Optimal choice of exchange rate regime for the national economy remains a major unresolved issues in international politics. At the end of last century, the greatest number of currency crises occurred in countries adhering to the so-called intermediate exchange rate regimes. Economists have found that in the modern world with its high integration in international financial markets can survive only two polar modes: either an independent sailing, or a rigid form of fixation. But there will disappear from the face of the Earth intermediate regimes?
On the basis of self-determination
In 1982, the IMF approved the classification of exchange-rate regimes, based on self-determination of national monetary authorities. If any change in exchange rate regime the central bank or ministry of finance should have been, within thirty days notify the Fund of the nature of change. Official reports allow easily include exchange rate policy of the country to a particular category. There were three categories, which differ in the degree of exchange-rate flexibility:
• The currencies with a fixed rate:
o commit to a single currency;
o fixation rate of the currency basket (composite).
• Currency Limited flexible rate:
o limited flexible rate against the single currency;
o limited flexibility in the course of a joint policy.
• The currencies with floating rates:
o adjustable exchange rate;
o controlled swimming;
o independently floating exchange rate.
The main advantages are ease of classification, a broad statistical sample of countries, quarterly updates and long-term monitoring of the exchange-rate regimes. All this contributed to their empirical analysis.
On the other hand, the classification has been the two main disadvantages. First, the number of classes was so little that it was impossible to determine which group include any kind of «soft» anchor. In addition, classification ignore differences in the monetary policy of a country with the same exchange rate regime.
Secondly, the classification is not made the difference between nominal and real exchange rate policy followed by the country. Some States, officially adhering to a fixed rate, in practice, often carried out the devaluation of using exchange rate as a regulator of the competitiveness of domestic exports. Other countries have announced their commitment to swimming, in fact, fixed exchange rate. In doing so, authorities have tried to avoid the political costs and loss of confidence, which would inevitably accompany a formal devaluation. At the same time, they sought to maximize the benefits of the exchange rate as an anti-inflationary anchor monetary policy. As a result, the difference between the announced exchange rate regime and the actual reach huge sizes. For example, approximately 60% of countries classified by their mode of «controlled swimming», de facto support for a fixed rate. This greatly reduces the transparency of exchange-rate policy and lead to errors in the analysis of the foreign exchange market.
Alternatives
As an alternative classifications in 1990. Several suggestions were made. IMF economists Atish Ghosh, Anne-Marie Gald, Jonathan Ostry, together with the Holder Wolf of New York University have joined the official classification of the Fund with the results of observing the actual behavior of exchange rates.
During the 1960-90 biennium. processed statistics in exchange rates around hundred and forty countries around the world. The grouping of countries was held in two phases. Initially, the country has been transferred to the appropriate class based on official statements of its central bank. Then the fixed exchange rate regimes were divided into regimes with frequent (more than once a year) and the rare course corrections. In addition, all countries with floating exchange rate also grouped according to the frequency of foreign exchange intervention. The result has been received extensive classification, consisting of twenty-five categories of exchange-rate regimes. All categories combined into nine major groups. The classification does not reflect the differences between the «soft» and hard-bound form of a fixed exchange rate. Because of this, some countries have got into a «unclassified navigation» [1].
The most original classification of exchange-rate regimes has been proposed by members Torkuato Di Tella University (Buenos Aires, Argentina), Eduardo Levy Eyati and Frederico Sturtsneggerom. They rejected the official classification of the IMF and built his analysis on the monitoring of changes in exchange rates and foreign reserves. The basis for classification as a model for P. Holden, M. Holden and E. Sassi, developed further in 1979 [2].
Using cluster analysis of Argentine economists broke the group into one hundred and ten countries, which was observed from 1974 to 2000., Into several categories. Definition of clusters was based on the assessment of the monthly growth rate of nominal exchange rates, their relative volatility, and volatility of foreign reserves. Exchange-rate regimes is divided into five main categories: a flexible exchange rate, «dirty» swimming, polzuschaya peg, fixed rate, and an indeterminate rate of [3]. The latter have been ranked the country, where all the variables showed lower variation: Belgium and France (holding a horizontal corridor to the classification of the IMF), Argentina (currency board), Nepal (traditional fixation) and a number of countries-members of currency unions.
