aMF Working Paper Revised system for the classification of Exchange Rate Arrangements Karl Habermeier, Annamaria Kokenyne Romain veyrune, and harald anderson INTERNATIONAL MONETARY FUND
WP/09/211 Revised System for the Classification of Exchange Rate Arrangements Karl Habermeier, Annamaria Kokenyne, Romain Veyrune, and Harald Anderson
o 2009 International Monetary Fund WP/09/211 IMF Working Paper Monetary and Capital markets department Revised system for the Classification of Exchange rate arrangements Prepared by Karl Habermeier, Annamaria Kokenyne, Romain Veyrune, and Harald anderson Authorized for distribution by Karl Habermeier September 21, 2009 This version November 17 2009 Abstract Since 1998, the staff of the International Monetary Fund has published a classification of countries' de facto exchange rate arrangements. Experience in operating this classification system has highlighted a need for changes. The present paper provides information on revisions to the system in early 2009. The changes are expected to allow for greater consistency and bjectivity of classifications across countries, expedite the classification process, conserve resources, and improve transparency This Working Paper should not be reported as representing the views of the me. The views expressed in this Working Paper are those of the author(s)and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s)and are published to elicit comments and to further debate JEL Classification Numbers. E0. E5. E6F31. F53 Keywords: exchange rate regime, exchange rate arrangement, classification, taxonomy, de facto, de jure Authors'E-mail khabermeier @imf org, akokenyne( @imf. org, rveyrune(@imf.org Addresses harald anderson @utoronto . ca
© 2009 International Monetary Fund WP/09/211 IMF Working Paper Monetary and Capital Markets Department Revised System for the Classification of Exchange Rate Arrangements Prepared by Karl Habermeier, Annamaria Kokenyne, Romain Veyrune, and Harald Anderson Authorized for distribution by Karl Habermeier September 21, 2009 This version: November 17, 2009 Abstract Since 1998, the staff of the International Monetary Fund has published a classification of countries’ de facto exchange rate arrangements. Experience in operating this classification system has highlighted a need for changes. The present paper provides information on revisions to the system in early 2009. The changes are expected to allow for greater consistency and objectivity of classifications across countries, expedite the classification process, conserve resources, and improve transparency. This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate. JEL Classification Numbers: E0, E5, E6, F31, F53 Keywords: exchange rate regime, exchange rate arrangement, classification, taxonomy, de facto, de jure Authors’ E-Mail Addresses: khabermeier@imf.org, akokenyne@imf.org, rveyrune@imf.org, harald.anderson@utoronto.ca
Contents L. Introduction II. Principles Objectives and Operational Considerations 346 IlL. Need for Change ....................... V. The Revised De Facto Classification System Tables 1. Shares of Classifications Using the 1998 and 2009 Methodologies FI 1. Development of the Residual Category, 1975-2008 2. Decision Process for Revised Classification Methodology Appendices I Revised Classification System-Definitions of Categories I L. The Evolution of the imf's classification taxonomies 15
2 Contents Page I. Introduction ............................................................................................................................3 II. Principles, Objectives, and Operational Considerations .......................................................4 III. Need for Change ..................................................................................................................6 IV. The Revised De Facto Classification System......................................................................7 Tables 1. Shares of Classifications Using the 1998 and 2009 Methodologies......................................4 Figures 1. Development of the Residual Category, 1975–2008 .............................................................6 2. Decision Process for Revised Classification Methodology...................................................9 Appendices I. Revised Classification System—Definitions of Categories .................................................11 II. The Evolution of the IMF’s Classification Taxonomies.....................................................15
. INTRODUCTION Since 1998, the staff of the International Monetary Fund(IMf) has published a classification of countries' de facto exchange rate arrangements. Experience in operating thi classification system has highlighted several challenges, notably the residual category of managed floating has become overly heterogeneous; and intervention practices, which are used in characterizing arrangements, have become increasingly complex, while adequate data on intervention are sometimes not available The existing IMF staff classification system has been modified to address these and other issues(see Appendix I for the new definitions ). The revised classification will be published in the 2009 Annual Report on Exchange Arrangements and Exchange Restrictions (AREAER)and in the IMF's 2009 Annual Report. Specifically, the 2009 AREAER will Intervening period. The revised classification of member countries'arrangements is also a include the revised classification at end-April 2009 and end-April 2008, and changes in the being used in all Article IV staff reports issued on or after February 1, 2009. It is intended to evise the classification series backward in time. Country authorities have the opportunity to comment on changes in classifications and discuss them with IMF staff before they are publish Key changes to the classification system include replacing the current distinction between managed and independent floating with two new categories: floating and free floating, with clearer definitions drawing a distinction between formal fixed and crawling pegs, and arrangements that re merely peg-like or crawl-like; increasing the transparency of the system by basing it on rules that can be implemented using specified information, with a more clearly circumscribed role for These changes are expected to allow for greater consistency and objectivity of classifications across countries, expedite the classification process, co and impr transparency, with benefits for the IMF's bilateral and multilateral surveillance The overall composition of arrangements using the previous and revised classification systems is shown in Table 1, below A chronology of the IMF's methodologies for classifying exchange rate arrangements is given in Appendix Il
