## _112707

## Source details

**Canonical URL:** [_112707](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/np/pp/2007/eng/_112707.pdf)

## Other formats

- [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/np/pp/2007/eng/_112707.pdf.md)
- [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/np/pp/2007/eng/_112707.pdf.json)

---

### Overview
- Review reports on trends, developments, and issues in exchange rate arrangements and currency convertibility using the existing de facto classification methodology.
- Data on current and capital account convertibility issues are as at end-2006, while exchange arrangement classifications are as at end-April 2007; data generally refer to the 185 IMF members plus Aruba, Hong Kong SAR, and the Netherlands Antilles.
- Classification methodology used by Fund staff since 1998 is based on staff assessment of observed (de facto) exchange rate arrangements rather than notified (de jure) arrangements.

### Exchange rate arrangements — Key findings and developments
- De facto distribution as of end-April 2007:
  - 23 countries have hard pegs.
  - 82 countries have soft pegs.
  - 83 countries float.
  - Most soft pegs are conventional fixed pegs (70).
  - Most floating arrangements are managed floats (48).
  - Independently floating arrangements number 35 countries.
- Trends since 2001:
  - Broad distribution across hard pegs, soft pegs, and floats has remained basically stable since 2001.
  - Polarization toward hard pegs or floats and away from soft pegs halted since 2001.
  - Net changes and composition shifts:
    - Net increase of one in the number of hard pegs.
    - Number of soft pegs increased by about 15 percent, with movement from intermediate pegs (pegs within bands, crawling pegs, and crawling bands) to conventional pegs.
    - Overall number of floaters decreased substantially; within floats, shift from independent floating to managed floating.
- Movements and subcategories (selected counts and changes):
  - Hard pegs: 17 (1996) → 23 (2007 April)
    - No separate legal tender: 5 (1996) → 10 (2007 April)
    - Currency board arrangements: 12 (1996) → 13 (2007 April)
  - Soft pegs: 107 (1996) → 82 (2007 April)
    - Conventional pegged arrangements: 63 (1996) → 70 (2007 April)
      - Pegs to a single currency: 49 (1996) → 63 (2007 April)
      - Pegs to a composite: 14 (1996) → 7 (2007 April)
  - Intermediate pegs: 44 (1996) → 12 (2007 April)
    - Pegged exchange rates within horizontal bands: 18 (1996) → 5 (2007 April)
    - Crawling pegs: 14 (1996) → 6 (2007 April)
    - Crawling bands: 12 (1996) → 1 (2007 April)
  - Floating arrangements: 60 (1996) → 83 (2007 April)
    - Managed floating: 37 (1996) → 48 (2007 April)
    - Independently floating: 23 (1996) → 35 (2007 April)
- Additional dynamics:
  - 20 countries moved from a soft peg to a float during the past five years, while 28 countries abandoned floating arrangements in favor of soft pegs.
  - Share of managed floats within floating arrangements increased to 58 percent at end-April 2007; this is higher than in 2001 (46 percent).
  - During the period, 14 countries moved from independent floats to managed floats.
- Anchors and baskets:
  - Shift away from currency baskets toward simple anchors, notably the U.S. dollar or the euro.
  - Number of countries referencing currency baskets (excluding the SDR) declined from 36 in 1990 to 8 at end-April 2007.
  - Number using the SDR as reference dropped from 6 in 1990 to 1 at end-April 2007.
  - U.S. dollar remains the prevailing international currency anchor: one-third of dollar pegs are hard pegs and the rest soft pegs; of countries using the U.S. dollar as anchor, only 53 percent are in the Americas or are Pacific islands.
  - Euro’s role expanded significantly; two-thirds of the 30 countries that target or use the euro have conventional pegs. Excluding the CFA franc zone, only six of the countries that have the euro as sole exchange rate anchor are not in ERM II.
- Disappearance of currency baskets:
  - Use of baskets has virtually disappeared despite advantages in stabilizing nominal effective exchange rates; cited reasons include reduced transparency, dominance of major currency blocs, and growth in hedging instruments.

### Volatility, reserves, and appreciation management
- Volatility and intervention:
  - Reduction in volatility of floating currencies, especially managed floats.
  - Decrease in volatility vis-à-vis the U.S. dollar since the early 1990s, concentrated in managed floats.
- Reserves accumulation:
  - World reserves (measured in U.S. dollars) more than doubled during December 2002 to December 2006.
  - Total reserves of countries with soft pegs increased from 23 percent of the world stock in 2000 to 32 percent in December 2006.
  - Average monthly change in reserves in countries with soft pegs rose from US$38 million to US$838 million during the same period.
  - Total reserves in countries classified as managed floating increased from 14 percent to 19 percent (share of world reserves).
  - Share of world reserves of independent floaters increased from 24 percent in 1996 to 38 percent of the world total in December 2006.
  - Countries with hard pegs have been among those with the lowest contributions to total reserve changes and median volatility.
  - Highest volatility of reserves (standard deviation) among countries with intermediate pegs, indicating active official presence needed to maintain these arrangements.
  - Rising reserves associated with increasing importance of sovereign wealth funds; some countries, notably in Asia, intervened to build larger reserves as a cushion against external shocks.
- Implication:
  - Persistent inflows may lead to a perceived need to cap appreciation and tighter management of exchange rates.

### Exchange restrictions, Article VIII/Article XIV, and MCPs — Key findings
- Article VIII status:
  - 166 Fund members have formally accepted the obligations of Article VIII, Sections 2(a), 3, and 4, up from 150 at end-2001.
  - Most of the remaining 19 members continue to avail themselves of transitional arrangements under Article XIV.
  - Sixteen members notified acceptance of Article VIII obligations during 2002–07, bringing total to 166; pace of acceptance doubled compared with previous four years (eight acceptances).
- Members availing Article XIV (status details for 19 countries):
  - Four countries maintain exchange measures in place when they became Fund members (three of these also introduced new restrictions subject to Fund approval under Article VIII).
  - For four countries, information insufficient to ascertain existence/absence of restrictions or MCPs.
  - Two countries maintain no specifically identified exchange measures.
  - Nine countries no longer maintain original exchange restrictions or MCPs but have introduced new exchange restrictions or MCPs subject to Fund approval under Article VIII; some are in consultation with Fund staff.
- Progress and persistence:
  - Controls on current account payments, receipts, and transfers continued to decline overall; liberalization stronger on repatriation and surrender requirements than on documentation and administrative requirements.
  - In high-income countries, exchange controls on current transactions virtually disappeared.
  - In low-income countries, controls remain pervasive, with some intensification on payments for certain invisible transactions.
  - Number of exchange restrictions and MCPs subject to Fund approval maintained by members decreased in 2006 as many countries accepted Article VIII after eliminating many preexisting measures.
  - After dropping by 11 in 1994–97 and by 8 in 1998–2001, number of Fund members maintaining exchange measures declined by only 4 during 2002–06 to 34.
- Multiple currency practices (MCPs):
  - MCPs dropped sharply to 16. Just under 9 percent of membership maintain MCPs, compared with 25 percent in 1997 and 17 percent in 2001.
- Composition of restrictions (selected totals):
  - Total number of restrictions maintained by members: 1997 = 103; 2001 = 75; 2006 = 42.
  - Restrictions on payments for invisibles and other current transfers: 1997 = 72; 2001 = 45; 2006 = 27.
  - Limited foreign exchange allowances (aggregate): 1997 = 54; 2001 = 32; 2006 = 17.
    - Education: 1997 = 8; 2001 = 5; 2006 = 2.
    - Medical expenses: 1997 = 6; 2001 = 4; 2006 = 2.
    - Remittances: 1997 = 19; 2001 = 7; 2006 = 4.
    - Travel: 1997 = 14; 2001 = 11; 2006 = 4.
    - Other transfers: 1997 = 7; 2001 = 5; 2006 = 5.
  - Multiple currency practices: 1997 = 23; 2001 = 18; 2006 = 5.
  - Memorandum items:
    - Average number of restrictions per member (Article XIV column): 1997 = 3.7; 2001 = 3.8; 2006 = 3.2.
    - Average number per member (Article VIII column): 1997 = 2.7; 2001 = 1.9; 2006 = 2.0.
    - Average number per member (Total column): 1997 = 3.3; 2001 = 2.9; 2006 = 2.5.
    - Number of countries with restrictions (Article XIV column): 1997 = 28; 2001 = 20; 2006 = 13.
    - Number of countries with restrictions (Article VIII column): 1997 = 18; 2001 = 18; 2006 = 21.
    - Number of countries with restrictions (Total column): 1997 = 46; 2001 = 38; 2006 = 34.
- Fund approvals and unapproved restrictions:
  - Fund has sparingly granted approval to the 21 members who maintained exchange measures despite accepting Article VIII, Sections 2(a), 3, and 4.
  - Of the restrictions introduced in 2005–06 that were subject to Fund approval under Article VIII, only one was approved.
  - Share of countries with unapproved restrictions among countries maintaining restrictions increased from 24 percent in 2001 to 50 percent at end-2006.
  - Many unapproved restrictions are maintained by countries that only recently accepted Article VIII obligations.

