## 1. The Impact of the 2007 Decision on Exchange Rate Analysis

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### Introduction: purpose and context
- Paper proposes a draft Integrated Surveillance Decision (the “ISD”) for adoption (¶1–3).
- Objectives:
  - Modernize Fund surveillance legal framework to better support operations (¶1–3).
  - Address weaknesses: inadequate capture of economic realities, lack of framework for systematic coverage of spillovers, and asymmetric treatment of exchange rate and domestic policies in Article IV (¶2).
- Background:
  - April 2012 Board discussion of "Modernizing the Legal Framework for Surveillance—Building Blocks Toward an Integrated Surveillance Decision" (¶1).
  - IMFC communiqué: agreed that surveillance framework should be significantly enhanced and welcomed progress on an integrated surveillance decision (¶1).
- Key ISD design features (¶3):
  - Establishes a comprehensive framework covering both bilateral and multilateral surveillance.
  - Links bilateral and multilateral surveillance conceptually; allows Article IV consultations to serve as vehicle for discussing full range of spillovers affecting global stability.
  - Adds guidance on domestic policies relevant to domestic stability while retaining focus on stability of members' external accounts.
  - Clarifies scope and modalities for multilateral surveillance and members’ procedural obligations in that context.

### Box 1 — Findings on the impact of the 2007 Decision
- Overall conclusion:
  - The coverage, quality of analysis, and focus on exchange rate issues significantly improved after the 2007 Decision.
- Coverage findings:
  - "about less than 2/3 of staff reports discussed exchange rate issues in 2006 while more than 90 percent did so in 2008. In 2011, the coverage was nearly universal." (Box 1)
  - The 2008 TSR found the share of Selected Issues Papers dealing with exchange rate and competitiveness issues doubled from 2006 to 2008. (Box 1)
  - A 2011 IEO Report concluded the 2007 Decision led to a greater emphasis on exchange rate levels and currency misalignments. (Box 1)
- Quality and sophistication findings:
  - 2007 IEO evaluation: reports rarely used analytical tools beyond a real exchange rate chart (Box 1).
  - 2008 TSR: more than half the reports sampled provided a clear and robust assessment of exchange rate level using multiple techniques (basic indicators, PPP-approaches, econometric techniques including CGER) and description of de facto exchange regime was adequate (Box 1).
  - 2011 TSR review of 50 Article IV reports: more comprehensive use of CGER methods and more robust exchange rate analysis (Box 1).
- Unintended consequences and corrective mechanisms:
  - 2008 TSR noted complaints about emphasis on exchange rate levels and called for better integration with overall macroeconomic assessment (Box 1).
  - 2011 IEO report noted greater focus on exchange rate levels and currency misalignments resulted in less attention to external sector more broadly and in some cases triggered tensions with country authorities (Box 1).
  - Regular TSRs ensure corrective adjustments; 2011 TSR recommended broadening assessments of external sectors and related policy advice to address excessively narrow focus on exchange rate assessments (Box 1).

### Elements of the Integrated Surveillance Decision — key components
- Preamble (¶10):
  - Builds on 2007 Decision preamble; extends coverage to multilateral surveillance; highlights interconnectedness and spillovers; references guidance on domestic economic and financial policies; reiterates that decision does not expand members’ obligations.
- Scope of Surveillance — bilateral (¶12–13) and multilateral (¶14):
  - Bilateral surveillance:
    - Continues to center on systemic stability and examines whether members’ policies promote their own stability (¶12).
    - Replaces term "external stability" with "balance of payments stability" to clarify focus on an individual member’s external accounts while retaining existing definition and Board guidance (¶12).
    - Explicitly acknowledges domestic instability can give rise to systemic instability even without significant impact on a member’s balance of payments; spillovers arising from domestic policies that give rise to domestic instability will be subject to bilateral surveillance even if they have little effect on the member’s balance of payments (¶12).
    - Retains scope for members of currency unions from 2007 Decision, adding reference to domestic stability of the union (¶13).
  - Multilateral surveillance:
    - Scope includes all issues relevant for global economic and financial stability (¶14).
    - Provides guidance on Fund mandate to oversee the international monetary system and factors to consider in determining whether it is operating effectively (¶14).
    - Focuses on global economic and financial developments and significant spillovers from a member’s policies (including exchange rate, monetary, fiscal, financial sector and capital flow management policies) that have important global effects directly or indirectly (¶14).
    - Domestic policies not giving rise to domestic instability may still be relevant for multilateral surveillance if they may materially impact the effective operation of the international monetary system (¶14).

### Key findings on obligations and scope (¶12 of the ISD)
- The ISD does not alter members’ substantive obligations under Article IV; multilateral surveillance does not involve assessment of substantive obligations and members are under no obligation to modify their economic policies in light of Fund views in multilateral surveillance.
- Members have a procedural obligation to consult with the Fund and provide relevant data so the Fund can exercise multilateral surveillance responsibility.
- If outward spillovers from domestic policies fall outside bilateral surveillance (member is not domestically unstable but spillovers significantly affect the international monetary system), the Fund may not require a member to change those policies.
- The Fund may discuss implications of members’ policies and suggest potential alternatives to better promote the effective operation of the international monetary system, but cannot override a member’s priority to promote its own domestic stability where there is a conflict between domestic stability and minimizing adverse effects on global stability.
- Priority to domestic stability is both a matter of legal precedence and economic optimization because domestic instability in an economy of systemic importance would also affect global stability.

### Modalities of surveillance and Article IV consultations
- Core modalities retained:
  - Importance of dialogue and persuasion; clarity and candor; fostering frank and open dialogue and mutual trust; and evenhandedness.
  - Fund advice will pay due regard to members’ circumstances, including implementation capacity, be informed by and consistent with a multilateral framework, and take into account members’ other policy objectives to the extent permitted under Article IV.
  - Policy advice will be placed in a medium-term perspective.
- Bilateral surveillance (¶¶20–22):
  - Preserves existing principles for guidance of members’ exchange rate policies and adds Principle E on domestic policies: "A member should seek to avoid domestic economic and financial policies that give rise to domestic instability."
  - Principle E is cast in "best efforts" language consistent with "soft" nature of members’ obligations; obligations are limited to promotion of their own domestic stability.
  - Retains list of indicators providing additional guidance on assessing members’ compliance (¶22).
- Article IV consultations as vehicle for both bilateral and multilateral surveillance (¶26):
  - Article IV consultations continue to assess compliance with Article IV Section 1 and contribution of member policies to their own balance of payments and domestic stability; exchange rate policies remain subject to "firm" surveillance under Article IV Section 3.
  - Article IV consultations will include a multilateral surveillance component focusing on spillovers from individual members’ policies that may significantly influence the effective operation of the international monetary system.
  - Outward spillovers could be discussed in Article IV consultations even if they fall outside bilateral surveillance.
  - Policies relevant for multilateral surveillance include exchange rate, monetary, fiscal, financial sector, and capital flow policies.
- Focusing Article IV consultations and implementation:
  - Concrete topics will need careful prioritization; post-adoption guidance to staff will focus consultations on the most significant issues relating to a member’s stability and global stability.
  - Analyses of global risks and policy spillovers from the Fund’s multilateral surveillance products, along with internal review processes, will play a key role in selecting topics for Article IV consultations.
  - Staff encouraged to exchange views with authorities early in a consultation cycle to avoid overburdening Article IV discussions.
  - ISD does not change procedural lags from the 2007 Decision; expectations remain that no later than sixty-five days after termination of staff discussions the Executive Board will reach conclusions, except for members eligible for financing under the Poverty Reduction and Growth Trust where it is expected no later than three months from termination of discussions.

