IMF faults itself on currency surveillance

The International Monetary Fund, under pressure by shareholder governments to pay more attention to exchange rates of emerging economies like China, said on Thursday it needed to do more to analyse whether currencies are appropriately valued.
Last year the US complained that the IMF was not doing enough to highlight the threat to the global economy from trade imbalances that resulted from some countries, like China, keeping their currencies unfairly low.
In a study released on Thursday that looked at the quality of IMF currency surveillance, the IMF board rated staff analysis as "mostly adequate," but said it could do more to evaluate exchange rate levels and spell out how the policies of one country affects others.
Such analysis would help policymakers judge if a country's exchange rate is either overvalued or undervalued. "However, most directors underscored that a more comprehensive description of intervention policies would have been desirable in some cases, including a more consistent treatment of central bank reserve accumulation arising from public sector foreign exchange inflows," the IMF board said.
The study is the first since IMF Managing Director Rodrigo Rato launched reforms to modernise the 61-year-old institution and to better reflect the rise of economic powers in Asia and elsewhere.
The IMF study focused on five advanced countries, 19 emerging economies like China, South Korea, Brazil, Russia, India, South Africa, and Argentina, and five oil producers Saudi Arabia, Iran, Nigeria, Bangladesh and Vietnam.
"Exchange rate surveillance is a critical issue for the fund, and an adequate treatment should be expected for all dimensions of exchange rate surveillance," the study said.
It found that in some cases the IMF opted to avoid dealing with difficult currency issues, and more often challenged pegged exchange rate regimes rather than flexible ones.
The study also said IMF staff were reluctant to deal with certain issues not so much because it was market sensitive, but because governments regarded the subjects as "politically charged" or did not consider them in the realm of fund surveillance.
The paper determined that the fund's performance on assessing exchange rate levels was "mixed" and found shortcomings in about one-third of the cases reviewed.
On China, the IMF said staff had discussed at length the difficulty of determining the extent of undervaluation of the Chinese yuan, given there were faults with several different formula for calculating the value of a currency.
But it also pointed out that it had provided candid estimates of currency values for countries such as Australia, Canada, India, Indonesia, Pakistan, Turkey and Britain.