### Controls on current transactions — Trends and development linkages
- Decline in controls on current transactions continued during 2001–06, except for intensified documentation requirements for export proceeds.
- Selected figures (countries with controls, percent of total reporting countries — total reporting countries = 185/186/187 as noted):
  - Areas of controls (aggregate): 1997 = 71.9; 2000 = 69.9; 2001 = 68.8; 2002 = 68.4; 2003 = 67.4; 2004 = 66.8; 2005 = 66.8; 2006 = 66.8.
  - Import payments: 1997 = 62.3; 2000 = 60.8; 2001 = 61.8; 2002 = 62.0; 2003 = 59.9; 2004 = 58.3; 2005 = 58.3; 2006 = 58.3.
  - Export proceeds (repatriation requirements): 1997 = 60.5; 2000 = 57.0; 2001 = 54.8; 2002 = 52.9; 2003 = 51.3; 2004 = 49.2; 2005 = 48.1; 2006 = 48.1.
  - Export proceeds (surrender requirements): 1997 = 44.7; 2000 = 39.8; 2001 = 38.7; 2002 = 38.0; 2003 = 36.9; 2004 = 34.8; 2005 = 33.7; 2006 = 29.4.
  - Proceeds from invisible transactions (repatriation requirements): 1997 = 57.9; 2000 = 51.6; 2001 = 50.0; 2002 = 48.1; 2003 = 46.5; 2004 = 44.4; 2005 = 43.3; 2006 = 42.8.
  - Proceeds from invisible transactions (surrender requirements): 1997 = 43.9; 2000 = 37.6; 2001 = 37.1; 2002 = 36.9; 2003 = 33.2; 2004 = 32.6; 2005 = 32.1; 2006 = 29.4.
- Development and income-group patterns:
  - Controls on current transactions closely linked to development level.
  - Low-income countries maintained and occasionally intensified controls in all areas; high-income countries reduced controls to near-zero for imports and nearly all exports.
  - Example pattern: 93 percent of low-income group imposes controls on payments relating to goods imports, yet only 72 percent does so on invisibles.
  - Emerging high-income countries have more controls on invisibles than on imports of goods.
  - Advanced high-income countries report having no controls on either.

### Controls on capital transactions — Prevalence, trends, and interaction with prudential measures
- Nearly all countries reported maintaining some type of controls on capital transactions during 2001–06.
- Most widely reported capital controls (about 85 percent of reporting countries): transactions by commercial banks and other credit institutions.
- Other common controls: real estate transactions and capital and money market instruments (more than 70 percent each), foreign direct investment (about 65 percent).
- Summary indicators (simple average percent of types of transactions subject to controls across members — selected entries preserved exactly):
  - All reporting countries (Inflows): 2000 = 40.9; 2001 = 40.5; 2002 = 40.6; 2003 = 40.0; 2004 = 40.3; 2005 = 40.6; 2006 = 40.5.
  - All reporting countries (Outflows): 2000 = 42.0; 2001 = 41.4; 2002 = 41.3; 2003 = 40.4; 2004 = 40.7; 2005 = 41.0; 2006 = 42.8.
  - Low income (Inflows): 2000 = 47.1; 2001 = 46.8; 2002 = 47.7; 2003 = 46.8; 2004 = 47.4; 2005 = 48.0; 2006 = 47.6.
  - Low income (Outflows): 2000 = 53.8; 2001 = 53.3; 2002 = 53.6; 2003 = 53.1; 2004 = 53.8; 2005 = 53.5; 2006 = 53.5.
  - Emerging high income (Inflows): 2000 = 41.5; 2001 = 41.8; 2002 = 40.1; 2003 = 39.9; 2004 = 37.4; 2005 = 37.4; 2006 = 38.4.
  - Emerging high income (Outflows): 2000 = 35.2; 2001 = 34.9; 2002 = 31.0; 2003 = 30.4; 2004 = 27.7; 2005 = 27.7; 2006 = 28.8.
  - Advanced high income (Inflows): 2000 = 20.3; 2001 = 21.2; 2002 = 21.2; 2003 = 20.2; 2004 = 18.8; 2005 = 18.8; 2006 = 21.4.
  - Advanced high income (Outflows): 2000 = 14.0; 2001 = 14.5; 2002 = 14.2; 2003 = 12.9; 2004 = 11.2; 2005 = 11.2; 2006 = 11.2.
- Interaction of capital controls and prudential regulation:
  - Capital controls and prudential controls increasingly intertwined due to capital account liberalization and financial sector deregulation.
  - Emergence of new intermediaries and a more complex matrix of capital flows increased focus on prudential regulation and supervision of cross-border financial activities.
  - Some prudential measures discriminate between residents and nonresidents and act as de facto capital controls (examples: discriminatory reserve requirements, interest rate controls, differential treatment of deposit accounts).
  - Capital controls have sometimes been used in lieu of prudential measures where prudential regulation and supervision are weak.
- Country examples and specific measures:
  - Thailand, Argentina, Ukraine, Indonesia, Croatia, and Colombia cited for URRs, mandatory holding periods, unremunerated deposit requirements, and limits on short-term borrowings (specifics preserved in source).
  - Box 2 examples: Brazil opened local stock market to nonresidents in 2000; Hungary and Romania eliminated remaining controls on capital transactions in 2001 and 2006, respectively; India in 2004 allowed residents to remit up to $25,000 for any permissible transaction; Malaysia relaxed most restrictions imposed in 1998 by 2002; Argentina substantially relaxed restrictions imposed in 2001 by 2003.
- Prevalence by instrument (Table 10, selected overall percentages preserved exactly):
  - Capital and money market instruments (overall): 1997 = 71.4; 2000 = 71.5; 2001 = 72.6; 2002 = 71.7; 2003 = 70.6; 2004 = 70.6; 2005 = 74.9; 2006 = 75.4.
  - Credit operations (overall): 1997 = 63.2; 2000 = 63.4; 2001 = 62.9; 2002 = 61.5; 2003 = 61.0; 2004 = 62.0; 2005 = 67.9; 2006 = 65.8.
  - Derivatives and other instruments (overall): 1997 = 44.9; 2000 = 44.6; 2001 = 44.6; 2002 = 44.4; 2003 = 43.9; 2004 = 45.5; 2005 = 52.4; 2006 = 51.3.
  - Transactions by commercial banks and other credit institutions (overall): 1997 = 85.4; 2000 = 84.4; 2001 = 84.4; 2002 = 85.6; 2003 = 85.0; 2004 = 85.6; 2005 = 85.6; 2006 = 85.6.

### Responses to exchange rate pressure, country examples, and timing of liberalization
- Country responses:
  - Korea: responded to upward pressure by reforming and deregulating the foreign exchange market rather than imposing inflow controls.
  - Indonesia: dealt with downward pressure in 2005 through monetary tightening and limited administrative measures to deter speculation.
  - Thailand (2006) and Colombia (2007): resorted to controls on inflows.
- Liberalization timing and sequencing:
  - Liberalization of capital controls varied across countries; some liberalized markedly while others tightened controls within same income group.
  - Countries tended to liberalize capital controls after moving to more flexible exchange rates, but with a lag.
  - Controls on derivatives and on commercial bank transactions often liberalized soon after introducing greater exchange rate flexibility; relaxation for institutional investors and personal capital transactions often came with longer delay.

### Policy implications, analytical needs, and Fund emphasis
- Policy implications:
  - Coordinating prudential measures and capital controls (and their liberalization) requires new risk assessment methods: analysis of currency and maturity mismatches in sectoral balance sheets, capital and liquidity cushions, and contingent claims approach.
  - Cross-cutting approach would help judge whether remaining capital controls are needed.
  - Better data on these measures would be helpful.
- Fund emphasis and challenges:
  - Fund emphasizes encouraging members to fully eliminate existing exchange restrictions and MCPs subject to Fund approval and to accept Article VIII, Sections 2(a), 3, and 4.
  - Challenges include:
    - Some countries have maintained restrictions for decades.
    - Increase in Article VIII countries with unapproved restrictions.
    - Deviations from standard Article VIII acceptance procedures.
  - Executive Board has affirmed importance of balance sheet mismatches, particularly at sectoral level.