### Other multilateral surveillance activities and procedures
- Periodic reports on the international monetary system (¶30):
  - ISD provides for monitoring global economic and financial developments and assessments of outlooks and risks via regular or ad hoc staff reports for Board discussion.
  - No specific format prescribed beyond retaining references to the WEO from the 2007 Decision.
  - The Managing Director may collaborate with other international bodies as necessary.
- Multilateral consultations (¶¶31–33):
  - Flexible framework: Managing Director may recommend a multilateral consultation "as needed"; the Board may decide to initiate it.
  - Duplication with other fora (e.g., the G-20 MAP) would be avoided.
  - Relevant members would be required to consult with the Fund per the Board decision; the Fund would facilitate discussions while leaving agreement on specific policy actions to relevant members.
  - The Board would conclude the consultation by formally considering the Managing Director’s report, with no specified report format to retain flexibility.
- Data provision (¶26):
  - ISD does not include a provision encouraging voluntary sharing of data on relevant individual institutions, reflecting Directors’ comments.
  - Articles of Agreement already allow the Fund to obtain such information from members on a voluntary basis.
  - Under Article VIII, Section 5, the Fund may require members to report information it deems necessary; Article VIII, Section 5(b) limits disclosure of affairs of individuals or corporations; Article VIII Section 5(c) clarifies the Fund may obtain key financial sector information through voluntary agreements with members.

### Transitional provisions and review
- ISD effective timing and repeal:
  - The ISD would become effective five months following its adoption by the Executive Board.
  - As of that effective date, the 2007 Decision on Bilateral Surveillance would be repealed.
  - The ISD would apply to all Article IV consultations not completed by the Executive Board before the effective date.
  - The five-month lag allows time to develop staff guidance for implementation and to provide it to missions at the preparatory stage of consultations under the new regime.
- Review provision:
  - "It is expected that the Fund will review this Decision and its general implementation at intervals of three years, and at such other times as consideration of such matters may be placed on the agenda of the Executive Board."

### Procedural timing and specific timeframes (verbatim)
- New members must, within thirty days of the date of membership, notify the Fund in appropriate detail of the exchange arrangements they intend to apply in fulfillment of Article IV, Section 1 obligations.
- For ad hoc Article IV consultations:
  - A staff report will be circulated to the Executive Directors under cover of a note from the Secretary specifying a tentative date for Executive Board discussion which will be at least 15 days later than the date upon which the report is circulated.
  - The Secretary’s note will set out a draft decision taking note of the staff report and completing the ad hoc consultation without discussion or approval of the views contained in the report; the decision will be adopted upon the expiration of the two-week period following the circulation of the staff report to the Executive Directors unless, within such period, there is a request from an Executive Director or decision of the Managing Director to place the report on the agenda of the Executive Board.
- Executive Board timing for regular Article IV consultations:
  - It is expected that no later than sixty-five days after the termination of discussions between the member and the staff, the Executive Board will reach conclusions and thereby complete the consultation under Article IV,
  - except for consultations with members eligible for financing under the Poverty Reduction and Growth Trust … where it is expected that the Executive Board will reach conclusions no later than three months from the termination of discussions between the member and the staff.

*https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/np/pp/eng/2012/_062612.pdf*

### 1. The Impact of the 2007 Decision on Exchange Rate Analysis ..............................................4

### 1. The Impact of the 2007 Decision on Exchange Rate Analysis

### Introduction: purpose and context
- Paper proposes a draft Integrated Surveillance Decision (the “ISD”) for adoption (¶1–3).
- Objectives:
  - Modernize Fund surveillance legal framework to better support operations (¶1–3).
  - Address weaknesses: inadequate capture of economic realities, lack of framework for systematic coverage of spillovers, and asymmetric treatment of exchange rate and domestic policies in Article IV (¶2).
- Background:
  - April 2012 Board discussion of "Modernizing the Legal Framework for Surveillance—Building Blocks Toward an Integrated Surveillance Decision" (¶1).
  - IMFC communiqué: agreed that surveillance framework should be significantly enhanced and welcomed progress on an integrated surveillance decision (¶1).
- Key design features of the ISD (¶3):
  - Establishes a comprehensive framework covering both bilateral and multilateral surveillance.
  - Links bilateral and multilateral surveillance conceptually; allows Article IV consultations to serve as vehicle for discussing full range of spillovers affecting global stability.
  - Adds guidance on domestic policies relevant to domestic stability while retaining focus on stability of members' external accounts.
  - Clarifies scope and modalities for multilateral surveillance and members’ procedural obligations in that context.

### Expected limitations and responses to Board concerns
- ISD cannot fully remove legal asymmetry in treatment of exchange rate vs. domestic policies; domestic policies are covered by bilateral surveillance only if they give rise to domestic instability; otherwise they are covered under multilateral surveillance when they have important global spillover effects (¶4).
- Directors’ concerns addressed in ISD drafting (¶5):
  - Maintain adequate flexibility to adapt surveillance to changing circumstances.
  - Retain practice of due regard to individual country circumstances.
  - Ensure ISD does not extend members’ obligations.

### What would change with the ISD? — Improvements in surveillance (Section II)
- Expected improvements (¶7):
  - More systematic coverage of all relevant spillovers, building on voluntary pilot spillover reports.
  - Improved policy dialogue with country authorities.
  - Rebalance treatment of external and domestic policies to strengthen traction and legitimacy of Fund advice.
- Reform precedents: material impact of legal reforms is gradual but real; 2007 Decision improved coverage and quality of exchange rate analysis (¶8).

