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International Monetary Fund. Legal Dept., International Monetary Fund. Monetary and Capital Markets Department, International Monetary Fund. Strategy, Policy, &, Review Department, and International Monetary Fund. Research Dept.

. The 1947 Memorandum 2. Developments During 1971–1978 3. Exchange Restrictions Under Article VIII, Section 2(a) 4. Consultations Under Article IV, Article VIII, and Article XIV Introduction 1. This paper, which accompanies the paper on the “Review of the Fund’s Policy on Multiple Currency Practices: Initial Considerations” (the “Main Paper”) examines the historical development and legal underpinnings of the Fund’s MCP policy . It considers the development of the concept of an MCP under the par value system and its evolution thereafter (Section I); the

International Monetary Fund. Monetary and Capital Markets Department, International Monetary Fund. Research Dept., International Monetary Fund. Strategy, Policy, & Review Department, and International Monetary Fund. Legal Dept.

methodology to identify MCPs, the treatment of illegal parallel markets, excluding broken cross-rates from the scope of the policy, and the linkages with the Institutional View on the Liberalization and Management of Capital Flows. Directors asked staff to prepare a follow-up paper, building on guidance received from the Executive Board, that would propose a decision to establish a new MCP policy . The Board agreed with the general direction of the review and most of the proposals, but requested further analysis in three main areas: the approval of MCPs maintained

International Monetary Fund. Monetary and Capital Markets Department, International Monetary Fund. Research Dept., International Monetary Fund. Strategy, Policy, & Review Department, and International Monetary Fund. Legal Dept.
In February 2019, the Executive Board considered staff’s preliminary proposals for reforming the IMF’s policy on multiple currency practices (MCPs) and supported the majority of the proposals. The Board expressed strong support for re-focusing the policy on official action that segments foreign exchange markets, eliminating the concept of potentiality, and replacing the current fixed two-percent rule for identifying MCPs for spot transactions with a country-specific market-based norm and tolerance margin that would apply uniformly across the membership for both spot and non-spot transactions. The Board also supported staff’s proposals regarding the other elements of the new methodology to identify MCPs, the treatment of illegal parallel markets, excluding broken cross-rates from the scope of the policy, and the linkages with the Institutional View on the Liberalization and Management of Capital Flows. The paper outlines operational considerations to address noncompliance and to ensure a smooth transition. It is proposed to enhance the current cooperative approach to addressing noncompliance by increasing transparency and accountability.
International Monetary Fund. Legal Dept.

MCP policy, with a view to maintaining its relevance, effectiveness, and traction with members. Directors agreed that there remain economic and legal reasons to retain the MCP policy as a cornerstone of the Fund’s legal and policy framework for exchange rates. They observed that MCPs can be distortionary, create unfair competitive advantage among countries, and hamper trade and investment. Directors noted that, while the existing MCP policy has served the Fund well, some important aspects of the policy have increasingly complicated its implementation in today

International Monetary Fund. Legal Dept.

Abstract

The Fund’s Legal Department has produced this Supplement to Selected Decisions and Selected Documents of the IMF, 40th Issue, with the aim of making available in convenient form selected policy decisions and documents issued after the publication of the 40th Issue but before the issuance of the forthcoming 40th Issue.

International Monetary Fund. Legal Dept., International Monetary Fund. Monetary and Capital Markets Department, International Monetary Fund. Strategy, Policy, &, Review Department, and International Monetary Fund. Research Dept.

Contents Press Release No. 19/203 FOR IMMEDIATE RELEASE June 10, 2019 International Monetary Fund Washington, D.C. 20431 USA On February 1, 2019, the Executive Board of the International Monetary Fund (IMF) discussed a paper reviewing the Fund’s policy on multiple currency practices (MCPs) and considered staffs initial proposals for reform. By limiting the circumstances in which Fund members may introduce and maintain multiple exchange rates, the MCP policy aims to promote orderly exchange arrangements and a stable system of exchange rates

International Monetary Fund. Legal Dept., International Monetary Fund. Monetary and Capital Markets Department, International Monetary Fund. Strategy, Policy, &, Review Department, and International Monetary Fund. Research Dept.

commercial costs and risks. The over-arching aim of the review is to make the policy and its application more effective . The objective is to adjust the policy so that it does not discourage good practices established in FX markets and is better aligned with the Fund’s other policies, while ensuring that it continues to address policy actions that are objectionable. Any changes would be designed to make the MCP policy more relevant and understandable. Based on this review, the paper proposes initial considerations for reforming features of the policy that have created

International Monetary Fund. Monetary and Capital Markets Department, International Monetary Fund. Research Dept., International Monetary Fund. Strategy, Policy, & Review Department, and International Monetary Fund. Legal Dept.

Introduction 1. In February 2019, the Executive Board considered staff’s preliminary proposals (“ Initial Considerations ” ) for reforming the IMF’s policy on multiple currency practices (MCPs) and supported the majority of the proposals ( Box 1 ). 1 The Fund’s MCP policy is a cornerstone of the Fund’s legal and policy framework for exchange rates. The obligation of member countries to refrain from engaging in MCPs is an original provision of the Articles of Agreement. However, the current policy is outdated, having not been reviewed since 1981. Since the

International Monetary Fund. Legal Dept., International Monetary Fund. Monetary and Capital Markets Department, International Monetary Fund. Strategy, Policy, &, Review Department, and International Monetary Fund. Research Dept.

Executive Board’s consideration on February 1, 2019. The Staff Report , “ Review of the Fund’s Policy on Multiple Currency Practices: Initial Considerations—Historical Development and Legal Framework of the MCP Policy, ” prepared by IMF staff and completed on August 1, 2018 for the Executive Board’s consideration on February 1, 2019 (Background Paper I). The Staff Report , “ Review of the Fund’s Policy on Multiple Currency Practices: Initial Considerations—Economic Context and Experiences, ” prepared by IMF staff and completed on August 1, 2018 for the Executive

International Monetary Fund. Legal Dept., International Monetary Fund. Monetary and Capital Markets Department, International Monetary Fund. Strategy, Policy, &, Review Department, and International Monetary Fund. Research Dept.
This paper reviews the Fund’s policy on multiple currency practices (MCPs). There remain strong economic and legal reasons to retain a policy on MCPs. The over-arching aim of the review is to make the policy and its application more effective. Based on this review, the paper proposes initial considerations for reforming features of the policy that have created challenges. • Clarifying the concept of “official action” to focus on measures that segment FX markets. • Eliminating potentiality. • Updating the threshold for permissible FX spreads. • Adjusting approval policies. • Reviewing links with capital transactions. • Considering merits of a remedial framework.