In 2002, the Bank of Canada economists Zhannin Belyu, Robert Lafrance and Jean-Francois Perrol asked to classify exchange rate regimes based on a combination of formal classification and monitoring of the actual rate fluctuations by using a hybrid dvuhshagovogo mechanical selection rules (two-step hybrid mechanical rule). Rule has been applied to a statistical sample for the period from 1973 to 1998. Consisting of sixty countries.
First step is to define the group of countries that belong to a fixed or floating regimes. Then, a formal classification is subject to verification of the actual data. For fixed-rate nominal volatility (standard deviation) should not exceed 0.45% per year.
Differences between the interim regime and swimming are determined based on the index of exchange-rate flexibility. Indekc calculated as the volatility of the nominal rate in relation to the volatility of the sample in a given year. Countries whose index exceeds one, considered to floating rate category, the rest falling into the intermediate category [4].
The current classification of the IMF
Pressure from the critics and the emergence of new classifications of the IMF was forced to modernize their typology of exchange-rate regimes. In January 1999, the Foundation presented a new classification. Unlike previous, it is based on observation of actual behavior of exchange rates. For applications of the classification is necessary to examine the dynamics of nominal exchange rates.
If a country has a unified exchange rate, it takes into consideration the official exchange rate of monetary authorities, and if the economic agents operating in a multiplicity of exchange rates - the market rate of parallel (black), the foreign exchange market. The new classification also introduces additional categories of fixed rates, reflecting the degree of monetary autonomy and the nature of monetary authorities with respect to the exchange rate. It is described in the «Classification of exchange-rate regimes of the IMF in 1999». Despite several changes in practice modernized classification difficult to apply. There is no cumulative database on exchange rate regimes, which is extremely difficult to conduct empirical analysis.
Assessment of history of the exchange-rate regimes from a position of the updated classification of the IMF leads to surprising results. As it turned out, multiple exchange rates and foreign currency black market is still widespread. In the postwar period, the double exchange rates existed in almost all industrialized countries, not to mention the illegal parallel market rate.
For example, in 1950 45% of all world countries formally established dual exchange rates. The practice of a plurality of courses lasted until the 1990's. In Britain, they existed before the 1970's., In Italy - up to 1980's., And in Belgium and Luxembourg - right up to 1990's. When the process of transition to the euro. Among the countries with developing markets, the proportion of dual-rate fell from 32% in 1980. Up to 20% in 1990. If we take into account the wide distribution of parallel exchange markets, it turns out that during the Bretton Woods system of floating rates were not so rare. Modes of exchange rate around 45% in the 1970's. can be rather characterized not as a record, but as a managed or independent swimming.
Part of foreign economic transactions conducted on the basis of an official fixed rate. However, for other operations guide served black market exchange rate, which gradually declined. In 1980 - 1990. trend reversed: under the guise of formal swimming monetary authorities kept the course in a narrow range of fluctuation, often even narrower than in the Bretton Woods system.
The most popular in the world in the 1970-2001 biennium. used polzuschey binding modes and a narrow oblique corridor. The last decade of XX century polzuschey bindings maintained 36% and dipped the corridor - 42% of countries. Exchange-rate regimes of countries a significant part (12.5%) are difficult to classify. Conditionally their profiles can be described as a «free fall» - inflation exceeded 40% per year, and monetary authorities to abandon any commitment with respect to the exchange rate. In the 1990's free fall was observed in 41% of countries with economies in transition, including Russia.
Table 1 shows statistics of exchange-rate regimes in the last decade of XX century. Although generally accepted that we live in an era of floating rates, the data on the actual exchange rate policy refute this thesis.Despite the gradual decrease in the number of countries adhering to fixed rates, they remain the dominant mode in the world (56% of countries). And followers are gradually moving away from the fixation of soft forms of attachment to a firm. Slight but steady increase in the number of countries prefer a tough bind, and an independent voyage, said that the world is gradually shifting to the two poles of exchange-rate regimes. The proportion of the interim regime in the 1990's. decreased to 30%, while that of the rigid attachment was increased by 10%, and an independent voyage - 20% of countries. Among the categories of intermediate regimes the most popular inclined corridor and tightly managed swimming.
