Thursday, June 21, 2007

Passing the Buck, I Mean Renminbi

. Thursday, June 21, 2007

The IMF this week announced new guidelines for how it will evaluate exchange rate policies.

"Rato said the new rule "gives clear guidance to our members on how they should run their exchange rate policies, on what is acceptable to the international community and what is not."

Treasury Secretary Henry Paulson said in a statement that it would send "a strong message that the IMF will put exchange rate surveillance back at the core of its duties and rigorously implement its rules on exchange rate surveillance going forward."

Unclear, however, is what the IMF can do to encourage changes for those governments whose policies the "international community" find unacceptable. Strikes me that the Bush administration found a nice way to deflect pressure from Congress--they can now say, "the IMF has authority on these issues." And, they can say, "the IMF failed to find that China is manipulating its currency."

To wit, Paulson testified in front of Congress this week:

Mr. Paulson asked Congress to support the International Monetary Fund and the World Bank, as the IMF works on a package of institutional reforms and the bank replenishes its trust fund for poor countries. "The [international financial institutions] are indispensable to promoting the U.S.'s global economic interests, which cannot be effectively pursued through bilateral means alone," he said.

Mr. Paulson said reforms adopted by the IMF last week to its economic surveillance policies elevated the importance of exchange rate policies. "A multilateral approach places exchange rate issues in a broader, less politically charged context where the win-win aspects of reform can be more persuasively emphasized," he said.

China seems less sanguine. "The People’s Bank of China, the central bank, said in a statement on its website that the IMF “should carry out its duties based on mutual understanding and respect”, especially for the views of developing countries" and urged the IMF not to cave to American pressure on exchange rate issues.


Passing the Buck, I Mean Renminbi




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