### Appendix I — Data tables: selected highlights (as of April 30, 2007)
- Classification snapshot (Table 6, end-April 2007):
  - Exchange arrangements with no separate legal tender: 10 (examples: Ecuador; El Salvador; Kiribati; Marshall Islands; Micronesia, Fed. States of; Montenegro; Palau; Panama; San Marino; Timor-Leste, Dem. Rep. of).
  - Currency board arrangements: 13 (examples: Bosnia and Herzegovina; Brunei Darussalam; Bulgaria; Hong Kong SAR; Djibouti; Estonia; Lithuania; ECCU members).
  - Managed floating with no pre-determined path: 48 (numerous examples listed).
  - Independently floating: 35 (examples include: Australia; Brazil; Canada; Japan; Korea; United States; Euro area members listed).
- Currency anchors by arrangement (Table 7): anchors include U.S. Dollar, Euro, Australian Dollar, Singapore Dollar, South African Rand, Indian Rupee, SDR, and other composites; arrangement-specific examples preserved in source.
- Changes in classifications (Table 8, January 2002–April 2007): total changes recorded across categories include 29 (Conventional peg), 3 (Peg within horizontal bands), 8 (Crawling peg), 2 (Crawling band), 21 (Float); total 63 1/.
- Evolution of controls on current account transactions by income group (Table 9, selected entries preserved exactly):
  - Payment for imports — Low income: 2000 = 90.4; 2001 = 90.4; 2006 = 92.5.
  - Payments for invisibles — Low income: 2000 = 75.0; 2001 = 75.0; 2006 = 71.7.
  - Payments for exports — Low income: 2000 = 82.7; 2001 = 84.6; 2006 = 84.9.
  - Proceeds from invisibles — Low income: 2000 = 73.1; 2001 = 73.1; 2006 = 71.7.
- Countries maintaining controls on capital transactions (Table 10, memorandum and selected percentages preserved exactly):
  - Number of countries included: 1997 = 180; 2000 = 182; 2006 = 184.
  - Capital and money market instruments (overall): 1997 = 71.4; 2000 = 71.5; 2006 = 75.4.
  - Transactions by commercial banks and other credit institutions (overall): 1997 = 85.4; 2000 = 84.4; 2006 = 85.6.
  - Income-group example — Low income—Capital and money market instruments: 1997 = 83.9; 2000 = 85.7; 2006 = 86.0.

*Source: "_112707 - References", Annual Review text and AREAER data as summarized in the supplied content.*

### References..............................................................................................................

### References

### Overview
- The review reports on trends, developments, and issues in exchange rate arrangements and currency convertibility, using the existing de facto classification methodology.
- Unless otherwise noted, data on current and capital account convertibility issues are as at end-2006, while the exchange arrangement classifications are as at end-April 2007; data generally refer to the 185 IMF members plus Aruba, Hong Kong SAR, and the Netherlands Antilles.
- The classification methodology used by Fund staff since 1998 is based on staff assessment of observed (de facto) exchange rate arrangements rather than notified (de jure) arrangements.

### Exchange Rate Arrangements: Key Findings and Developments
- De facto distribution as of end-April 2007:
  - 23 countries have hard pegs.
  - 82 countries have soft pegs.
  - 83 countries float.
  - Most of the soft pegs are conventional fixed pegs (70).
  - Most of the floating arrangements are managed floats (48).
  - Independently floating arrangements number 35 countries.
- Trends since 2001:
  - Broad distribution across the three categories has remained basically stable since 2001.
  - The previously observed polarization toward either hard pegs or floats and away from soft pegs has come to a halt since 2001.
  - Net changes and composition shifts:
    - There has been a net increase of one in the number of hard pegs.
    - The number of soft pegs has increased by about 15 percent, with movement from intermediate pegs (pegs within bands, crawling pegs, and crawling bands) to conventional pegs.
    - The overall number of floaters has decreased substantially, and within the category there has been a shift from independent floating to managed floating.
- Other noticeable trends:
  - Shift away from currency baskets toward simple anchors, notably the U.S. dollar or the euro.
  - Reduction in the volatility of floating currencies (especially managed floating arrangements).
  - Large accumulation of international reserves.
  - Shift toward more tightly managed arrangements reflecting large capital inflows and attempts to dampen or prevent appreciation.

### Exchange Restrictions and Current and Capital Controls: Key Findings and Developments
- Article VIII acceptance:
  - 166 Fund members have formally accepted the obligations of Article VIII, Sections 2(a), 3, and 4, up from 150 at end-2001.
  - Most of the remaining 19 members continue to avail themselves of transitional arrangements under Article XIV.
  - Some countries that have accepted Article VIII have nevertheless imposed new exchange restrictions or multiple currency practices (MCPs) without Fund approval; these cases often reflect introduction of specific measures or improved reporting rather than a widespread reimposition of restrictions.
- Controls on current account transactions:
  - Controls on current account payments, receipts, and transfers continued to decline in the generally favorable external environment.
  - Liberalization was more forceful in substantive areas (notably repatriation and surrender requirements) than in documentation and administrative requirements.
  - In high-income countries, exchange controls on current transactions virtually disappeared.
  - In low-income countries, controls remain pervasive, with some intensification on payments for certain invisible transactions.
- Capital account trends:
  - Important trend of liberalization of outflows, particularly strong in higher-income countries.
  - Relatively few countries resorted to controls on capital inflows despite upward exchange rate pressures.
  - Some new EU member states resorted to prudential measures differentiating residents and nonresidents owing to limited scope to impose capital controls due to EU accession commitments and facing macroeconomic stresses from high credit growth fueled by capital inflows.
- Interaction of capital controls and prudential regulation:
  - Capital controls and prudential controls are increasingly intertwined due to capital account liberalization and financial sector deregulation.
  - Emergence of new intermediaries and a more complex matrix of capital flows has increased focus on prudential regulation and supervision of cross-border financial activities.

### Trends in Exchange Rate Arrangements: Methodology and Regional Patterns
- De facto classification system:
  - Uses observed exchange rate variability and past official actions over the period in question.
  - Broad groups: hard pegs, soft pegs, and floating arrangements (see Box 1 for definitions).
- Size and geographic distribution:
  - Two dominant arrangement types by size: conventional fixed pegs (70 countries) and managed floating arrangements (48 countries).
  - Conventional fixed pegs are mostly observed in the Middle East, Sub-Saharan Africa, and parts of Asia.
  - Managed floats are found across the Fund membership.
  - Hard pegs are concentrated primarily in Europe and small island economies (e.g., eastern Caribbean).
- Historical evolution:
  - During the 1990s, arrangements tended to polarize toward hard pegs or floats; this polarization has halted and partly reversed since 2001.
  - The “vanishing middle” view (conventional pegs gradually declining) has little recent evidence.
  - Very small net increase in the number of hard pegs since 2001; Timor-Leste (joined Fund in 2002) and Montenegro (joined Fund in January 2007 and is euroized) contributed to net changes; Argentina abandoned its currency board at the end of 2001.

### Box 1 — An Overview of the Classification System (Definitions)
- Hard pegs:
  - Arrangement with no separate legal tender: the currency of another country circulates as the sole legal tender.
  - Currency board arrangement: legislative commitment to exchange domestic currency for a specified foreign currency at a fixed exchange rate.
- Soft pegs:
  - Conventional fixed peg: currency fluctuates for at least three months within a band of less than 2 percent (or ±1 percent) against another currency or basket.
  - Intermediate pegs:
    - Peg within horizontal bands: currency fluctuates within margins of more than ±1 percent around a fixed central rate.
    - Crawling peg: adjusted periodically at a fixed rate or in response to selective quantitative macroeconomic indicators, with a range of fluctuation of less than 2 percent.
    - Crawling band: adjusted periodically with a range of fluctuation of 2 percent or more.
  - Under all soft pegs, the exchange rate must remain stable as a result of official action, such as foreign exchange intervention.
- Floating arrangements:
  - Managed floating with no predetermined path: monetary authority influences a market-determined exchange rate without a specific path or target.
  - Independently floating: market-determined exchange rate with limited intervention.

*Source: "_112707 - References", Annual Review text and AREAER data as summarized in the supplied content.*

### 14.      There has been a noticeable decrease in the total number of floaters. While quite

### 14.      There has been a noticeable decrease in the total number of floaters. While quite

### Trends in exchange rate arrangements: movements and subcategories
- 20 countries have moved from a soft peg to a float during the past five years, while 28 countries abandoned floating arrangements in favor of soft pegs.
- Floating is not necessarily a durable state, particularly for lower- and middle-income countries, where there appears to be a greater flux between managed floating and pegged arrangements than in high-income economies.
- The frequency with which countries move back to pegs after a relatively short spell of floating suggests many countries face institutional and operational constraints to floating.
- The share of countries with managed floats within the floating arrangements category increased to 58 percent at end-April 2007; this is higher than in 2001 (46 percent).
- During the period, 14 countries moved from independent floats to managed floats.