Polarization of exchange-rate regimes are likely to reflect the problem of «incompatible Trinity», when the country can simultaneously achieve the two objectives of the three: the stability of the exchange rate, free international capital mobility and independent monetary policy.
The growing integration of international financial markets makes monetary authorities to choose between stable exchange rate and monetary independence. The interim regime is preferred only for those countries that have not yet opened to foreign investors to its capital markets.
Sergey Moiseev
References:
1. Ghosh A., Gulde A.-M., Ostry J. and Wolf H. Does the Nominal Exchange Rate Regime Matter? / / NBER Working Paper, № 5874, January 1997.
2. Holden P., Holden M. and Suss E. The Determinants Exchange Rate Flexibility: An Empirical Investigation / / Review of Economics and Statistics, 1979, № 3, pp. 327-333.
3. Levy Yeyati E. and Sturzenegger F. Classifying Exchange Rate Regimes: Deeds vs. Words. Unpublished manuscript / / Universidad Torcuato Di Tella, December 1999.
4. Bailliu J., Lafrance R. and Perrault J.-F. Does Exchange Rate Policy Matter foe Growth? / / Bank of Canada Working Paper, № 17, 2002.
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Classification of exchange rate regimes, IMF, 1999
The absence of national means of payment (official or formal dollarization)
As the legal tender currency of the country uses another. The authorities reshivshiesya to official dollarization, completely abandoning domestic monetary policy, which may be regarded as the most rigid form of a fixed exchange rate.
The lack of separation payment (monetary union)
The country became a member of currency or monetary union, where all participants are using one of the legal tender. As in the case of official dollarization, the authorities lose their monetary sovereignty.
Currency board
Monetary authorities have taken a commitment to exchange domestic currency for foreign currency at a fixed rate that is fixed at the legislative level. The monetary base is fully guaranteed gold reserves, and the central bank loses the functions of monetary control and the lender of last resort.
Traditional fixation of the anchor currency or a currency composite
The country formally or informally tie their currencies to the currency of another country or to a basket of currencies. Basket of currencies is the main trade and financial partners, the weight of it are set based on the geographical distribution of trade in goods and services and capital movements. Foreign Exchange composite can be standardized if the anchor supports SDR. The exchange rate fluctuates within a narrow range of ± 1% of the central parity, or the difference between the maximum and minimum values of the course should not exceed 2% within two months.
Polyandrous peg
The exchange rate is adjusted periodically on the same size relative to the anchor currency or basket of currencies. The size of the devaluation can be fixed or subject to the quantitative indicators (inflation differential with the main foreign trade partner, the difference between the target and projected inflation, exchange rate spread between the official and parallel markets). Polzuschaya factor is defined as the retarded (backward looking), if you devaluation to compensate for the accumulated differential of the quantitative indicators, or as advanced (forward looking), if you devaluation consistent with the forecast differentials.
Fixation in the horizontal corridor
The exchange rate fluctuates freely in a range of values that is determined to ± 1% of the formal or informal central parity. At any given time, the authorities are prepared using the direct or indirect intervention to protect the horizontal corridor.
Fixation in the oblique (polzuschego) corridor
The exchange rate is implementing free swimming to within ± 1% of the formal or informal central parity that is periodically adjusted. As in the case of polzuschey referenced, sloped corridor could be delayed or more rapid in nature. The flexibility of the exchange rate is seen as a function of the width of currency corridor. The boundaries of the range of fluctuations can be symmetrical to the central parity or widen gradually asymmetrically in time.
Tightly managed sail without predefined range of oscillation
Monetary authorities through direct or indirect intervention kept the exchange rate at the long-term trend without a preset range of fluctuations, with or without a specified target exchange rate. The direction and frequency correction of the exchange rate determined by the position of the country's balance of payments, amount of foreign reserves, foreign exchange market conditions, etc. The intensity and effectiveness of foreign exchange interventions characterize the degree of rigidity of exchange rate management.
Independent swimming
The exchange rate is determined by the market itself, based on the ratio of supply and demand. If foreign exchange intervention conducted, they are aimed at smoothing and to prevent currency fluctuations, not related fundamental macroeconomic factors.
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