3 I. INTRODUCTION Since 1998, the staff of the International Monetary Fund (IMF) has published a classification of countries’ de facto exchange rate arrangements.1 Experience in operating this classification system has highlighted several challenges, notably: the residual category of managed floating has become overly heterogeneous; and intervention practices, which are used in characterizing arrangements, have become increasingly complex, while adequate data on intervention are sometimes not available. The existing IMF staff classification system has been modified to address these and other issues (see Appendix I for the new definitions). The revised classification will be published in the 2009 Annual Report on Exchange Arrangements and Exchange Restrictions (AREAER) and in the IMF’s 2009 Annual Report. Specifically, the 2009 AREAER will include the revised classification at end-April 2009 and end-April 2008, and changes in the intervening period. The revised classification of member countries’ arrangements is also being used in all Article IV staff reports issued on or after February 1, 2009. It is intended to revise the classification series backward in time. Country authorities have the opportunity to comment on changes in classifications and discuss them with IMF staff before they are published. Key changes to the classification system include: replacing the current distinction between managed and independent floating with two new categories: floating and free floating, with clearer definitions; drawing a distinction between formal fixed and crawling pegs, and arrangements that are merely peg-like or crawl-like; increasing the transparency of the system by basing it on rules that can be implemented using specified information, with a more clearly circumscribed role for judgment. These changes are expected to allow for greater consistency and objectivity of classifications across countries, expedite the classification process, conserve resources, and improve transparency, with benefits for the IMF’s bilateral and multilateral surveillance. The overall composition of arrangements using the previous and revised classification systems is shown in Table 1, below. 1 A chronology of the IMF’s methodologies for classifying exchange rate arrangements is given in Appendix II
Table 1. shares of Classifications Using the 1998 and 2009 Systems as of April 30, 2008 1998 de facto system 2009 de facto system Arrangement with no 10 Exchange arrangement with separate legal tender no separate legal tender Currency board 13 Currency board arrangement Soft peg Conventional fixed peg 68 Conventional pegged Stabilized of which: Intermediate pegs 13 11 Pegged exchange rate 3 Pegged exchange rate within vithin horizontal bands horizontal bands Crawling band 2 Crawl-like arrangement Managed floating 44 Floatin Independently floating 40 Free floating Other managed arrangements(residual na Total Source: Staff calculations. Information for end-April 2009 will be published in the 2009 Annual Report on Exchange Arrangements and Exchange Restrictions(AREAER), forthcoming IL. PRINCIPLES, OBJECTIVES, AND OPERATIONAL CONSIDERATIONS The classification of exchange rate arrangements is based on three broad principles capturing the outcome of actual exchange rate policies on a de facto basis as opposed to the announced or de jure arrangement avoiding value judgments on the appropriateness of monetary policies or the choice of adopting a backward looking approach that seeks to describe the outcome of past exchange rate policies and does not imply statements or views on future or intended
4 Table 1. Shares of Classifications Using the 1998 and 2009 Systems, as of April 30, 2008 1998 de facto system 2009 de facto system Hard pegs 23 23 Arrangement with no separate legal tender 10 Exchange arrangement with no separate legal tender 10 Currency board arrangement 13 Currency board arrangement 13 Soft pegs 81 78 Conventional fixed peg 68 Conventional pegged arrangement 45 Stabilized arrangement 22 of which: Intermediate pegs 13 11 Pegged exchange rate within horizontal bands 3 Pegged exchange rate within horizontal bands 3 Crawling peg 8 Crawling peg 5 Crawling band 2 Crawl-like arrangement 3 Floating arrangements 84 75 Managed floating 44 Floating 39 Independently floating 40 Free floating 36 Other managed arrangements (residual) n.a. 12 Total 188 188 Source: Staff calculations. Information for end-April 2009 will be published in the 2009 Annual Report on Exchange Arrangements and Exchange Restrictions (AREAER), forthcoming. II. PRINCIPLES, OBJECTIVES, AND OPERATIONAL CONSIDERATIONS The classification of exchange rate arrangements is based on three broad principles: capturing the outcome of actual exchange rate policies on a de facto basis as opposed to the announced or de jure arrangement; avoiding value judgments on the appropriateness of monetary policies or the choice of the exchange rate arrangement; adopting a backward looking approach that seeks to describe the outcome of past exchange rate policies and does not imply statements or views on future or intended policies