### Evolution of de facto exchange arrangements (selected counts and changes)
- Hard pegs: 17 (1996) → 23 (2007 April)
  - No separate legal tender: 5 (1996) → 10 (2007 April)
  - Currency board arrangements: 12 (1996) → 13 (2007 April)
- Soft pegs: 107 (1996) → 82 (2007 April)
  - Conventional pegged arrangements: 63 (1996) → 70 (2007 April)
    - Pegs to a single currency: 49 (1996) → 63 (2007 April)
    - Pegs to a composite: 14 (1996) → 7 (2007 April)
- Intermediate pegs: 44 (1996) → 12 (2007 April)
  - Pegged exchange rates within horizontal bands: 18 (1996) → 5 (2007 April)
  - Crawling pegs: 14 (1996) → 6 (2007 April)
  - Crawling bands: 12 (1996) → 1 (2007 April)
- Floating arrangements: 60 (1996) → 83 (2007 April)
  - Managed floating: 37 (1996) → 48 (2007 April)
  - Independently floating: 23 (1996) → 35 (2007 April)

### Shifts within soft pegs and intermediate arrangements
- The number of conventional pegs increased from 55 in 2001 to 70 in April 2007, reflecting mainly reversion from floating to conventional pegs.
- Intermediate pegs declined from 44 in 1996 and 17 in 2001 to 12 in April 2007.
  - Of exits from intermediate pegs: 10 moved to floating arrangements, 5 moved to conventional pegs.
  - During the period, 10 countries adopted intermediate arrangements: 6 moved from fixed pegs and 4 from floating (2 of the latter in the context of EMU membership).

### Currency anchors and their evolution
- The number of countries that adjust or peg their currencies with reference to a basket of currencies (excluding the SDR) declined from 36 in 1990 to 8 at end-April 2007.
- The number of countries using the SDR as reference dropped from 6 in 1990 to 1 at end-April 2007.
- The U.S. dollar remains the prevailing international currency anchor.
  - One-third of the dollar pegs are hard pegs and the rest soft pegs.
  - Of the countries using the U.S. dollar as an anchor, only 53 percent are in the Americas or are Pacific islands.
- The euro’s role expanded significantly and serves as the exchange rate anchor for the CFA franc zone in Africa and for most countries in Europe.
  - Two-thirds of the 30 countries that target or use the euro have conventional pegs.
  - Excluding the CFA franc zone, only six of the countries that have the euro as sole exchange rate anchor are not in ERM II.

### Disappearance of currency baskets
- The use of a basket of currencies to anchor the exchange rate has virtually disappeared despite advantages in stabilizing the nominal effective exchange rate.
- Possible reasons cited: reduced transparency compared to simple anchors, growing dominance of major currency blocs, and growth in hedging instruments allowing traders and investors to easily swap currency risks.

### Implications: appreciation management, volatility, and reserves
- Persistent inflows may lead to a perceived need to cap appreciation and tighter management of the exchange rate.
- Since the early 1990s, there has been a decrease in volatility vis-à-vis the U.S. dollar, concentrated in managed floats as those countries faced pressure to appreciate.
- World reserves (measured in U.S. dollars) more than doubled during December 2002 to December 2006.
- Reserves and reserve accumulation:
  - Total reserves of countries with soft pegs increased from 23 percent of the world stock in 2000 to 32 percent in December 2006.
  - The average monthly change in reserves in countries with soft pegs rose from US$38 million to US$838 million during the same period.
  - Total reserves in countries classified as managed floating increased from 14 percent to 19 percent (share of world reserves).
  - The share of world reserves of independent floaters increased from 24 percent in 1996 to 38 percent of the world total in December 2006.
- Countries with hard pegs have been among those with the lowest contributions to total reserve changes and median volatility.
- The highest volatility of reserves (measured by standard deviation) has been among countries with intermediate pegs, indicating an active official presence in the market is required to maintain these arrangements.
- Rising reserves have been associated with the increasing importance of sovereign wealth funds.
- Some countries, notably in Asia, intervened to build larger reserves as a cushion against external shocks.

### De facto vs de jure classifications and behavior
- Actual exchange rate behavior and declared policies do not always coincide.
  - 25 countries whose exchange rates behave like de facto conventional pegs continue to declare a different (more flexible) arrangement.
  - 14 countries reporting independent floats de facto follow managed floats.
- Distinction between independent and managed floats can be difficult owing to unavailability of detailed intervention data.
- Earlier, many countries that de jure floated but were in fact pegged exited to de facto floats during the emerging market crises of 1997–2001.

### Developments in exchange restrictions and Article VIII/Article XIV status
- Considerable progress has been made in liberalization of current accounts and removal of restrictions, correlated with income levels.
- Sixteen members notified the Fund of acceptance of the obligations of Article VIII, Sections 2(a), 3, and 4 during 2002–07, bringing the total to 166.
- The pace of acceptance doubled compared with the previous four years (eight acceptances).
- The number of members in transitional arrangements under Article XIV fell from 34 at end-2001 to 19 at end-2006; this includes 10 members that have availed themselves of Article XIV for 40 years or more.
- The 19 countries still availing themselves of Article XIV are at various stages:
  - Four countries maintain the exchange measures that were in place when the country became a Fund member (three of these have also introduced new restrictions subject to Fund approval under Article VIII).
  - For four countries, available information is insufficient to ascertain the existence or absence of restrictions or MCPs.
  - Two countries maintain no specifically identified exchange measures.
  - Nine countries no longer maintain the original exchange restrictions or MCPs but have introduced new exchange restrictions or MCPs that are subject to Fund approval under Article VIII; some of these are in consultation with Fund staff.
- Many countries availing themselves of Article XIV are reluctant to accept Article VIII obligations; reasons include reliance on direct controls, large public sectors, restrictive trade arrangements, extended periods of internal or external conflict, and limited interaction with the global economy.

*Source: Annual Report on Exchange Arrangements and Exchange Restrictions database; staff reports; International Financial Statistics; internal IMF analyses as summarized in the provided content.*

### 31.      There has also been considerable progress in reducing exchange restrictions and

### _112707 - 31.      There has also been considerable progress in reducing exchange restrictions and

### Progress in reducing exchange restrictions and MCPs
- The number of exchange restrictions and MCPs subject to Fund approval maintained by members decreased in 2006, as most countries that accepted the obligations of Article VIII, Sections 2(a), 3, and 4 did so after eliminating many preexisting exchange restrictions and MCPs.
- After dropping by 11 in 1994–97 and by 8 in 1998–2001, the number of Fund members maintaining exchange measures declined by only 4 during the period 2002–06 to 34.
- Factors explaining the slower decline during 2002–06:
  - A few countries that had formally accepted Article VIII obligations and had previously eliminated all exchange measures introduced new ones.
  - Some countries had exchange measures in effect for prolonged periods but were only recently revealed due to improved reporting or comprehensive reviews.
  - Some countries accepting Article VIII obligations in 2002–06 did so while continuing to maintain a few preexisting exchange measures.

### Types and trends of exchange measures (selected findings from Table 2 and narrative)
- Total number of restrictions maintained by members: 1997 = 103; 2001 = 75; 2006 = 42.
- Total number of restrictions maintained by Article XIV members: 1997 = 48; 2001 = 35; 2006 = 43.
- Total number of restrictions maintained by Article VIII members: 1997 = 151; 2001 = 110; 2006 = 85.
- Restrictions on payments for invisibles and other current transfers: 1997 = 72; 2001 = 45; 2006 = 27.
  - Foreign exchange budgets: 1997 = 15; 2001 = 12; 2006 = 2.
  - Limited foreign exchange allowances for (aggregate): 1997 = 54; 2001 = 32; 2006 = 17.
    - Education: 1997 = 8; 2001 = 5; 2006 = 2.
    - Medical expenses: 1997 = 6; 2001 = 4; 2006 = 2.
    - Remittances: 1997 = 19; 2001 = 7; 2006 = 4.
    - Travel: 1997 = 14; 2001 = 11; 2006 = 4.
    - Other transfers: 1997 = 7; 2001 = 5; 2006 = 5.
  - Freezing of forex deposits or inconvertibility of other deposits for current payments: 1997 = ...; 2001 = 1; 2006 = 3.
  - Tax clearance certification: 1997 = ...; 2001 = ...; 2006 = 2.
  - Other restrictions: 1997 = ...; 2001 = ...; 2006 = 3.
- Restrictions on payments for imports: 1997 = ...3; 2001 = 4; 2006 = 4.
  - Advance import deposits: 1997 = ...3; 2001 = 3; 2006 = ...
  - Prior import payment requirements: 1997 = ...; 2001 = 1; 2006 = 4.
- Restrictions arising from bilateral or regional payment, clearing or barter arrangements: 1997 = 4; 2001 = 5; 2006 = 1.
- Restrictions evidenced by external payment arrears: 1997 = 1; 2001 = ...; 2006 = 1.
  - Arrears to commercial creditors: 1997 = ...1; 2001 = ...; 2006 = 1.
  - Arrears to official creditors: 1997 = ...; 2001 = ...; 2006 = 1.
  - Arrears not specified: 1997 = ...; 2001 = ...; 2006 = ...
- Multiple currency practices: 1997 = 23; 2001 = 18; 2006 = 5.
- Memorandum items:
  - Average number of restrictions per member: 1997 = 3.7; 2001 = 3.8; 2006 = 3.2 (Article XIV column); Article VIII column: 1997 = 2.7; 2001 = 1.9; 2006 = 2.0; Total column: 1997 = 3.3; 2001 = 2.9; 2006 = 2.5.
  - Number of countries with restrictions: 1997 = 28; 2001 = 20; 2006 = 13 (Article XIV column); Article VIII column: 1997 = 18; 2001 = 18; 2006 = 21; Total column: 1997 = 46; 2001 = 38; 2006 = 34.

