Certain trends that have characterized the evolution of the international monetary system in recent years, particularly in the period since 1978, persisted during the period under review. In the determination of exchange rates, the monetary authorities of a number of industrial countries maintained or increased efforts to influence the course of exchange rate movements. This tendency has manifested itself, inter alia, in some increase since 1978, compared with earlier years of the period of floating exchange rates, in the level of official intervention in foreign exchange markets and in the pursuit of monetary policies tending to stabilize exchange rates. The variability of exchange rates among major currencies in 1979 appears to have declined somewhat from that observed on average in the first several years of the period of floating. The question arises whether measures by the industrial countries to influence exchange markets, as well as the greater stability of exchange rates, can on balance be expected to assist or hamper the pursuit of their macroeconomic objectives.
This paper reviews key findings of the IMF’s Annual Report for the fiscal year ended April 30, 1980. The report highlights that during the period from the beginning of 1979 to the middle of 1980, the world economic situation was marked by three disturbing features. Rates of inflation in most countries remained high and, indeed, accelerated. Growth of real output in the industrial countries began to slow down markedly, threatening to halt the expansion of world trade. Large surpluses and deficits reemerged in the external balances on current account for major groups of countries.
The performance of the world economy during 1978 and the first half of 1979 was characterized by a mixture of gains and disappointments. On the one hand, the evolution of domestic demand in several of the largest industrial countries proceeded broadly along the lines of a strategy of policy that had been agreed in various international forums, and this development was beneficial to the distribution of external current account balances among individual countries within the industrial group. The sizable changes in exchange rates for major currencies that occurred during 1978 also made for a better pattern of international payments relationships among the principal industrial countries, and a substantial improvement in the pattern of their current account balances did, indeed, emerge in the first half of 1979. Further, the more orderly conditions prevailing in foreign exchange markets during the current year to date attest to the calming impact of the internationally coordinated measures taken, in combination with adjustments of domestic policy, in the latter part of 1978.
This chapter reviews a number of recent developments in the international monetary system in a longer-term perspective. The marked variability in exchange rates among the larger industrial countries within the last two years has generated some criticism of floating exchange rates. It is certainly widely recognized that given the underlying economic and financial conditions prevailing in recent years a substantial degree of exchange rate flexibility has been and remains essential, and that exchange rate changes have made a significant contribution to international adjustment. At the same time, the experience of recent years has provided a reminder that there are limits to what can be accomplished by changes in exchange rates. In particular, attention has been drawn to the substantial lags in current account adjustments to exchange rate changes and to the extent to which such adjustments to rate changes can be slowed down or even nullified by the absence of supporting domestic measures. Moreover, the behavior of exchange markets has at times been characterized by “overshooting” with consequential reversals of exchange rate movements. Recent experience with floating rates has thus led a number of countries to the view that more management of exchange rates is required. It has also reinforced the conclusion, embodied in the new Article IV, that in the absence of orderly underlying economic and financial conditions in member countries it will not be possible to achieve a stable system of exchange rates.
This chapter deals with salient aspects of the present international monetary system and its recent evolution. The first part of the chapter reviews exchange rate arrangements and policies of industrial and developing member countries; it concludes with a discussion of developments in the Fund’s surveillance over members’ exchange rate policies. The second part of the chapter takes up the question of international liquidity, beginning with an analysis of recent changes in official international reserve holdings and proceeding to a description of developments in private international credit markets; it ends with a discussion of the adequacy of international reserves and the role of the Fund in providing liquidity to its members.
The extensive use of the Fund’s resources continued in the year ended April 30, 1984, with gross purchases (SDR 10.2 billion) close to the record level of the preceding year (see Table 17). At the end of the year, 35 adjustment programs were in effect, with a total commitment of SDR 18.6 billion, of which about one half had been drawn. The amount of total Fund credit outstanding increased from SDR 23.6 billion (85 countries) at the end of 1982/83 to SDR 31.7 billion (84 countries) at the end of 1983/84. The bulk of the Fund’s financial assistance has been through purchases under upper tranche conditionality, in keeping with the Fund’s policy of combining adjustment and financing (see Table 18).
This paper reviews the IMF’s Annual Report for the fiscal year ended April 30, 1984. The report highlights that the performance of the world economy in 1983 and the early part of 1984 was significantly better than in the preceding several years. Economic expansion proceeded vigorously in the United States and Canada, and showed signs of spreading to other countries in the industrial world. Price inflation receded further in the seven largest industrial countries, dropping to its lowest level in 15 years. The current account deficit of developing countries was further reduced.
This paper reviews key findings of the IMF’s Annual Report for the fiscal year ended April 30, 1979. The report highlights that the performance of the world economy during 1978 and the first half of 1979 was characterized by a mixture of gains and disappointments. The evolution of domestic demand in several of the largest industrial countries proceeded broadly along the lines of a strategy of policy that had been agreed in various international forums. This development was beneficial to the distribution of external current account balances among individual countries within the industrial group.
During the period from the beginning of 1979 to the middle of 1980, the world economic situation was marked by three disturbing features. Rates of inflation in most countries remained very high and, indeed, accelerated; growth of real output in the industrial countries began to slow down markedly, threatening to halt the expansion of world trade and to turn into another international recession; and large surpluses and deficits re-emerged in the external balances on current account for major groups of countries, giving rise to widespread concern about the ability of some countries, particularly in the non-oil developing group, to sustain the financing of current account deficits on the scale projected. In varying degrees, the more than doubling of oil prices after the end of 1978 was a major factor in all three of these disturbing elements in the global economic picture.