### Box 1 — The Impact of the 2007 Decision on Exchange Rate Analysis (findings)
- Overall conclusion: The coverage, quality of analysis, and focus on exchange rate issues significantly improved after the 2007 Decision.
- Coverage findings:
  - "about less than 2/3 of staff reports discussed exchange rate issues in 2006 while more than 90 percent did so in 2008. In 2011, the coverage was nearly universal." (Box 1)
  - The 2008 TSR found the share of Selected Issues Papers dealing with exchange rate and competitiveness issues doubled from 2006 to 2008. (Box 1)
  - A 2011 IEO Report concluded the 2007 Decision led to a greater emphasis on exchange rate levels and currency misalignments. (Box 1)
- Quality and sophistication findings:
  - 2007 IEO evaluation: reports rarely used analytical tools beyond a real exchange rate chart (Box 1).
  - 2008 TSR: more than half the reports sampled provided a clear and robust assessment of exchange rate level using multiple techniques (basic indicators, PPP-approaches, econometric techniques including CGER) and description of de facto exchange regime was adequate (Box 1).
  - 2011 TSR review of 50 Article IV reports: more comprehensive use of CGER methods and more robust exchange rate analysis (Box 1).
- Unintended consequences and corrective mechanisms:
  - 2008 TSR noted complaints about emphasis on exchange rate levels and called for better integration with overall macroeconomic assessment (Box 1).
  - 2011 IEO report noted greater focus on exchange rate levels and currency misalignments resulted in less attention to external sector more broadly and in some cases triggered tensions with country authorities (Box 1).
  - Regular TSRs ensure corrective adjustments; 2011 TSR recommended broadening assessments of external sectors and related policy advice to address excessively narrow focus on exchange rate assessments (Box 1).

### Elements of an Integrated Surveillance Decision (Section III) — key components
- Purpose (¶9): Describes ISD components and explains incorporation of 2007 Decision and feedback from Executive Directors.
- Preamble (¶10):
  - Builds on 2007 Decision preamble; extends coverage to multilateral surveillance; highlights interconnectedness and spillovers; references guidance on domestic economic and financial policies; reiterates that decision does not expand members’ obligations under the Articles.
- Principles for the Guidance of the Fund in its Surveillance — Scope of Surveillance (¶11–14):
  - Bilateral surveillance (¶12–13):
    - Continues to center on systemic stability and examines whether members’ policies promote their own stability (¶12).
    - Replaces term "external stability" with "balance of payments stability" to clarify focus on an individual member’s external accounts while retaining existing definition and Board guidance (¶12).
    - Explicitly acknowledges that domestic instability can give rise to systemic instability even without significant impact on a member’s balance of payments; accordingly, spillovers arising from domestic policies that give rise to domestic instability will be subject to bilateral surveillance even if they have little effect on the member’s balance of payments (¶12).
    - Retains scope for members of currency unions from 2007 Decision, adding reference to domestic stability of the union (¶13).
  - Multilateral surveillance (¶14):
    - Defines scope to include all issues relevant for global economic and financial stability (¶14).
    - Provides comprehensive guidance on Fund mandate to oversee the international monetary system and factors to consider in determining whether it is operating effectively (¶14).
    - Clarifies that multilateral surveillance will focus on global economic and financial developments and significant spillovers from a member’s policies (including exchange rate, monetary, fiscal, financial sector and capital flow management policies) that have important global effects directly or indirectly, for instance in combination with other members’ spillovers or through regional impact, regardless of transmission channels (¶14).
    - Notes that domestic policies not giving rise to domestic instability (and thus outside bilateral surveillance) remain relevant topics for multilateral surveillance if they may materially impact the effective operation of the international monetary system (¶14).

*Source: _062612 - 1. The Impact of the 2007 Decision on Exchange Rate Analysis (excerpts).*

### 15.      The ISD does not alter members’ obligations (¶12 of the ISD). As is made explicit

### 15.      The ISD does not alter members’ obligations (¶12 of the ISD). As is made explicit

### Key findings on obligations and scope
- The ISD does not alter members’ substantive obligations under Article IV; multilateral surveillance does not involve assessment of substantive obligations and members are under no obligation to modify their economic policies in light of Fund views in multilateral surveillance.
- Members have a procedural obligation to consult with the Fund and provide relevant data so the Fund can exercise multilateral surveillance responsibility.
- To the extent outward spillovers from domestic policies fall outside bilateral surveillance (i.e., the member is not domestically unstable but such spillovers significantly affect the operation of the international monetary system), the Fund may not require a member to change those policies.
- The Fund may discuss implications of members’ policies and suggest potential alternatives to better promote the effective operation of the international monetary system, but cannot override a member’s priority to promote its own domestic stability where there is a conflict between domestic stability and minimizing adverse effects on global stability.
- Priority to domestic stability is both a matter of legal precedence and economic optimization because domestic instability in an economy of systemic importance would also affect global stability.

### Modalities of surveillance (¶¶13–18 of the ISD)
- The ISD preserves and extends the key modalities from the 2007 Decision to multilateral surveillance.
- Core pillars retained: the importance of dialogue and persuasion; clarity and candor; fostering frank and open dialogue and mutual trust; and evenhandedness.
- Fund advice will pay due regard to members’ circumstances, including implementation capacity, will be informed by and consistent with a multilateral framework, and will take into account members’ other policy objectives to the extent permitted under Article IV.
- The Fund’s policy advice will be placed in a medium-term perspective.

### Principles for the guidance of members’ policies
- The ISD builds on the 2007 Decision by introducing guidance to members on domestic economic and financial policies for bilateral surveillance and guidance on all policies related to multilateral surveillance.
- It recognizes that a member’s overall mix of economic and financial policies, including exchange rate and domestic policies, contributes to balance of payments and domestic stability (¶19 of the ISD).

### Bilateral surveillance (¶¶20–22 of the ISD)
- The ISD preserves existing principles for guidance of members’ exchange rate policies and adds a new principle on domestic policies (Principle E).
- The new principle is cast in terms of "best efforts" consistent with the "soft" nature of members’ obligations respecting domestic economic and financial policies.
- Revised illustrative language for Principle E in the ISD: "A member should seek to avoid domestic economic and financial policies that give rise to domestic instability."
- Revisions clarify that members’ obligations with respect to domestic policies are limited to the promotion of their own domestic stability.
- The ISD retains the list of indicators that provides additional guidance on assessing members’ compliance with their obligations (¶22 of the ISD).

### Multilateral surveillance (¶23 of the ISD)
- For multilateral surveillance, the ISD encourages members to implement policies conducive to the effective operation of the international monetary system.
- The ISD recognizes that a member’s policies may have a significant impact on other members and on global economic and financial stability and encourages members to implement policies that, alone or in combination with others, are conducive to effective operation of the international monetary system.
- The encouragement is provided "beyond members’ obligations", explicitly recognizing it does not expand members’ obligations.
- If a member is promoting its own stability, it cannot be required to change its policies to better support the effective operation of the international monetary system.

