26–41 for the dual-currency basket in effect since January 2009.

Rwanda Effective December 27, 2010, the National Bank of Rwanda (BNR) official rate is based on the market rates for foreign exchange interbank and BNR intervention transactions. This new methodology aims to unify the BNR middle rate by shifting to a unique market-based rate represented by foreign exchange interbank and intervention transactions. Consequently, the BNR official rate is based on the average of the previous day’s foreign exchange interbank market and BNR intervention transaction rates. If there are no interbank transactions or interventions, the previously transacted market rate is maintained as the official rate. The rate is determined every morning.

Solomon Islands Effective February 1, 2011, even though the method of exchange rate calculation was not changed, the currency composition and weights of the basket, determined on the basis of the volume and direction of the country’s trade, were updated.

Suriname Effective January 20, 2011, the authorities devalued the currency by 20% vis-à-vis the U.S. dollar in the official market. With the devaluation, the authorities set a band of SRD 3.25–3.35 per U.S. dollar, within which all official and commercial market transactions are allowed to take place. In conjunction with the devaluation, the authorities also did away with the subsidy for imports of infant formula.

Tunisia Effective January 1, 2011, the Central Bank of Tunisia (CBT) started posting the volume of transactions between authorized intermediaries and the volume of its daily interventions in the interbank foreign exchange market. Previously, the CBT did not release intervention data to the public.

Uganda Effective August 19, 2010, the Bank of Uganda shifted its foreign exchange interventions from daily sales to daily purchases of US$0.5 million for reserve-building purposes.

Ukraine Effective October 19, 2010, pursuant to the amendments to the Law of Ukraine on the National Bank of Ukraine (NBU), the NBU’s primary function is to ensure the stability of the national currency, with high priority on achieving and maintaining price stability.

Venezuela Effective June 4, 2010, the parallel market was abolished and replaced with a bond swap mechanism called the Transaction System for Foreign Currency Denominated Securities, operated by the Central Bank of Venezuela.

Vietnam Effective February 11, 2011, the State Bank of Vietnam (SBV) devalued the dong by 8.5% against the U.S. dollar and narrowed the band to ±1% from ±3%.

Vietnam Effective August 18, 2010, the SBV devalued the dong by 2% against the U.S. dollar.

Source: AREAER databaseNote: Includes changes from January 2010 through July 2011.

Table 5 (continued)



Foreign exchange MarketsIn 2010, all but four members reported the main characteristics of their spot foreign exchange markets (see Table 6). The number of countries reporting foreign exchange mechanisms operated by the central bank con-tinued to grow, with 12 additional members following last year’s increase of 21, but there were only six more members with a functioning interbank market.11 For a detailed description of changes concerning foreign exchange market arrangements, see Table 7.a.

table 6. Foreign exchange Market structure, 2009–11(Number of IMF members)1

20092 20103 2011

Spot exchange market 179 183 186

Operated by the central bank 84 105 117

Foreign exchange standing facility . . . . . . 80

Allocation 29 29 31

Auction 31 29 26

Fixing 8 5 5

Interbank market 137 151 157

Over the counter . . . . . . 109

Brokerage . . . . . . 45

Market making . . . . . . 73

Forward exchange market 127 126 128

Source: AREAER database.Note: . . . indicates that information on the arrangement was not separately collected during this period. 1 Includes 187 member countries and three territories: Aruba (Netherlands), Curaçao and Sint Maarten (Netherlands), and Hong Kong SAR

(China).2 Does not include Kosovo and Tuvalu, which became members of the IMF on June 29, 2009, and June 24, 2010, respectively.3 Does not include Tuvalu, which became a member of the IMF on June 24, 2010.

Foreign exchange standing Facility, allocations, auctions, and FixingReflecting improved reporting standards in the AREAER, and with the addition of Foreign exchange standing facility as a stand-alone category, even more members reported that their monetary authorities used some sort of mechanism in the spot foreign exchange market. Fifteen members reported that the authorities began to use such a mechanism; Estonia and Indonesia ceased using such a mechanism.

