2023-12-20-IMF-Integrated_Policy_Framework—Principles_for_the_Use_of_Foreign_Exchange_Intervention_61页_784kb

Integrated Policy Framework—Principles for the Use of Foreign Exchange Intervention

Purpose and Scope

• Provides guidance for IMF surveillance to advise on foreign exchange intervention (FXI) within the Integrated Policy Framework (IPF).
• Combines insights from IPF models, empirical literature, and practical central bank challenges.
• Focuses on open economies with floating exchange rates, particularly those using inflation targeting.

Core Principles

1. Conditional Use of FXI

   • FXI is warranted only when well-identified frictions limit the benefits of exchange rate flexibility.
   • Must address large shocks posing significant risks to price and financial stability.
   • Should not substitute for correcting inappropriate domestic policies (e.g., fiscal or monetary mismanagement).

2. Cost-Benefit Analysis

   • FXI should be used sparingly due to potential costs like market distortions, moral hazard, and loss of credibility.
   • Effectiveness depends on frictions (e.g., shallow markets, FX mismatches, inflation expectations de-anchoring) and institutional conditions.

3. Integration with Other Policies

   • FXI must be part of an integrated policy response, including macroprudential measures (MPMs), capital flow measures (CFMs), and monetary/fiscal policies.
   • Reserve accumulation must balance benefits (e.g., credibility, effectiveness) and costs (e.g., sterilization, opportunity costs).

4. Strong Institutional Framework

   • Requires robust central bank governance, operational autonomy, and transparent communication to mitigate moral hazard and ensure credibility.

Key Use Cases for FXI

1. Smoothing Destabilizing Premia

   • Addresses inefficiencies in financing/hedging premia (e.g., UIP/CIP deviations) from foreign investor behavior or capital flow shocks.

2. Countering Financial Stability Risks from FX Mismatches

   • Targets large depreciations to prevent defaults and fire sales from unhedged FX exposures, especially in dollarized or highly leveraged economies.

3. Supporting Price Stability

   • Aims to avoid de-anchoring inflation expectations during large depreciations, but only when costs of monetary policy alone are high.

Multilateral Considerations

• Cautions against excessive reserves accumulation to avoid "beggar-thy-neighbor" policies (e.g., undervalued exchange rates harming trade partners).
• FXI in large-scale coordinated actions may exacerbate global currency wars or destabilize markets.

Conclusion

The IPF framework emphasizes conditional, integrated, and carefully targeted FXI to address specific frictions, while upholding central bank credibility and avoiding moral hazard. FXI is not a standalone solution but complements other policies, with decisions based on country-specific conditions and clear economic rationale.