### Procedures for surveillance — Article IV consultations (¶26 of the ISD)
- Article IV consultations become a vehicle for both bilateral and multilateral surveillance.
- Under bilateral surveillance, Article IV consultations continue to assess compliance with Article IV Section 1 and the contribution of member policies to their own balance of payments and domestic stability; exchange rate policies remain subject to "firm" surveillance under Article IV Section 3.
- Article IV consultations will also include a multilateral surveillance component focusing on spillovers from individual members’ policies that may significantly influence the effective operation of the international monetary system (e.g., by undermining global economic and financial stability).
- Outward spillovers could be discussed in Article IV consultations even if they fall outside bilateral surveillance (i.e., do not undermine domestic stability).
- Policies relevant for multilateral surveillance include exchange rate, monetary, fiscal, financial sector, and capital flow policies.

### Focusing Article IV consultations and implementation
- Concrete topics for Article IV discussion will need careful prioritization; following ISD adoption, guidance to staff will be developed to focus consultations on the most significant issues relating to a member’s stability and global stability.
- Analyses of global risks and policy spillovers from the Fund’s multilateral surveillance products, along with internal review processes, will play a key role in selecting topics for Article IV consultations.
- Staff are encouraged to exchange views with authorities early in a consultation cycle to avoid overburdening Article IV discussions.
- The ISD does not change other Article IV consultation procedural aspects from the 2007 Decision, including expectations on lags between staff discussions and Board completion; Article IV consultations continue to include regular consultations under Articles VIII and XIV.
- Ad hoc Article IV consultations remain a vehicle for bilateral surveillance only (no changes proposed to paragraphs 19 and 20 of the 2007 Decision).

### Other multilateral surveillance activities
- Periodic reports on the international monetary system (¶30 of the ISD):
  - The ISD provides for monitoring global economic and financial developments and assessments of outlooks and risks, which may take the form of regular or ad hoc staff reports for Board discussion.
  - No specific format is prescribed beyond retaining references to the WEO from the 2007 Decision.
  - The Managing Director may collaborate with other international bodies as necessary in surveillance of the global economy.
- Multilateral consultations (¶¶31–33 of the ISD):
  - The ISD articulates a flexible framework for multilateral discussions to facilitate collective action or policy collaboration among a group of members on systemic issues.
  - Key elements: the Managing Director may recommend a multilateral consultation "as needed"; the Board may decide to initiate it; duplication with other fora (e.g., the G-20 MAP) would be avoided; relevant members would be required to consult with the Fund per the Board decision; the Fund would facilitate discussions while agreement on specific policy actions is left to relevant members; the Board would conclude the consultation by formally considering the Managing Director’s report, with no specified report format to retain flexibility.

### Data provision (¶26 of the ISD)
- The ISD does not include a provision encouraging voluntary sharing of data on relevant individual institutions, reflecting Directors’ comments.
- The Articles of Agreement already allow the Fund to obtain such information from members on a voluntary basis.
- Under Article VIII, Section 5, the Fund may require members to report information it deems necessary; Article VIII, Section 5 (b) limits disclosure of affairs of individuals or corporations; Article VIII Section 5 (c) clarifies the Fund may obtain key financial sector information through voluntary agreements with members.

### Transitional provisions
- The ISD would become effective five months following its adoption by the Executive Board.
- As of that effective date, the 2007 Decision on Bilateral Surveillance would be repealed.
- The ISD would apply to all Article IV consultations not completed by the Executive Board before the effective date.
- The five-month lag allows time to develop staff guidance for implementation and to provide it to missions at the preparatory stage of consultations under the new regime.

### Proposed Decision (summary)
- The Executive Board adopts the Decision on Bilateral and Multilateral Surveillance set forth in Attachment I; it will become effective 5 months after approval.
- Decision 13919-(07/51), adopted June 15, 2007, is repealed as of the ISD effective date.
- The ISD applies to all Article IV consultations not completed by the Fund before the effective date.

*Source: _062612 - 15.      The ISD does not alter members’ obligations (¶12 of the ISD). As is made explicit*

### PART I - PRINCIPLES FOR THE GUIDANCE OF THE FUND IN ITS SURVEILLANCE

### PART I - PRINCIPLES FOR THE GUIDANCE OF THE FUND IN ITS SURVEILLANCE

### A. The Scope of Surveillance — Overview
- Article IV, Section 3 requires the Fund to conduct both bilateral and multilateral surveillance; these responsibilities are legally distinct but "mutually supportive and reinforcing" and need to be operationally integrated.
- Balance of payments stability is assessed at the level of each member, except as provided in paragraph 8.

### A(i). Bilateral surveillance — Focus and assessment
- Scope determined by members’ obligations under Article IV, Section 1 to collaborate with the Fund and other members to assure orderly exchange arrangements and to promote a stable system of exchange rates ("systemic stability").
- Systemic stability is most effectively achieved by each member adopting policies that promote its own balance of payments stability and domestic stability.
- In bilateral surveillance, the Fund will focus on policies that can significantly influence present or prospective balance of payments and domestic stability.
- The Fund will assess whether:
  - exchange rate policies are promoting balance of payments stability, and
  - domestic economic and financial policies are promoting domestic stability.
- Exchange rate policies will always be the subject of the Fund’s bilateral surveillance for each member, as will monetary, fiscal, and financial sector policies (both macroeconomic aspects and macroeconomically relevant structural aspects).
- Other policies are examined only to the extent they significantly influence present or prospective balance of payments or domestic stability.
- Members are considered by the Fund to be promoting balance of payments stability when they are promoting domestic stability, defined as:
  - (i) directing domestic economic and financial policies toward fostering orderly economic growth with reasonable price stability, with due regard to their circumstances, and
  - (ii) seeking to promote stability by fostering orderly underlying economic and financial conditions and a monetary system that does not tend to produce erratic disruptions.
- The Fund will always examine whether a member’s domestic policies are directed toward keeping the member’s economy operating broadly at capacity; examination of policies directed toward fostering a high rate of potential growth occurs only where such high potential growth significantly influences prospects for domestic, and thereby balance of payments, stability.
- The Fund will not require a member that is complying with Article IV, Sections 1(i) and (ii) to change its domestic policies in the interests of balance of payments stability.

### A(i). Bilateral surveillance — Members of currency unions
- The Decision applies to members of currency unions; members remain subject to all obligations under Article IV, Section 1 and are accountable for policies conducted by union-level institutions on their behalf.
- The Fund will assess whether policies implemented at the level of the currency union (including exchange rate and monetary policies) and at the level of members are promoting the balance of payments and domestic stability of the union and will advise on policy adjustments necessary for this purpose.
- Principles for guidance of members’ exchange rate policies and associated indicators in paragraph 21 apply at the level of the currency union because exchange rate policies are implemented at union level.
- For domestic policies implemented at the level of individual members, the Fund will assess whether a member of a currency union is promoting its own domestic stability and will consider the member to be promoting the balance of payments and domestic stability of the union when it is promoting its own domestic stability.
- The Fund’s assessment of the policies of a member of a currency union will always include an evaluation of developments in the member’s own balance of payments.