### Composition and prevalence of exchange measures
- The number of countries with MCPs dropped sharply to 16. Just under 9 percent of the membership now maintains MCPs, compared with 25 percent in 1997 and 17 percent in 2001.
- Substantial elimination of restrictions on invisible transactions under Article XIV transitional arrangements, notably:
  - Restrictions on the transfer of remittances.
  - Restrictions on the availability of foreign exchange for travel.
  - Restrictions arising from foreign exchange budgets.
- The most heavily used exchange restrictions continue to relate to payments and transfers for current invisible transactions; restrictions related to payments for imports of goods remain rare.
- Most commonly applied exchange restrictions: binding limits on foreign exchange allowances for remittances and travel.
- Only a few countries maintain exchange restrictions related to imports (e.g., prior import payment requirements) and restrictions arising from bilateral payments arrangements.

### Fund approvals, Article VIII acceptances, and unapproved restrictions
- The Fund has sparingly granted approval to the 21 members who have maintained exchange measures despite having accepted Article VIII, Sections 2(a), 3, and 4.
- Of the restrictions introduced in 2005–06 that were subject to Fund approval under Article VIII, only one was approved.
- Share of countries with unapproved restrictions among countries maintaining restrictions increased from 24 percent in 2001 to 50 percent at end-2006.
- Many unapproved restrictions are maintained by countries that only recently accepted Article VIII obligations, Sections 2(a), 3, and 4.

### Fund emphasis and emerging challenges
- The Fund has emphasized encouraging members to fully eliminate existing exchange restrictions and MCPs subject to Fund approval and accept Article VIII, Sections 2(a), 3, and 4.
- Challenges:
  - Some countries have maintained restrictions for decades.
  - Increase in Article VIII countries with unapproved restrictions.
  - Deviations from standard Article VIII acceptance procedures.

### Recent trends in controls on current transactions
- The number of countries maintaining exchange controls on current transactions continued to decline during 2001–06, with the exception of intensified regulations on documentation requirements for export proceeds.
- Selected figures from Table 4 (Countries with controls, as percent of total reporting countries):
  - Areas of controls: 1997 = 71.9; 2000 = 69.9; 2001 = 68.8; 2002 = 68.4; 2003 = 67.4; 2004 = 66.8; 2005 = 66.8; 2006 = 66.8.
  - Import payments: 1997 = 62.3; 2000 = 60.8; 2001 = 61.8; 2002 = 62.0; 2003 = 59.9; 2004 = 58.3; 2005 = 58.3; 2006 = 58.3.
    - Financing requirements: 1997 = 22.8; 2000 = 25.3; 2001 = 25.8; 2002 = 25.1; 2003 = 21.9; 2004 = 21.4; 2005 = 21.9; 2006 = 25.1.
    - Documentation requirements: 1997 = ...; 2000 = 57.0; 2001 = 58.6; 2002 = 60.2; 2003 = 60.4; 2004 = 59.9; 2005 = 57.8; 2006 = 56.7; (Table shows Documentation requirements 3/ column ending 56.1 in 2006 total column).
  - Payments for invisible transactions and current transfers: 1997 = 57.9; 2000 = 52.7; 2001 = 54.3; 2002 = 52.4; 2003 = 51.3; 2004 = 48.7; 2005 = 47.6; 2006 = 47.6.
  - Export proceeds: 1997 = 65.8; 2000 = 60.8; 2001 = 60.8; 2002 = 59.9; 2003 = 59.4; 2004 = 58.8; 2005 = 59.9; 2006 = 59.4.
    - Repatriation requirements: 1997 = 60.5; 2000 = 57.0; 2001 = 54.8; 2002 = 52.9; 2003 = 51.3; 2004 = 49.2; 2005 = 48.1; 2006 = 48.1.
    - Surrender requirements: 1997 = 44.7; 2000 = 39.8; 2001 = 38.7; 2002 = 38.0; 2003 = 36.9; 2004 = 34.8; 2005 = 33.7; 2006 = 29.4.
    - Documentation requirements (exports): 1997 = ...; 2000 = 37.7; 2001 = 43.0; 2002 = 44.6; 2003 = 45.5; 2004 = 45.5; 2005 = 46.5; 2006 = 47.6.
  - Proceeds from invisible transactions and current transfers: 1997 = 53.5; 2000 = 52.7; 2001 = 54.3; 2002 = 52.4; 2003 = 51.3; 2004 = 48.7; 2005 = 47.6; 2006 = 47.6.
    - Repatriation requirements: 1997 = 57.9; 2000 = 51.6; 2001 = 50.0; 2002 = 48.1; 2003 = 46.5; 2004 = 44.4; 2005 = 43.3; 2006 = 42.8.
    - Surrender requirements: 1997 = 43.9; 2000 = 37.6; 2001 = 37.1; 2002 = 36.9; 2003 = 33.2; 2004 = 32.6; 2005 = 32.1; 2006 = 29.4.
- Memorandum item: Total reporting countries = 185 (1997), 186 (2000–2001), 187 (2002–2006).

### Development linkages and income-group patterns (Figure 10 and narrative)
- Controls on current transactions are closely linked to development level.
- Low-income countries maintained and occasionally intensified controls in all areas; high-income countries continued to reduce controls up to the point where none reported controls on imports and only a few on exports.
- An increasing number of lower middle-income and emerging high-income countries maintain no restrictions in one or more subcategories.
- Patterns:
  - 93 percent of the low-income group imposes controls on payments relating to goods imports, yet only 72 percent does so on invisibles.
  - Emerging high-income countries have more controls on invisibles than on imports of goods.
  - Advanced high-income countries report having no controls on either.
- Developmental dynamic:
  - In initial stages, controls on imports of goods and invisibles intensify.
  - As institutions, financial sector, and foreign exchange markets develop, controls give way to market-based mechanisms.
  - Payments for trade in goods tend to be liberalized before payments for invisibles.
  - Exports are treated more liberally at early stages; imports liberalized later.

### Recent trends in controls on capital transactions
- Nearly all countries reported maintaining some type of controls on capital transactions during 2001–06.
- Most widely reported capital controls (about 85 percent of reporting countries): transactions by commercial banks and other credit institutions.
- Other common controls: real estate transactions and capital and money market instruments (more than 70 percent each), foreign direct investment (about 65 percent).
- Controls on liquidation of direct investment (e.g., prior approval for repatriation of invested capital) were least prevalent.
- Lower income countries generally maintain more capital controls than higher income countries.
- Some controls (e.g., on institutional investors) may be less relevant for low-income countries.
- Many controls correlate with income: personal capital movements, derivatives, credit operations, liquidation of foreign direct investments, capital and money market instruments.
- Progress has been made in liberalizing categories prevalent at middle and higher income levels, though at a modest pace; regulations have in some cases shifted from direct administrative controls to qualification requirements or risk-based limits.
- Higher-income countries made faster progress in liberalizing outflows than inflows.
  - Among emerging high-income countries, recent EU members (e.g., Malta and Slovenia) liberalized outflows following earlier liberalization of inflows.
  - China and India have taken modest steps toward outflow liberalization; significant scope remains for liberalizing FDI and portfolio investments.
  - Much of the progress in higher income countries was accounted for by Japan and Korea.

### Summary indicators for controls on capital transactions (Table 5)
- Simple average of percent of types of transactions subject to controls across all members of each group (selected entries):
  - All reporting countries (Inflows): 2000 = 40.9; 2001 = 40.5; 2002 = 40.6; 2003 = 40.0; 2004 = 40.3; 2005 = 40.6; 2005* = 41.7; 2005 column = 40.4; 2006 = 40.5.
  - All reporting countries (Outflows): 2000 = 42.0; 2001 = 41.4; 2002 = 41.3; 2003 = 40.4; 2004 = 40.7; 2005 = 41.0; 2005* = 42.8; 2006 = 42.8; 2006* = 42.8.
  - Low income (Inflows): 2000 = 47.1; 2001 = 46.8; 2002 = 47.7; 2003 = 46.8; 2004 = 47.4; 2005 = 48.0; 2005* = 48.0; 2006 = 47.6; 2006* = 47.6.
  - Low income (Outflows): 2000 = 53.8; 2001 = 53.3; 2002 = 53.6; 2003 = 53.1; 2004 = 53.8; 2005 = 53.5; 2005* = 53.5; 2006 = 53.5; 2006* = 53.5.
  - Emerging high income (Inflows): 2000 = 41.5; 2001 = 41.8; 2002 = 40.1; 2003 = 39.9; 2004 = 37.4; 2005 = 37.4; 2005* = 38.8; 2006 = 38.4; 2006* = 38.4.
  - Emerging high income (Outflows): 2000 = 35.2; 2001 = 34.9; 2002 = 31.0; 2003 = 30.4; 2004 = 27.7; 2005 = 27.7; 2005* = 28.8; 2006 = 28.8; 2006* = 28.8.
  - Advanced high income (Inflows): 2000 = 20.3; 2001 = 21.2; 2002 = 21.2; 2003 = 20.2; 2004 = 18.8; 2005 = 18.8; 2005* = 23.0; 2006 = 21.4; 2006* = 21.9.
  - Advanced high income (Outflows): 2000 = 14.0; 2001 = 14.5; 2002 = 14.2; 2003 = 12.9; 2004 = 11.2; 2005 = 11.2; 2005* = 21.4; 2006 = 11.2; 2006* = 21.4.
- Note: Data for 2005 and 2006 are affected by methodological changes implemented in 2005; two sets of data are presented (2005/2006 and 2005*/2006*) which incorporate and do not incorporate the changes due to the new methodology related to the 2004 OECD Code.

