IMF FOREIGN EXCHANGE REGIME REVIEW INDIA

IMF Foreign Exchange Regime Review

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How many types of Foreign exchange regimes are there?

Foreign exchange rate policies are used by central banks based on their specific requirements and are fine tuned to achieve desired results based on forex reserves availability, export import requirements & volatility.

Gold peg – currencies were pegged to an ounce of Gold, before 1944 Bretton Woods Agreement, When major countries agreed to peg all currencies to the U.S. dollar.

Exchange Arrangements with No Separate Legal Tender or formal dollarization

The currency of another country circulates as the sole legal tender (formal dollarization), or the member belongs to a monetary or currency union in which the same legal tender is shared by the members of the union.

 

Fixed Peg Arrangements

The country (formally or de facto) pegs its currency at a fixed rate to another currency or a basket of currencies, where the basket is formed from the currencies of major trading or financial partners and weights reflect the geographical distribution of trade, services, or capital flows. Example – Saudi Arabia, Qatar, Panama

Managed Floating with No Predetermined Path for the Exchange Rate or partial float

The monetary authority attempts to influence the exchange rate without having a specific exchange rate path or target. Indicators for managing the rate are broadly judgmental (e.g., balance of payments position, international reserves, parallel market developments), and adjustments may not be automatic. Intervention may be direct or indirect.Exchange – China,India, etc

 

Independently Floating or free floating

The exchange rate is market-determined, with any official foreign exchange market intervention aimed at moderating the rate of change and preventing undue fluctuations in the exchange rate, rather than at establishing a level for it.

Exchange – United States, European union, etc