### A(ii). Multilateral surveillance — Scope and focus
- Scope determined by Article IV Section 3(a): oversee the international monetary system to ensure its effective operation.
- The international monetary system comprises:
  - (a) rules governing exchange arrangements between countries and the rates at which foreign exchange is purchased and sold;
  - (b) rules governing the making of payments and transfers for current international transactions between countries;
  - (c) rules governing the regulation of international capital movements; and
  - (d) arrangements under which international reserves are held, including official arrangements through which countries have access to liquidity through purchases from the Fund or under official currency swap arrangements.
- The international monetary system is considered to be operating effectively when the areas its four elements govern do not exhibit symptoms of malfunction such as:
  - persistent significant current account imbalances,
  - an unstable system of exchange rates including foreign exchange rate misalignment,
  - volatile capital flows, or
  - the excessive build up or depletion of reserves.
- In multilateral surveillance, the Fund will focus on issues that may affect the effective operation of the international monetary system, including:
  - (a) global economic and financial developments and the outlook for the global economy, including risks to global economic and financial stability, and
  - (b) spillovers arising from policies of individual members that may significantly influence the effective operation of the international monetary system (for example by undermining global economic and financial stability).
- Relevant member policies include exchange rate, monetary, fiscal, and financial sector policies and policies respecting capital flows.
- The Fund may not and will not require a member to change its policies in the interests of the effective operation of the international monetary system; it may discuss impacts and suggest alternative policies that better promote the effective operation of the international monetary system while promoting the member’s own stability.

### B. The Modalities of Surveillance — Principles guiding assessment and advice
- Modalities apply to policy discussions between the Fund and individual members whether in bilateral or multilateral surveillance, except where expressly limited to bilateral surveillance.
- Key modalities:
  - Dialogue and persuasion are key pillars.
  - The Fund will clearly and candidly assess relevant economic developments, prospects, and policies, and advise accordingly.
  - Assessments and advice are intended to assist the member in making policy choices and to enable other members to discuss these choices.
  - The Fund will foster frank and open dialogue and mutual trust and will be evenhanded across members, affording similar treatment to members in similar relevant circumstances.
  - Assessments and advice will pay due regard to the circumstances of the member and be formulated within a comprehensive analysis of the general economic situation and economic policy strategy; advice will pay due regard to the member’s implementation capacity and, to the extent permitted under Article IV, take into account the member’s other objectives.
  - Assessments and advice will be informed by, and consistent with, a multilateral framework that incorporates relevant aspects of the global and regional economic environment, including exchange rates, international capital market conditions, and key linkages among members.
  - In bilateral surveillance, the Fund’s assessment and advice will take into account the impact of a member’s policies on other members to the extent that the member’s policies undermine the promotion of its own balance of payments or domestic stability.
  - Assessments will, to the extent possible, be placed in the context of an examination of the member’s medium-term objectives and the planned conduct of policies, including possible responses to the most relevant contingencies.
  - The Fund’s assessment will always include an evaluation of developments in the member’s balance of payments, including the size and sustainability of capital flows, against the background of its reserves, the size and composition of its other external assets and its external liabilities, and its opportunities for access to international capital markets.

### PART II — Principles for the Guidance of Members’ Policies — Overview
- Recognition that a member’s overall mix of economic and financial policies contributes to balance of payments stability and may impact stability of the international monetary system.
- Two types of guidance:
  - (i) principles adopted for bilateral surveillance to guide exchange rate and domestic economic and financial policies; and
  - (ii) guidance adopted for multilateral surveillance to encourage policies conducive to the effective operation of the international monetary system.
- Principles respect members’ domestic social and political policies and the Fund will pay due regard to members’ circumstances.
- Members are presumed to be implementing policies consistent with the Principles; the Fund will give the member the benefit of any reasonable doubt when questions arise, including on fundamental exchange rate misalignment.
- When the Fund determines a member is not implementing policies consistent with the Principles and advises adjustments, it will consider the disruptive impact that excessively rapid adjustment would have.

### PART II(i). Bilateral surveillance — Specific Principles and nature
- Principles A through D are adopted pursuant to Article IV, Section 3(b) and provide guidance on exchange rate policies; Principle E is adopted pursuant to Article IV, Section 1 and provides guidance on domestic economic and financial policies.
- Principles A–D are recommendations rather than obligations; a Fund determination that a member is not following these recommendations does not create a presumption of breach of Article IV, Section 1.
- Text of the Principles:
  - A. A member shall avoid manipulating exchange rates or the international monetary system in order to prevent effective balance of payments adjustment or to gain an unfair competitive advantage over other members.
  - B. A member should intervene in the exchange market if necessary to counter disorderly conditions, which may be characterized inter alia by disruptive short-term movements in the exchange rate of its currency.
  - C. Members should take into account in their intervention policies the interests of other members, including those of the countries in whose currencies they intervene.
  - D. A member should avoid exchange rate policies that result in balance of payments instability.
  - E. A member should seek to avoid domestic economic and financial policies that give rise to domestic instability.

### PART II(i). Bilateral surveillance — Developments that would require thorough review
- The Fund shall consider the following developments among those requiring thorough review and possibly discussion with a member:
  - (i) protracted large-scale intervention in one direction in the exchange market;
  - (ii) official or quasi-official borrowing that either is unsustainable or brings unduly high liquidity risks, or excessive and prolonged official or quasi-official accumulation of foreign assets, for balance of payments purposes;
  - (iii) (a) the introduction, substantial intensification, or prolonged maintenance, for balance of payments purposes, of restrictions on, or incentives for, current transactions or payments, or (b) the introduction or substantial modification for balance of payments purposes of restrictions on, or incentives for, the inflow or outflow of capital;
  - (iv) the pursuit, for balance of payments purposes, of monetary and other financial policies that provide abnormal encouragement or discouragement to capital flows;
  - (v) fundamental exchange rate misalignment;
  - (vi) large and prolonged current account deficits or surpluses; and
  - (vii) large external sector vulnerabilities, including liquidity risks, arising from private capital flows.

### PART II(ii). Multilateral surveillance — Encouragement to members
- Members are encouraged to implement external and domestic economic and financial policies that, alone or in combination with others’ policies, are conducive to the effective operation of the international monetary system.

### PART III — Procedures for Surveillance — Overview
- The Fund will use various procedures and adapt these to changing circumstances.
- Article IV consultations with members serve as vehicles for both bilateral and multilateral surveillance (except ad hoc consultations which are a vehicle for bilateral surveillance); other procedures serve as vehicles for multilateral surveillance.
- New members must, within thirty days of the date of membership, notify the Fund in appropriate detail of the exchange arrangements they intend to apply in fulfillment of Article IV, Section 1 obligations; each member shall notify the Fund promptly of any changes in its exchange arrangements.