*Source: Staff reports; Annual Report on Exchange Arrangements and Exchange Restrictions database.*

### 47.      Until recently, most countries seem to have weathered exchange rate pressure

### 47.      Until recently, most countries seem to have weathered exchange rate pressure 

### Responses to exchange rate pressure
- Korea responded to upward pressure on the exchange rate mainly by reforming and deregulating the foreign exchange market rather than imposing inflow controls.
- Indonesia dealt with downward pressure on the exchange rate in 2005 through a combination of monetary tightening and some limited administrative measures to deter speculation.
- Thailand (2006) and Colombia (2007) resorted to controls on inflows.

### Variation in liberalization and timing
- Liberalization of capital controls has been quite varied across countries; in some countries liberalization was pronounced, while in others controls were tightened even within the same income group.
- Countries tended to liberalize capital controls after moving to a more flexible exchange rate, but with a lag.
- Controls on derivatives and on commercial bank transactions were often liberalized soon after introducing greater exchange rate flexibility.
- Relaxation of controls on institutional investors and personal capital transactions, and certain capital and money market instruments, often came with a longer delay.

### Interaction between capital controls and prudential regulation
- Capital controls and financial prudential controls are becoming increasingly intertwined, partly due to capital account liberalization and financial sector deregulation leading to new intermediaries and more complex capital flows.
- Some prudential measures can act as capital controls because they discriminate between residents and nonresidents and thereby influence capital flows (examples: treating deposit accounts held by residents and nonresidents differently; applying discriminatory reserve requirements and interest rate controls).
- Conversely, capital controls have been used in lieu of prudential measures where prudential regulation and supervision are weak or cross-border supervisory information exchange is inadequate.
- Controls used in such cases have included limits on the volume or maturity of foreign borrowings, and on the activities of foreign banks or their branches.

### Impact of large international financial and business groups
- The rise of large, internationally active financial and mixed business groups has increased linkages between prudential considerations and international capital flows.
- These groups enable more efficient and faster transmission of external and sector-specific shocks to the wider financial system and the economy.
- Host countries can face difficulties in assessing consolidated risks as they cross sectoral lines; intra-group flows may obscure the underlying nature of transactions.

### Prevalence and trends in prudential controls
- AREAER data indicate that about one in eight countries has prudential controls in place that can potentially affect international capital transactions.
- Overall trend toward liberalization is most evident in emerging market high-income countries, which are gradually moving toward a regime similar to advanced countries.
- Several upper middle-income countries have increased the use of discriminatory prudential measures to deal with capital inflows, including some new EU member states facing macroeconomic stresses and risks from high credit growth fueled by capital inflows.
- The relationship between prudential measures and capital controls deserves further study33; a key question is how to coordinate these policies (and their liberalization) in a way that limits balance sheet risks.

### Emerging market country trends and examples (Box 2)
- Capital and money market instruments:
  - Strong tendency toward liberalization, consistent with integration into global capital markets.
  - Examples: Brazil opened the local stock market to nonresidents in 2000; Hungary and Romania eliminated remaining controls on capital transactions in 2001 and 2006, respectively.
  - India in 2004 allowed residents to remit up to $25,000 for any permissible transaction.
  - Malaysia relaxed most restrictions imposed in 1998 by 2002; Argentina substantially relaxed restrictions imposed in 2001 by 2003.
- Credit operations:
  - Cross-border credit transactions have been substantially liberalized (examples: permitting new credit activities between residents and nonresidents in Romania; relaxing approval criteria in India; increasing permissible credit ceilings in Malaysia).
  - Very few countries tightened controls on credit operations; tightening has mainly been in response to overheating fears.
- Derivatives and other instruments:
  - Significant easing in specific countries: Chile and Tunisia in 2001; India in 2003; Morocco and Romania in 2004; Philippines and Ukraine in 2005.
  - Examples of tightening: Indonesia in 2005 reduced the limit on forward and swap transactions without underlying investment related transactions to US$1 million from US$3 million; Lebanon limited banks’ derivatives transactions to hedging purposes only.
- Real estate transactions:
  - Some liberalization: Malaysia in 2006 allowed nonresidents access to credit for real estate purchases funded by the local banking system; India allowed remittance of proceeds from the sale of real estate by nonresidents without time limit (for nonresident Indians).
- Personal capital transactions:
  - Mostly liberalization and little tightening, mainly by raising limits on transfers or eliminating prior authorization or reporting requirements.
- Transactions by commercial banks and other credit institutions:
  - General trend toward liberalization, but some countries used controls as “sand in the wheels” to limit foreign fund inflows into domestic banking systems.
  - Examples and measures:
    - Thailand in 2003 prohibited payment of interest on nonresident accounts of less than six months; end-2006 requirement to withhold for one year 30 percent of all foreign currency purchased or exchanged against Thai baht by financial institutions; and a 10 percent nonrefundable URR on foreign investments of less than one year duration in Thailand.
    - Argentina imposed a 365 days mandatory holding period and 30 percent URR on foreign nontrade financing borrowing in 2005.
    - Ukraine in 2005 required that 20 percent of the increase in foreign exchange denominated liabilities be placed in unremunerated deposits at the central bank, tightening regulations further in 2006.
    - Indonesia limited short-term borrowings to 30 percent of capital in 2005.
    - Croatia in 2004 began requiring unremunerated foreign-currency deposits at the central bank as a share (now 55 percent) of the increase in banks’ foreign liabilities, tightening the regulations further in 2006.
    - Colombia introduced a 40 percent URR on foreign borrowing in May 2007, later extended to portfolio inflows.
- Transactions by institutional investors:
  - Only modest liberalization; some countries relaxed controls on nonresident investors’ involvement in local markets or allowed more scope for resident institutional investors to invest abroad.
  - Limits on overseas activities of local investors reduced by increasing ceilings on maximum holdings of foreign assets and by relaxing credit quality requirements for overseas assets.
- Nonresident accounts:
  - Several countries liberalized access to local currency or foreign exchange accounts for nonresidents (examples: Brazil in 2000; Pakistan lifted limits on interest rates on foreign exchange accounts in 2002; Cyprus abolished blocked accounts in 2001 and adopted EU regulations in 2004; transition economies including Kazakhstan, Romania, and Russia relaxed such controls).
  - Modest uptick in controls on nonresident accounts in recent years, possibly reflecting fears of speculative capital inflows fueling asset bubbles.
  - Examples of tightening: Thailand in 2003 imposed a maximum daily limit on nonresident accounts; India in 2003 stopped companies controlled by nonresident Indians from opening or renewing foreign currency accounts.

### Policy implications and analytical needs
- Coordinating prudential measures and capital controls (and their liberalization) requires application of new risk assessment methods, including analysis of currency and maturity mismatches in sectoral balance sheets, as well as of capital and liquidity cushions, and the contingent claims approach.
- A cross-cutting approach would help form views on whether remaining capital controls are needed.
- Better data on these measures would be helpful.
- The Executive Board has affirmed the importance of balance sheet mismatches, particularly at the sectoral level (see IMF Executive Board Discusses Balance Sheet Approach to Analysis of Debt-Related Vulnerabilities in Emerging Markets, Public Information Notice No. 05/36, 3/22/2005).34

*Source: _112707 - 47.

