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Exchange rate policies
Last Updated: April 14, 2007| Question: On the Chinese commitments on the multilateral consultations in the section on increasing flexibility of the renminbi, it says in the statement that it has appreciated 7 percent against the dollar and 6 percent real effective exchange rate. But I understood that on a trade-weighted basis, the renminbi has actually depreciated. Which is it? Was there concern about the low value of the renminbi being potentially destabilizing to global finance? |
| Answer:
MR. DE RATO: First, you are right in what you said, but you should read further in the statement where the Chinese government has stated that the exchange rate formation mechanism will be improved in a gradual and controllable manner. Exchange rate flexibility will gradually increase, with attention paid to the value of a basket of currencies. At these meetings, there was no discussion about any currency. Our view on currencies is expressed in different Article IV consultations, with the Chinese or others. It is in the interest of the Chinese economy and Chinese citizens to have a stronger rebalancing of demand and, to do that, monetary policy should be allowed to play a bigger role. In that respect, exchange rate flexibility will be very much in their own interest.
April 14, 2007 Transcript of a Press Briefing by UK Chancellor of the Exchequer Gordon Brown, Chairman of the International Monetary and Financial Committee, and IMF Managing Director Rodrigo de Rato, with John Lipsky, First Deputy Managing Director of the IMF, and Masood Ahmed, Director of IMF External Relations Department |
| Question: How much should the dollar depreciate in order to contribute to narrow global imbalances? |
| Answer:
MR. JOHNSON: The question that we think is important and timely is the relative role of exchange rate changes both in the U.S. dollar and in other currencies around the world, that is, the relative role of those exchange rate changes in addressing global imbalances. What the WEO chapter shows is that actually two things are important. One is that a depreciation in the U.S. dollar has a greater impact on global imbalances than sometimes supposed. But remember, one country's depreciation is another country's appreciation. Surplus countries, that is, countries with current account surpluses, would also experience positive effects and easier adjustments were their currencies to appreciate in real terms. So, on the one side, we're saying that changing the exchange rates would be helpful for the United States, and there has already been some depreciation of the United States dollar and that is already helpful and already working its way through, for example, into strong exports for capital goods from the United States. Surplus countries should read the chapter as encouraging them to see exchange rate adjustments there as facilitating the reallocation of resources in a way that helps the global imbalances. But remember, the second message is very important: these exchange rates are only helping the broader picture, which is so-called rebalancing of demand. Demand has to go up in surplus countries, and savings rates in the medium term have to go up in some other countries, such as the United States. So that is very important to get right because that rebalancing in demand means that you unwind the global imbalances without slowing the global economy, and that is what we are aiming to get and where we think we are heading with the current alignment of policies. April 5, 2007 Transcript of a Press Briefing on the Analytic Chapters of the World Economic Outlook (WEO) by Simon Johnson, Economic Counselor and Director of the IMF's Research Department; Charles Collyns, Deputy Director of the Research Department; and Timothy Callen, Chief of the World Economic Studies Division, IMF |
| Question: How do you see the adjustment of the dollar led by the market when some of the currencies that should be involved, like the yuan, are not responding to market forces, and others, like the yen, are responding to market forces and are weakening and not strengthening? |
| Answer:
MR. JOHNSON: As Chapter 3 of the WEO emphasizes, for countries that have current account deficits, it is helpful, when combined with the right demand-rebalancing policies, to have a real depreciation of the exchange rate. This makes exporters more competitive, it makes it easier to compete against imports. That is what we have seen in the United States over the past year or two. So that is a positive development, and the chapter shows that this could actually have more impact on a current account than is commonly supposed. In terms of the surplus countries, I think there should be less worry about the effects of exchange rate changes. For those countries it would be an appreciation that would make their exports a little less competitive and make it a little easier to sell imports to them. That would be consistent with other measures taken to increase demand in those countries. There is a symmetry needed to these global adjustments and it is obviously a process. It is not something one would expect to happen overnight; it happens gradually, and it is happening so far quite smoothly. This is encouraging, but we should see more movement in the same direction if this process is to stay on track. April 5, 2007 Transcript of a Press Briefing on the Analytic Chapters of the World Economic Outlook (WEO) by Simon Johnson, Economic Counselor and Director of the IMF's Research Department; Charles Collyns, Deputy Director of the Research Department; and Timothy Callen, Chief of the World Economic Studies Division, IMF |
| Question: Regarding the Managing Director's visit to China, I was wondering if the subject of exchange rate reform in China came up in conversations, and if so, whether any progress was made? |
| Answer:
When he was there he discussed with the Chinese authorities both overall macroeconomic and financial programs and prospects, but within that context obviously the issue of the exchange rate. In the press release that was issued,there is a section that deals with his assessment of that conversation of the exchange rate. He talks in that press release about what he had heard from the authorities, which is they have reiterated their objectives of advancing exchange rate reform and allowing greater flexibility over time in the exchange rate to reflect market conditions. He sets out our views on how faster movement on the exchange rate would provide more space for the authorities to use monetary policy and why the use of monetary policy is more important as an instrument to deal with credit growth and to curb investment.
He has also set out our views in those discussions on why greater flexibility in the exchange rate is more important from a medium-term perspective because we see greater reliance on market forces in both exchange rates and interest rates as being a way of helping to rebalance the sources of growth in the Chinese economy more from domestic demand.
February 1, 2007 Transcript of a Press Briefing by Masood Ahmed, Director, External Relations Department, IMF |
| Question: Can you comment on the recent U.S. Treasury Report to Congress on International Economic and Exchange Rate Policies? |
| Answer:
Under the terms of U.S. law, the Treasury does consult with the Fund for this report. And that is reflected in their report. To the extent that the report comments on the Fund, Treasury expresses a belief that China does not meet the requirements under the relevant U.S. legislation. We gave them our views on the Chinese exchange rate system, and on that particular issue there is an agreement. We have the consistent view on the Chinese exchange rate regime that the Chinese have made progress in terms of this new regime. We have supported China's move this summer in moving to a more flexible exchange rate system and have encouraged and continue to encourage them to take full advantage of the flexibility afforded them by this new system.
December 1, 2005 Press Briefing by Thomas Dawson, Director of External Relations, IMF |
| Question: The U.S. Treasury report called on the IMF Managing Director to prepare a report on exchange rates and make proposals for reforms in IMF exchange rate surveillance procedures. What is the IMF's view on that request? |
| Answer:
The IMF has a surveillance role with all 184 of our members, and we believe that we are fulfilling that role. Obviously, the issue of exchange rates is an important issue with almost all of our member countries, and the issue of exchange rates in Asia generally, and in China in particular, has gotten a fair amount of attention. We will continue to examine, reflect, and report in a variety of fora and formats on our views on that subject. We have a major surveillance responsibility, and we think that we will be fulfilling it.
December 1, 2005 Press Briefing by Thomas Dawson, Director of External Relations, IMF |
| Exchange rate policies : archived questions and answers |