### PART III.A — Article IV Consultations — Frequency and objectives
- Members shall consult with the Fund regularly under Article IV to enable the Fund to:
  - (i) assess members’ compliance with their obligations under Article IV, Section 1 and, in particular, to exercise firm surveillance over the conduct of their exchange rate policies, and
  - (ii) discuss with members the impact of their policies on the operation of the international monetary system.
- In principle, consultations under Article IV shall comprehend the regular consultations under Articles VIII and XIV, and shall take place annually.
- They shall include consideration of observance by members of the principles and guidance set forth in paragraphs 21 and 23 and of a member’s obligations under Article IV, Section 1.
- They shall include discussion of spillover effects of a member’s exchange rate and domestic economic and financial policies that may significantly influence the effective operation of the international monetary system, for example by undermining global economic and financial stability.
- It is expected that no later than sixty-five days after the termination of discussions between the member and the staff, the Executive Board will reach conclusions and thereby complete the consultation under Article IV, except for consultations with members eligible for financing under the Poverty Reduction and Growth Trust established by Decision No. 8759- (87/176), ESAF, as amended, where it is expected that the Executive Board will reach conclusions no later than three months from the termination of discussions between the member and the staff.

*Source: PART I - PRINCIPLES FOR THE GUIDANCE OF THE FUND IN ITS SURVEILLANCE*

### 28.      The Managing Director shall maintain close contact with members in connection with

### _062612 - 28.      The Managing Director shall maintain close contact with members in connection with

### Managing Director responsibilities (paragraphs 28–29)
- Paragraph 28:
  - "The Managing Director shall maintain close contact with members in connection with their exchange arrangements and their policies under Article IV, Section 1, and will be prepared to discuss on the initiative of a member important changes that it contemplates in its exchange arrangements or its policies."
- Paragraph 29(a):
  - "Whenever the Managing Director considers that important economic or financial developments are likely to affect a member’s exchange rate policies or the behavior of the exchange rate of its currency, the Managing Director shall initiate informally and confidentially a discussion with the member."
  - After such discussion the Managing Director may report to the Executive Board or informally advise the Executive Directors and, if the Executive Board considers it appropriate, "an ad hoc Article IV consultation between the member and the Fund shall be conducted in accordance with the procedure set out in subparagraph (b) below."
- Paragraph 29(b) — Procedure for ad hoc consultations:
  - "A staff report will be circulated to the Executive Directors under cover of a note from the Secretary specifying a tentative date for Executive Board discussion which will be at least 15 days later than the date upon which the report is circulated."
  - "The Secretary’s note will also set out a draft decision taking note of the staff report and completing the ad hoc consultation without discussion or approval of the views contained in the report; the decision will be adopted upon the expiration of the two-week period following the circulation of the staff report to the Executive Directors unless, within such period, there is a request from an Executive Director or decision of the Managing Director to place the report on the agenda of the Executive Board."
  - "If the staff report is placed on the agenda, the Executive Board will discuss the report and will reach conclusions which will be reflected in a summing up."
- Paragraph 29(c):
  - "Unless otherwise decided by the Executive Board, the conduct of an ad hoc consultation with a member will not affect the consultation cycle applicable to the member or the deadline for completion of the next consultation with the member."

### Other multilateral surveillance activities (paragraphs 30–33)
- Periodic reports on the international monetary system (paragraph 30):
  - "The Fund will assess all issues relevant for the effective operation of the international monetary system, as described in paragraph 11 of this Decision."
  - Assessments "may take the form of periodic or ad hoc reports produced by staff for discussion by the Executive Board."
  - "Broad developments in exchange rates will be reviewed periodically by the Fund, inter alia in discussions of the international adjustment process within the framework of the World Economic Outlook."
  - "The Managing Director may collaborate with other international bodies in conducting assessments of relevant issues."
- Multilateral consultations (paragraphs 31–33):
  - Paragraph 31: "Whenever the Managing Director considers that an issue has arisen in a policy area or a member country that may affect the effective operation of the international monetary system, and that requires collaboration among members that is not already effectively taking place in another forum in which the Fund is a party, the Executive Board may decide, upon the Managing Director’s recommendation that a multilateral consultation will be held."
  - Paragraph 32: "A multilateral consultation will consist of discussions between Fund staff and management and officials of relevant member countries." The Fund will:
    - "facilitate discussions among participating members and encourage them to agree on policy adjustments that will promote the effective operation of the international monetary system;"
    - "provide analysis and propose policy options that participating members may adopt, and may advise on the effect of different combinations of policy adjustments."
  - Paragraph 33: "After the conclusion of these discussions, the Managing Director will report to the Executive Board on the discussions, any agreed policy adjustments and their impact on the participating members and the operation of the international monetary system. The Executive Board will conclude the multilateral consultation with the formal consideration of this report."

### Review provision (paragraph 34)
- "It is expected that the Fund will review this Decision and its general implementation at intervals of three years, and at such other times as consideration of such matters may be placed on the agenda of the Executive Board."

### Annex — Article IV, Section 1(iii) and Principle A (paragraphs 1–3)
- Paragraph 1:
  - Restates Article IV, Section 1(iii): members shall "avoid manipulating exchange rates or the international monetary system in order to prevent effective balance of payments adjustment or to gain an unfair competitive advantage over other members."
  - "The text set forth below is designed to provide further guidance regarding the meaning of this provision."
- Paragraph 2 — Two-step determination for inconsistency with Article IV, Section 1(iii):
  - The Fund must determine both that:
    - (a) "the member was manipulating its exchange rate or the international monetary system" and
    - (b) "such manipulation was being carried out for one of the two purposes specifically identified in Article IV, Section 1(iii)."
  - Paragraph 2(a): "‘Manipulation’ of the exchange rate is only carried out through policies that are targeted at—and actually affect—the level of an exchange rate. Moreover, manipulation may cause the exchange rate to move or may prevent such movement."
  - Paragraph 2(b): A member will only be considered to be manipulating exchange rates to "gain an unfair competitive advantage over other members" if the Fund determines both that:
    - (A) "the member is engaged in these policies for the purpose of securing fundamental exchange rate misalignment in the form of an undervalued exchange rate" and
    - (B) "the purpose of securing such misalignment is to increase net exports."
- Paragraph 3:
  - "It is the responsibility of the Fund to make an objective assessment of whether a member is observing its obligations under Article IV, Section 1 (iii), based on all available evidence, including consultation with the member concerned."
  - "Any representation made by the member regarding the purpose of its policies will be given the benefit of any reasonable doubt."