### Appendix I. Data Tables

### Appendix I. Data Tables

### Monetary Policy Framework, De Facto Exchange Rate Arrangements, and Anchors of Monetary Policy (Table 6, April 30, 2007)
- Exchange arrangements with no separate legal tender (10)
  - Countries (examples): Ecuador; El Salvador; Kiribati; Marshall Islands; Micronesia, Fed. States of; Montenegro; Palau; Panama; San Marino; Timor-Leste, Dem. Rep. of
- Currency board arrangements (13)
  - Countries (examples): Bosnia and Herzegovina; Brunei Darussalam; Bulgaria; Hong Kong SAR; Djibouti; Estonia; Lithuania; ECCU members (Antigua and Barbuda; Dominica; Grenada*; St. Kitts and Nevis; St. Lucia; St. Vincent and the Grenadines)
- Against a single currency (63) — examples listed include: Nigeria; Oman; Pakistan†; Qatar; Rwanda*; Saudi Arabia; Solomon Islands; Suriname†; Swaziland; Syrian Arab Rep.; Trinidad and Tobago; Turkmenistan; Ukraine; United Arab Emirates; Uzbekistan; Venezuela; Vietnam; Yemen, Rep. of; Zimbabwe
- CFA franc zone
  - WAEMU; CAEMC
- Other conventional fixed peg arrangements (70) — many country examples listed (selected): Angola; Argentina†; Aruba; Bahamas, The; Bahrain, Kingdom of; Barbados; Belarus; Belize; Bhutan; Bolivia; Cape Verde; Comoros; Egypt; Eritrea; Ethiopia; Guyana†; Honduras; Jordan; Kuwait; Latvia; Lebanon; Lesotho; Macedonia, FYR*; Maldives; Malta; Mauritania*; Mongolia; Namibia; Nepal*; Netherlands Antilles; multiple WAEMU and CAEMC members
- Against a composite (7) — examples: Fiji; Iran, I.R. of†; Libyan Arab Jamahiriya; Morocco; Samoa; Seychelles; Vanuatu
- Pegged exchange rates within horizontal bands (5)
  - Notes: Bands for these countries are as follows: Cyprus ±15%, Denmark ±2.25%, Hungary ±15%, Slovak Republic ±15%, and Tonga ±6%.
- Within a cooperative arrangement (3) — examples: Cyprus; Denmark; Slovak Rep.†
- Other band arrangements (2) — examples: Hungary†; Tonga
- Crawling pegs (6) — examples: Azerbaijan; Botswana; China; Iraq*; Nicaragua; Sierra Leone*
- Crawling bands (1) — Costa Rica
- Managed floating with no pre-determined path for the exchange rate (48) — numerous examples including Bangladesh*; Gambia, The*; Haiti*; Jamaica; Lao P.D.R.; Madagascar*; Malawi*; Mauritius; Moldova*; Papua New Guinea; Sri Lanka; Sudan; Tajikistan; Tanzania; Tunisia; Uganda; Uruguay; Zambia*; Colombia; Czech Rep.; Ghana; Guatemala†; Indonesia; Peru*; Romania; Serbia, Rep. of; Thailand; Afghanistan, I.R. of*; Armenia*; Georgia*; Kenya*; Kyrgyz Rep.*; Mozambique*; Algeria; Burundi*; Cambodia; Croatia; Dominican Rep.*; Guinea; India; Kazakhstan; Liberia; Malaysia; Myanmar; Paraguay*; Russian Federation; São Tomé and Príncipe*; Singapore
- Independently floating (35) — examples include: Albania*; Congo, Dem. Rep. of; Australia; Brazil; Canada; Chile; Iceland; Israel; Japan; Korea; Mexico; New Zealand; Norway; Philippines; Poland; South Africa; Sweden; Turkey*; United Kingdom; Somalia; Switzerland; United States; Euro area members (Austria; Belgium; Finland; France; Germany; Greece; Ireland; Italy; Luxembourg; Netherlands; Portugal; Slovenia; Spain)

Notes from Table 6 (preserve text and footnotes):
- Sources: IMF staff reports; and IMF staff estimates.
- 1/ This table incorporates additional changes made since the publication of the 2007 AREAER. Data generally refer to the 185 IMF members plus Aruba, Hong Kong SAR, and the Netherlands Antilles, and are as of end-April 2007.
- 2/ Includes countries that have no explicitly stated nominal anchor, but rather monitor various indicators in conducting monetary policy.
- 3/ The printing of new colones, the domestic currency, is prohibited, but the existing stock of colones will continue to circulate along with the U.S. dollar as legal tender until all colón notes wear out physically.
- 4/ The currency and unit of account of Panama is the balboa, the issue of which is limited to coins. The balboa is fixed at par to the U.S. dollar, which circulates freely.
- 5/ The member participates in the ERM II.
- 6/ The staff’s assessment of the de facto arrangement in the country has been different from its de jure arrangements during the period under consideration.
- 7/ The country maintains an exchange arrangement involving more than one foreign exchange market. The arrangement shown is that maintained in the major market.
- 8/ Comoros has the same arrangement with the French Treasury as the CFA franc zone countries.
- 9/ There is no evidence of direct intervention by the authorities in the foreign exchange market.
- 10/ This classification is based on the exchange rate performance up to end-April 2007. The authorities have indicated that their current policy is to pursue a managed float.
- 11/ WAEMU=West African Economic and Monetary Union; CAEMC=Central African Economic and Monetary Community.
- 12/ The bands for these countries are as follows: Cyprus ±15%, Denmark ±2.25%, Hungary ±15%, Slovak Republic ±15%, and Tonga ±6%.
- 13/ The current monetary framework is anchored by core inflation objectives and the National Bank of Serbia is still in the process of transition towards full-fledged inflation targeting.
- 14/ Insufficient information on the country is available to confirm the classification; the classification of the last official consultation is used.
- 15/ San Marino has a monetary agreement with Italy, on behalf of the European Community, which allows for the use of the euro as official currency, the limited issuance of coins, and the access of its financial institutions to the euro area payment system.

### Currency Anchors of Countries with Hard and Soft Pegs (Table 7, April 30, 2007)
- Table categories: Arrangement with No Separate Legal Tender; Currency Board Arrangement; Conventional Pegged Arrangement; Horizontal Bands; Crawling Peg or Band.
- Major currency anchors listed across categories include: U.S. Dollar; Euro; Australian Dollar; Singapore Dollar; South African Rand; Indian Rupee; SDR; Other Currency Composites.
- Examples extracted by category:
  - Arrangement with No Separate Legal Tender anchored to U.S. Dollar or Euro: Ecuador; El Salvador; Marshall Islands; Micronesia; Palau; Panama; Timor-Leste; Montenegro; San Marino; Kiribati.
  - Currency board arrangement: Bosnia and Herzegovina; Bulgaria; Estonia; Lithuania; Brunei Darussalam; Hong Kong SAR.
  - Conventional pegged arrangement (examples anchored to U.S. Dollar and others): Angola; Argentina; Aruba; Bahamas, The; Bahrain; Barbados; Belarus; Belize; Bolivia; Egypt; Eritrea; Ethiopia; Guyana; Honduras; Jordan; Kuwait; Latvia; Lebanon; Lesotho; Macedonia, FYR; Maldives; Malta; Mauritania; Mongolia; Netherlands Antilles; multiple WAEMU/CAEMC participants.
  - Horizontal bands (ERM II participation noted): Cyprus; Denmark; Latvia; Malta; Slovak Republic.
  - Crawling peg or band: Azerbaijan; China; Costa Rica; Iraq; Nicaragua; Sierra Leone; Botswana.
- Source: Annual Report on Exchange Arrangements and Exchange Restrictions database.
- Footnotes: 1/ Country participates in the ECCU. 2/ Country participates in the WAEMU. 3/ Country participates in the CAEMC. 4/ Country participates in the ERM II.

### Changes in Classifications, January 2002–April 2007 (Table 8)
- Classification transitions tracked across categories: Conventional peg; Peg within horizontal bands; Crawling peg; Crawling band; Float; Currency board arrangement; Fixed pegs; Total.
- Selected numeric entries (preserve table numbers exactly):
  - Total changes recorded (row): 29 (Conventional peg), 3 (Peg within horizontal bands), 8 (Crawling peg), 2 (Crawling band), 21 (Float), 63 (Total) 1/
  - Examples of Pre-Change "Float" to Post-Change categories: Angola; Argentina; Azerbaijan (twice); Egypt; Ethiopia; Guinea; Guyana; Iraq; Mauritania; Moldova; Mongolia; Mozambique; Nigeria; Pakistan; Rwanda; Trinidad and Tobago; Ukraine; Uzbekistan; Venezuela; Vietnam; Yemen; Zimbabwe (twice)
  - Other country-specific entries listed (selected): Argentina (reappearing under Fixed pegs); Sudan under Fixed pegs; Azerbaijan, Bangladesh, Egypt, Guinea, Iran, Malaysia, Moldova, Mozambique, Zimbabwe under Crawling peg/Float transitions.
- Source: Annual Report on Exchange Arrangements and Exchange Restrictions database.
- 1/ Excluding categories that had no changes.