• More than two-thirds of members with foreign exchange markets fully or partially operated by the central bank (80) report a foreign exchange standing facility. Such a facility allows market participants to buy foreign exchange from or sell it to the central bank at predetermined exchange rates and is usually instru-mental in maintaining a hard or soft peg arrangement. The credibility of the arrangements depends to a large extent on the availability of foreign exchange reserves backing the facility. All currency boards (12) and conventional pegs (43) have a foreign exchange standing facility. In addition, 24 countries with exchange rate arrangements classified as other soft pegs also reported such a facility. Among these, most are classified either as stabilized or other managed arrangements.

• Even though auctions have been increasingly used to influence the exchange rate rather than to manage foreign reserves, the number of countries using auctions declined by five. For example, the Republic of Yemen suspended multiple-price selling auctions, Mozambique and São Tomé and Príncipe discontinued foreign exchange auctions, and Ukraine did not intervene through auctions during the reporting period.

11 Previously, some members reported a spot exchange market but did not specify whether it was operated by the central bank. The increase in the numbers in this particular category is due mostly to improved reporting by members.

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On the other hand, Colombia reinstated and extended daily direct purchase auctions several times before the deadline to discontinue them in 2010 and 2011. Mexico suspended minimum-price auctions but rein-troduced put option auctions to increase the pace of international reserves accumulation. Chile and Turkey both launched foreign currency purchasing programs aimed at strengthening international liquidity posi-tions. Chile has purchased US$50 million daily, whereas Turkey determines daily auction amounts every week based on market conditions. The Islamic Republic of Afghanistan raised the minimum bid amount set by the Foreign Currency Auction Regulations.

• The number of allocation arrangements has increased slightly. Although four additional countries report that they allocate foreign exchange to market participants for international transactions, two countries (Angola, Mongolia) no longer use this mechanism. Mongolia instead relies on a multiple-price auction to buy and sell foreign exchange if necessary because of market imbalances. Foreign exchange allocation is often used to provide foreign exchange for strategic imports, such as oil or food, when foreign exchange reserves are scarce. When these arrangements result in rationing, they can give rise to exchange restrictions.

• Only Belarus and Mauritania operated fixing sessions on a regular basis. Serbia organized fixing sessions occasionally. Fixing sessions are more characteristic of an early stage of market development, when they help establish a market clearing exchange rate in a shallow market with less experienced market participants. Several eastern European and Commonwealth of Independent States countries used fixing sessions in the past but abandoned them when their foreign exchange markets became deeper and more sophisticated.

table 7. a. Changes in Foreign exchange Markets, 2010–11

Country Change Type


Effective October 8, 2010, the minimum bid amount set by the Foreign Currency Auction Regulations was raised from US$50,000 to US$100,000.

Neutral

Argentina Effective May 3, 2010, to ensure greater publicity for retail rates offered by ADs, Communication B 9791 authorized the addition on the Central Bank of the Argentine Republic website of a listing of the retail exchange rates offered in Buenos Aires (Ciudad Autónoma de Buenos Aires, CABA). The information includes “reference retail exchange rates,” calculated on the basis of rates reported by institutions.

Neutral

Bolivia Effective January 4, 2010, the fee on outward funds transfers by the financial system through the Central Bank of Bolivia (CBB) was increased from 0.6% to 1%, and the fee on inward funds transfers by the financial system through the CBB was maintained at 0.6%.

Tightening

Chile Effective January 5, 2011, the Central Bank of Chile launched a foreign currency purchasing program aimed at strengthening its international liquidity position through daily auctions to buy US$50 million up to a total of US$12 billion. This auction program is regulated by Circular Letter to Banks No. 532, establishing the auction rules applicable to the foreign currency purchasing program in keeping with Chapter 1(7) of the Compendium of International

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