### Attachment II — Draft Integrated Surveillance Decision (overview and key principles)
- Preamble highlights:
  - Reference to the "19772007 Decision" and intention "better integrating bilateral and multilateral surveillance, including through the adoption of an integrated surveillance decision covering both activities."
  - Emphasis that "no new obligations are created for members by this Decision."
  - The Decision "provides guidance to the Fund in: (a) its oversight over members’ policies pursuant to Article IV, Sections 3 (a) and (b)... and (a)(b) the exercise of its responsibility to oversee the international monetary system... (hereinafter referred to as “multilateral” surveillance)."
- Part I and scope of bilateral surveillance:
  - Paragraph 4: bilateral and multilateral surveillance are "mutually supportive and reinforcing and, accordingly, need to be operationally integrated."
  - Paragraph 5 (scope): "The scope of bilateral surveillance is determined by members’ obligations under Article IV, Section 1."
  - Paragraph 6: Fund will focus on policies that "can significantly influence present or prospective externalbalance of payments and domestic stability."
  - Paragraph 7: Members promote externalbalance of payments stability when they promote domestic stability, defined by two elements:
    - (i) "endeavor to direct their domestic economic and financial policies toward the objective of fostering orderly economic growth with reasonable price stability, with due regard to their circumstances,"
    - (ii) "seek to promote stability by fostering orderly underlying economic and financial conditions and a monetary system that does not tend to produce erratic disruptions."
  - Paragraph 8 (currency unions): Decision applies to members of currency unions with specified considerations, including that principles for guidance of members’ exchange rate policies "only apply at the level of the currency union."
- Multilateral surveillance scope (paragraphs 9–10):
  - Paragraph 9 defines the international monetary system as comprising four elements:
    - (a) rules governing exchange arrangements and rates at which foreign exchange is purchased and sold;
    - (b) rules governing the making of payments and transfers for current international transactions between countries;
    - (c) rules governing the regulation of international capital movements;
    - (d) arrangements under which international reserves are held, including official arrangements through which countries have access to liquidity through purchases from the Fund or under official currency swap arrangements.
  - Paragraph 10: The international monetary system is operating effectively when its four elements "do not exhibit symptoms of malfunction such as persistent significant current account imbalances, an unstable system of exchange rates including foreign exchange rate misalignment, volatile capital flows, or the excessive build up or depletion of reserves."

*Source: Excerpt from the IMF Decision text contained in the supplied PDF content.*

### 11.      Therefore, in its multilateral surveillance, the Fund will focus on issues that may

### 11.      Therefore, in its multilateral surveillance, the Fund will focus on issues that may

### Multilateral surveillance: focus and limits
- The Fund will focus on issues that may affect the effective operation of the international monetary system, including:
  - global economic and financial developments and the outlook for the global economy, including risks to global economic and financial stability; and
  - the spillovers arising from policies of individual members that may significantly influence the effective operation of the international monetary system, for example by undermining global economic and financial stability.
- Relevant member policies include exchange rate, monetary, fiscal, and financial sector policies and policies respecting capital flows.
- The Fund may not and will not require a member to change its policies in the interests of the effective operation of the international monetary system, but:
  - it may discuss the impact of members’ policies on the effective operation of the international monetary system; and
  - it may suggest alternative policies that, while promoting the member’s own stability, better promote the effective operation of the international monetary system.

### Modalities of bilateral surveillance (general principles)
- The Fund’s assessment of an individual member’s policies and its advice will be conducted consistent with defined modalities; these modalities apply to bilateral and, except where limited, multilateral surveillance.
- Dialogue and persuasion are key pillars:
  - The Fund will clearly and candidly assess relevant economic developments, prospects, and policies and advise on these.
  - The Fund will foster an environment of frank and open dialogue and mutual trust, and will be evenhanded across members, affording similar treatment to members in similar relevant circumstances.
- Assessments and advice will pay due regard to the circumstances of the member, be formulated within a comprehensive analysis of the general economic situation and economic policy strategy, and consider the member’s implementation capacity.
- In advising members on promoting external (balance of payments) and domestic stability and the effective operation of the international monetary system, the Fund shall, to the extent permitted under Article IV, take into account the member’s other objectives.
- Bilateral surveillance assessments will be informed by, and consistent with, a multilateral framework incorporating relevant aspects of the global and regional economic environment, including exchange rates, international capital market conditions, and key linkages among members.
- Assessments and advice will, to the extent that a member’s policies undermine promotion of its own externalbalance of payments or domestic stability, take into account the impact on other members.
- Assessments will, to the extent possible, be placed in the context of an examination of the member’s medium-term objectives and planned conduct of policies, including possible responses to the most relevant contingencies.
- The Fund’s assessment will always include an evaluation of developments in the member’s balance of payments, including:
  - the size and sustainability of capital flows, against the background of its reserves,
  - the size and composition of its other external assets and its external liabilities, and
  - its opportunities for access to international capital markets.

### Principles for guidance of members’ policies under Article IV (Part II)
- Overview:
  - A member’s overall mix of economic and financial policies, including exchange rate and domestic policies, contributes to balance of payments stability and may impact the stability of the international monetary system.
  - The Decision sets out (i) principles for bilateral surveillance guiding exchange rate and domestic economic and financial policies, and (ii) guidance for multilateral surveillance encouraging policies conducive to the effective operation of the international monetary system.
- Implementation and presumptions:
  - Principles A through D are adopted pursuant to Article IV, Section 3 (b) and provide guidance on exchange rate policies; Principle E is adopted pursuant to Article IV, Section 1 and provides guidance on domestic economic and financial policies.
  - These Principles respect domestic social and political policies of members and the Fund will pay due regard to members’ circumstances.
  - Members are presumed to be implementing policies consistent with the Principles; the Fund will give the member the benefit of any reasonable doubt when questions arise, including on fundamental exchange rate misalignment.
  - When the Fund determines a member is not implementing policies consistent with the Principles and informs the member of needed adjustments, the Fund will take into consideration the disruptive impact that excessively rapid adjustment would have on the member’s economy.
- Nature of obligations and recommendations:
  - Principle A sets forth the obligation in Article IV, Section 1(iii); further guidance is provided in the Annex.
  - Principles B through E constitute recommendations rather than obligations; a Fund determination that a member is not following these recommendations would not create a presumption of breach of Article IV, Section 1.

- Text of Principles A–E (verbatim):
  - A. A member shall avoid manipulating exchange rates or the international monetary system in order to prevent effective balance of payments adjustment or to gain an unfair competitive advantage over other members.
  - B. A member should intervene in the exchange market if necessary to counter disorderly conditions, which may be characterized inter alia by disruptive short-term movements in the exchange rate of its currency.
  - C. Members should take into account in their intervention policies the interests of other members, including those of the countries in whose currencies they intervene.
  - D. A member should avoid exchange rate policies that result in externalbalance of payments instability.
  - E. A member should seek to avoid domestic economic and financial policies that give rise to domestic instability.

