WORLD ECONOMIC AND FINANCIAL SURVEYS Developments in International Exchange and Payments Systems June 1992 By a Staff Team from the Exchange and Trade Relations Department Hans M. Flickenschild Martin G. Gilman Hassan Al-Atrash Anne-Marie Gulde Atsushi Miyauchi Lynge Nielsen Mark Precious Eugene Spiro INTERNATIONAL MONETARY FUND Washington, DC ©International Monetary Fund. Not for Redistribution © 1992 International Monetary Fund Library of Congress Cataloging-in-Publication Data Developments in international exchange and payments systems / by a staff team from the Exchange and Trade Relations Department : Hans M. Flickenschild... [et al.]. p. cm. — (World economic and financial surveys) "May 1992." ISBN 1-55775-233-8 1. Foreign exchange 2. Foreign trade regulation. I. Flickenschild, Hans M. II. International Monetary Fund. Exchange and Trade Relations Dept. III. Series. HG3851.D39 1992 332.4'5—dc20 ISSN 0258-7440 92-15993 CIP Price: US$20.00 (US$12.00 to full-time faculty members and students at universities and colleges) Please send orders to: International Monetary Fund, Publication Services 700 19th Street N.W. Washington, D.C. 20431, U.S.A. Tel.: (202) 623-7430 Telefax: (202) 623-7201 ©International Monetary Fund. Not for Redistribution Contents Page I. Overview and Major Trends 1 The IMF's Responsibilities for Maintaining a Multilateral Payments System 1 Main Trends in 1989-90 1 Developments in Exchange Systems 2 Developments in Restrictive Measures 3 II. Developments in Exchange Systems 4 Choice of Exchange Arrangements 4 Exchange Rate Developments 10 Industrial Countries 10 Developing Countries 13 Multiple Exchange Rates 14 Introduction and Definition 14 The IMF's Treatment of Multiple Currency Practices 14 Multiple Exchange Rate Developments 19 III. Main Developments in Restrictive Measures 21 Measures Affecting Current Transactions 21 Introduction 21 Eastern Europe 21 Measures Affecting Import Payments 22 Advance Import Deposits 23 Measures Directly Affecting the Allocation of Foreign Exchange 23 Measures Affecting Letters of Credit 24 Administrative Measures 24 Trade-Related Measures 24 Exports and Export Proceeds 24 Current Invisible Transactions 25 Measures Affecting Capital Transfers 26 Introduction 26 Recent Developments in Industrial Countries 27 Recent Developments in Developing Countries 29 Restrictions Leading to External Payments Arrears 31 IV. Developments in Bilateral Payments Arrangements and CMEA Reform 32 The IMF's Treatment of Bilateral Payments Arrangements 33 Prereform CMEA 34 Major Features of the CMEA Arrangement 34 iii ©International Monetary Fund. Not for Redistribution Page Country-Specific Features: Intra-CMEA Issues and Other Bilateral Agreements 35 Bulgaria 35 Czechoslovakia 35 Hungary 36 Poland 36 Romania 36 Yugoslavia 36 Impact of CMEA Reform 37 Boxes 1. Definition of Exchange Rate Classifications 5 2. Examples of Multiple Currency Practices 18 Tables Chapter II. 1. Exchange Rate Arrangements as of December 31, 1991 6 2. Summary of Exchange Rate Arrangements Maintained by Members, January 1, 1989 to September 30, 1991 9 3. Discrete Exchange Rate Changes of Pegged Currencies, 1989-90 15 4. Changes in "More Flexible" Currencies in Developing Countries, December 31, 1988-December 31, 1990 17 5. Features of Multiple Exchange Rate Systems, 1983-90 20 IV. 6. CMEA—Exchange Rates (end of June 1990) 35 Appendix I. Multiple Exchange Rates Maintained by Members as of December 31, 1990 38 Appendix II. Measures Affecting Members' Exchange and Payments Systems, 1989-90 47 Charts Chapter I. 1. Volume of World Trade and Output, 1960-90 2 II. 2. Exchange Rate Classifications, 1982-90 8 3. Nominal Effective Exchange Rates of Industrial Countries with Independently Floating Arrangements, 1982-90 11 4. Real Effective Exchange Rates of Industrial Countries with Independently Floating Arrangements, 1982-90 12 5. Nominal Effective Exchange Rates of Industrial Countries with Cooperative Arrangements, 1982-90 12 6. Developing Countries: Average Nominal Effective Exchange Rates by Regime, 1982-90 13 7. Developing Countries: Average Real Effective Exchange Rates by Regime, 1982-90 14 8. IMF Members with Multiple Exchange Rates, 1966-90 19 III. 9. Developing Countries: Advance Import Deposits, 1985-90 23 10. Developing Countries: Exports and Export Proceeds, 1985-90 24 11. Developing Countries: Current Invisibles, 1985-90 26 12. Capital Controls in Industrial and Developing Countries, 1985-90 27 IV ©International Monetary Fund. Not for Redistribution Preface This study was prepared in the Exchange and Trade Relations Department of the International Monetary Fund, under the direction of Hans Flickenschild and Martin Gilman, Chief and Deputy Chief, respectively, of the Exchange Systems Surveillance