### Evolution of Controls on Current Account Transactions, 2000–06 (Table 9; In percent of the total for each income group)
- Sample sizes: low-income: 52 through 2001, 53 from 2002 on; lower middle-income: 57; upper middle-income: 36; emerging high-income: 13; advanced high-income: 28.
- Payment for imports (percent of group total)
  - Low income: 2000 90.4; 2001 90.4; 2002 90.6; 2003 92.5; 2004 92.5; 2005 90.6; 2006 92.5
  - Lower middle income: 2000 71.9; 2001 75.4; 2002 73.7; 2003 71.9; 2004 70.2; 2005 70.2; 2006 70.2
  - Upper middle income: 2000 50.0; 2001 52.8; 2002 55.6; 2003 47.2; 2004 47.2; 2005 50.0; 2006 50.0
  - Emerging high income: 2000 38.5; 2001 38.5; 2002 38.5; 2003 30.8; 2004 23.1; 2005 23.1; 2006 23.1
  - Advanced high income: 2000 7.1; 2001 3.6; 2002 3.6; 2003 3.6; 2004 ...; 2005 ...; 2006 ...
- Payments for invisibles (percent)
  - Low income: 2000 75.0; 2001 75.0; 2002 73.6; 2003 75.5; 2004 73.6; 2005 71.7; 2006 71.7
  - Lower middle income: 2000 61.4; 2001 63.2; 2002 59.6; 2003 59.6; 2004 57.9; 2005 57.9; 2006 57.9
  - Upper middle income: 2000 44.4; 2001 50.0; 2002 50.0; 2003 44.4; 2004 36.1; 2005 36.1; 2006 36.1
  - Emerging high income: 2000 46.2; 2001 46.2; 2002 46.2; 2003 46.2; 2004 46.2; 2005 38.5; 2006 38.5
  - Advanced high income: 2000 7.1; 2001 7.1; 2002 3.6; 2003 ...; 2004 ...; 2005 ...; 2006 ...
- Payments for exports (percent)
  - Low income: 2000 82.7; 2001 84.6; 2002 83.0; 2003 84.9; 2004 86.8; 2005 84.9; 2006 84.9
  - Lower middle income: 2000 73.7; 2001 71.9; 2002 71.9; 2003 70.2; 2004 66.7; 2005 71.9; 2006 71.9
  - Upper middle income: 2000 58.3; 2001 58.3; 2002 55.6; 2003 52.8; 2004 55.6; 2005 55.6; 2006 55.6
  - Emerging high income: 2000 23.1; 2001 30.8; 2002 30.8; 2003 30.8; 2004 30.8; 2005 30.8; 2006 30.8
  - Advanced high income: 2000 14.3; 2001 10.7; 2002 10.7; 2003 10.7; 2004 7.1; 2005 7.1; 2006 7.1
- Proceeds from invisibles (percent)
  - Low income: 2000 73.1; 2001 73.1; 2002 69.8; 2003 69.8; 2004 73.6; 2005 71.7; 2006 71.7
  - Lower middle income: 2000 57.9; 2001 54.4; 2002 52.6; 2003 50.9; 2004 45.6; 2005 47.4; 2006 47.4
  - Upper middle income: 2000 55.6; 2001 52.8; 2002 50.0; 2003 44.4; 2004 41.7; 2005 36.1; 2006 36.1
  - Emerging high income: 2000 23.1; 2001 23.1; 2002 23.1; 2003 23.1; 2004 15.4; 2005 15.4; 2006 15.4
  - Advanced high income: 2000 7.1; 2001 7.1; 2002 7.1; 2003 7.1; 2004 3.6; 2005 3.6; 2006 3.6
- Sources: World Bank Atlas; and Annual Report on Exchange Arrangements and Exchange Restrictions database.

### Countries Maintaining Controls on Capital Transactions (Table 10; In percent; unless otherwise specified)
- Memorandum: Number of countries included: 1997 180; 2000 182; 2001 182; 2002 183; 2003 184; 2004 185; 2005 184; 2005* 184; 2006 184; 2006* 184
- Overall share of countries with controls on "Capital and money market instruments"
  - 1997 71.4; 2000 71.5; 2001 72.6; 2002 71.7; 2003 70.6; 2004 70.6; 2005 74.9; 2005* 74.9; 2006 75.4; 2006* 75.4
- Subcategories (selected, by income group) — percentages preserve values exactly:
  - Credit operations (overall): 1997 63.2; 2000 63.4; 2001 62.9; 2002 61.5; 2003 61.0; 2004 62.0; 2005 67.9; 2005* 52.4; 2006 65.8; 2006* 51.3
  - Derivatives and other instruments (overall): 1997 44.9; 2000 44.6; 2001 44.6; 2002 44.4; 2003 43.9; 2004 45.5; 2005 52.4; 2005* 52.4; 2006 51.3; 2006* 51.3
  - Foreign direct investment (overall): 1997 67.0; 2000 64.5; 2001 65.6; 2002 66.8; 2003 65.2; 2004 64.7; 2005 69.5; 2005* 52.4; 2006 67.4; 2006* 51.3
  - Liquidation of foreign direct investment (overall): 1997 29.2; 2000 30.6; 2001 31.7; 2002 30.5; 2003 30.5; 2004 29.4; 2005 30.5; 2005* 52.4; 2006 27.3; 2006* 51.3
  - Personal capital movements (overall): 1997 48.6; 2000 49.5; 2001 48.9; 2002 51.9; 2003 51.9; 2004 52.9; 2005 51.9; 2005* 52.4; 2006 49.2; 2006* 51.3
  - Real estate transactions (overall): 1997 73.5; 2000 73.7; 2001 72.6; 2002 73.3; 2003 73.8; 2004 72.7; 2005 75.4; 2005* 52.4; 2006 74.3; 2006* 51.3
  - Transactions by commercial banks and other credit institutions (overall): 1997 85.4; 2000 84.4; 2001 84.4; 2002 85.6; 2003 85.0; 2004 85.6; 2005 85.6; 2005* 52.4; 2006 85.6; 2006* 51.3
  - Transactions by institutional investors (overall): 1997 44.9; 2000 44.6; 2001 46.8; 2002 48.7; 2003 50.3; 2004 50.3; 2005 54.0; 2005* 52.4; 2006 60.4; 2006* 51.3
- Income-group examples (selected entries preserved exactly):
  - Low income—Capital and money market instruments: 83.9 (1997); 85.7 (2000); 85.7 (2001); 86.0 (2002); 86.0 (2003); 86.0 (2004); 86.0 (2005); 86.0 (2005*); 86.0 (2006); 86.0 (2006*)
  - Advanced high income—Capital and money market instruments: 50.0 (1997); 50.0 (2000); 50.0 (2001); 46.4 (2002); 46.4 (2003); 46.4 (2004); 75.0 (2005); 46.4 (2005*); 78.6 (2006); 46.4 (2006*)
- Notes and methodological points:
  - Source: Annual Report on Exchange Arrangements and Exchange Restrictions database.
  - 1/ Countries include member countries, Aruba, the Netherlands Antilles, and Hong Kong SAR.
  - 2/ Data reflect information available as of year-end and are subject to reporting lags.
  - 3/ Income definitions are based on the World Bank Atlas classification of economies at end-2005 and the April 2007 WEO.
  - 4/ Data for 2005 and 2006 are affected by methodological changes implemented in 2005. Two sets of data are presented; 2005/2006 and 2005*/2006* which incorporate and do not incorporate, respectively, the changes due to the new methodology which relate to the 2004 version of the Organization for Economic Cooperation and Development (OECD) Code. This includes several controls that apply to rules on insurance companies, investment funds, and/or pension funds, which previously had not been classified as capital controls and were not reported during the compilation of the AREAER as such either. In addition, the AREAER capital control entries of OECD member countries have been harmonized with the list of country “reservations” made to the OECD Codes of Liberalization of Capital Movements.

### References (selected as listed in the source)
- Alesina, Alberto, and Alexander Wagner, 2003, “Choosing (and Reneging on) Exchange Rate Regimes,” National Bureau of Economic Research Working Paper No. 9809.
- Ariyoshi, Akira, Karl Habermeier, Bernard Laurens, Inci Ötker-Robe, Jorge Iván Canales-Kriljenko, and Andrei Kirilenko, 2000, Capital Controls: Country Experiences with their Use and Liberalization, IMF Occasional Paper No. 190.
- Ghosh, A., A. Gulde, and H. Wolf, 2000, “Currency Boards: More Than a Quick Fix?” Economic Policy 15 (31), pp. 270–335.
- IMF, 2003, “Exchange Arrangements and Foreign Exchange Markets: Developments and Issues,” IMF, World Economic and Financial Surveys.
- Reinhart, Carmen M., and Kenneth S. Rogoff, 2004, “The Modern History of Exchange Rate Arrangements: A Reinterpretation,” Quarterly Journal of Economics 119.1, pp. 1–48.
- Shambaugh, Jay C., 2004, “The Effect of Fixed Exchange Rates on Monetary Policy,” Quarterly Journal of Economics 119.1 pp. 301–52.
- (Additional references listed in source document.)

*Source: Appendix I. Data Tables, _112707 - Appendix I. Data Tables (April 30, 2007).*

---


_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/np/pp/2007/eng/_112707.pdf_