Division. Its authors are Hassan Al-Atrash, Anne-Marie Gulde, At- sushi Miyauchi, Lynge Nielsen, Mark Precious, and Eugene Spiro. Kirsten Fitchett and Virgilio Sandoval compiled the tabular appendix on measures affecting mem- bers' exchange and payments systems. The charts were prepared by Can Demir and Eugene Spiro. The authors would like to thank Joy Gough and Bogna Jezierska for excellent secretarial assistance and Margaret Casey and Elisa Diehl of the External Relations Department for their careful editing and coordination of production. The present study was completed in December 1991 and outlines developments up to the first quarter of 1991 as reported by members for the IMF's 1990 and 1991 issues of the Annual Report on Exchange Arrangements and Exchange Restrictions. These publications were assembled by Kyung-Mo Huh and Maria-Elena Ureta on the basis of inputs provided by many colleagues from the Exchange and Trade Relations Department and comments by staff from the IMF's Area Departments and member country authorities. This study has also benefited from comments by other members of the IMF's staff and members of its Executive Board. The views expressed, however, are those of the authors and do not necessarily reflect those of the IMF's Executive Directors or other staff members. Developments in interna- tional exchange and payments systems were most recently reviewed in Develop- ments in International Exchange and Trade Systems, a biennial review published in September 1989 in the IMF's World Economic and Financial Survey series. Pre- viously, such reviews had been published annually as Part One of the Annual Report on Exchange Arrangements and Exchange Restrictions. It should be noted that the term "country" as used in this study does not in all cases refer to a territorial entity that is a state as understood by international law and practice. The term also includes some territorial entities that are not states but that maintain national currencies and exchange control regulations of their own. V ©International Monetary Fund. Not for Redistribution The following symbols have been used throughout this paper: ... to indicate that data are not available; — to indicate that the figure is zero or less than half the final digit shown, or that the item does not exist; - between years or months (e.g., 1991-92 or January-June) to indicate the years or months covered, including the beginning and ending years or months; / between years (e.g., 1991/92) to indicate a crop or fiscal (financial) year. "Billion" means a thousand million. Minor discrepancies between constituent figures and totals are due to rounding. The term "country," as used in this paper, does not in all cases refer to a territorial entity that is a state as understood by international law and practice. The term also covers some territorial entities that are not states, but for which statistical data are maintained and provided internationally on a separate and independent basis. VI ©International Monetary Fund. Not for Redistribution I Overview and Major Trends very year the IMF publishes the Annual Re- without resorting to measures destructive of national E port on Exchange Arrangements and Ex- or international prosperity." In other words, the change Restrictions (AREAER)1 based on informa- manner in which each country determines the do- tion provided by member countries. This biennial mestic currency price of foreign exchange and the report, entitled Developments in International Ex- availability and use of foreign exchange to carry out change and Payments Systems, which analyzes and international transactions are of primary interest to summarizes the last two editions of the AREAER, the IMF. covers developments in members' exchange and Each member country undertakes to collaborate payments systems during 1989 and 19902 and follows with the IMF and other members to assure orderly up on a similar report issued in 1989.3 Quantitative exchange arrangements and to promote a stable sys- trade measures and other restrictions and policies tem of exchange rates. Since the IMF was estab- affecting international trade in goods and services lished in 1944, these obligations have evolved, but are treated in a separate report on international they have so far principally involved the type of ex- trade policy.4 change arrangement member countries can main- tain, procedures for reporting to the IMF, and the IMF's role in exercising firm surveillance over mem- The IMF's Responsibilities for bers' exchange rate policies. These obligations and the manner in which they are carried out are the Maintaining a Multilateral subject of this chapter and of Chapter II.5 Chapters Payments System III and IV focus on the degree to which members' currencies are convertible into