### Developments triggering thorough review in surveillance
- The Fund shall consider the following as developments that would require thorough review and might indicate need for discussion with a member:
  - (i) protracted large-scale intervention in one direction in the exchange market;
  - (ii) official or quasi-official borrowing that either is unsustainable or brings unduly high liquidity risks, or excessive and prolonged official or quasi-official accumulation of foreign assets, for balance of payments purposes;
  - (iii) (a) the introduction, substantial intensification, or prolonged maintenance, for balance of payments purposes, of restrictions on, or incentives for, current transactions or payments, or (b) the introduction or substantial modification for balance of payments purposes of restrictions on, or incentives for, the inflow or outflow of capital;
  - (iv) the pursuit, for balance of payments purposes, of monetary and other financial policies that provide abnormal encouragement or discouragement to capital flows;
  - (v) fundamental exchange rate misalignment;
  - (vi) large and prolonged current account deficits or surpluses; and
  - (vii) large external sector vulnerabilities, including liquidity risks, arising from private capital flows.

### Multilateral surveillance encouragement
- Beyond Article IV Section 1 obligations, members are encouraged to implement external and domestic economic and financial policies that, singly or in combination with policies of other members, are conducive to the effective operation of the international monetary system.

### Procedures for surveillance (Part III)
- General:
  - The Fund will use and adapt various procedures to conduct surveillance.
  - Article IV consultations serve as vehicles for both bilateral and multilateral surveillance, except ad hoc consultations which are a vehicle for bilateral surveillance. Other procedures serve as vehicles for multilateral surveillance.
- Notifications:
  - Each country that becomes a member after adoption of this decision shall, within thirty days of the date of its membership, notify the Fund in appropriate detail of the exchange arrangements it intends to apply in fulfillment of its obligations under Article IV, Section 1.
  - Each member, regardless of its date of membership, shall notify the Fund promptly of any changes in its exchange arrangements.

### Article IV Consultations (A)
- Purpose and frequency:
  - Members shall consult with the Fund regularly under Article IV to enable the Fund to:
    - (i) assess members’ compliance with their obligations under Article IV, Section 1 and, in particular, to exercise firm surveillance over the conduct of their exchange rate policies, and
    - (ii) discuss with members the impact of their policies on the operation of the international monetary system.
  - In principle, the consultations under Article IV shall take place annually and shall comprehend the regular consultations under Articles VIII and XIV.
  - Consultations shall include consideration of observance of the principles and guidance in paragraphs 21 and 23 and of a member’s obligations under Article IV, Section 1, and discussion of spillover effects of a member’s exchange rate and domestic economic and financial policies that may significantly influence the effective operation of the international monetary system.
- Timing for Executive Board conclusions:
  - It is expected that no later than sixty-five days after the termination of discussions between the member and the staff, the Executive Board will reach conclusions and thereby complete the consultation under Article IV,
  - except for consultations with members eligible for financing under the Poverty Reduction and Growth Trust established by Decision No. 8759-(87/176), ESAF, as amended, where it is expected that the Executive Board will reach conclusions no later than three months from the termination of discussions between the member and the staff.

### Bilateral surveillance – Ad hoc Article IV consultations (B)
- Managing Director role:
  - The Managing Director shall maintain close contact with members in connection with their exchange arrangements and their policies under Article IV, Section 1, and will be prepared to discuss on the initiative of a member important contemplated changes.
- Initiation and procedure (paragraphs 29(a)–(c)):
  - (a) When the Managing Director considers important economic or financial developments are likely to affect a member’s exchange rate policies or the behavior of its currency, the Managing Director shall initiate informally and confidentially a discussion with the member. After such discussion, the Managing Director may report to the Executive Board or informally advise the Executive Directors and, if the Executive Board considers it appropriate, an ad hoc Article IV consultation shall be conducted.
  - (b) Procedure for an ad hoc consultation:
    - A staff report will be circulated to the Executive Directors under cover of a note from the Secretary specifying a tentative date for Executive Board discussion which will be at least 15 days later than the date upon which the report is circulated.
    - The Secretary’s note will set out a draft decision taking note of the staff report and completing the ad hoc consultation without discussion or approval of the views contained in the report; the decision will be adopted upon the expiration of the two-week period following the circulation of the staff report to the Executive Directors unless, within such period, there is a request from an Executive Director or decision of the Managing Director to place the report on the agenda of the Executive Board.
    - If the staff report is placed on the agenda, the Executive Board will discuss the report and will reach conclusions which will be reflected in a summing up.
  - (c) Unless otherwise decided by the Executive Board, the conduct of an ad hoc consultation with a member will not affect the consultation cycle applicable to the member or the deadline for completion of the next consultation with the member.

### Other multilateral surveillance activities (C)
- Periodic reports on the international monetary system:
  - The Fund will assess all issues relevant for the effective operation of the international monetary system as described in paragraph 11; assessments may take the form of periodic or ad hoc staff reports for Executive Board discussion.
  - Broad developments in exchange rates will be reviewed periodically, inter alia in discussions of the international adjustment process within the framework of the World Economic Outlook.
  - The Managing Director may collaborate with other international bodies in conducting assessments of relevant issues to inform the Fund’s oversight.
- Multilateral consultations:
  - When the Managing Director considers an issue has arisen that may affect the effective operation of the international monetary system and requires collaboration among members not already effectively occurring in another forum, the Executive Board may decide that a multilateral consultation will be held.
  - A multilateral consultation will consist of discussions between Fund staff and management and officials of relevant member countries; the Fund will facilitate discussions and encourage agreement on policy adjustments to promote the effective operation of the international monetary system.
  - The Fund will provide analysis, propose policy options, and may advise on effects of different combinations of policy adjustments.
  - After conclusion, the Managing Director will report to the Executive Board on the discussions, any agreed policy adjustments and their impact; the Executive Board will conclude the multilateral consultation with formal consideration of this report.

### Review and repeal
- The Fund will review this Decision and its general implementation at intervals of three years, and at such other times as consideration may be placed on the Executive Board agenda.
- Decision No. 5392-(77/63), adopted April 29, 1977, as amended, and paragraph 3 of Decision No. 6026-(79/13), adopted January 22, 1979, as amended, are repealed.

### Annex — Article IV, Section 1(iii) and Principle A (guidance on manipulation)
- Article IV, Section 1(iii) obliges members to “avoid manipulating exchange rates or the international monetary system in order to prevent effective balance of payments adjustment or to gain an unfair competitive advantage over other members.” This language is repeated in Principle A.
- The Fund will determine that a member is acting inconsistently with Article IV, Section 1(iii) only if both:
  - (a) the member was manipulating its exchange rate or the international monetary system; and
  - (b) such manipulation was being carried out for one of the two purposes specifically identified in Article IV, Section 1(iii).
- Clarifications:
  - (a) “Manipulation” is only carried out through policies targeted at—and actually affecting—the level of an exchange rate; manipulation may cause the exchange rate to move or may prevent such movement.
  - (b) A member manipulating its exchange rate would only be acting inconsistently with Article IV, Section 1(iii) if the Fund determined the manipulation was undertaken “in order to prevent effective balance of payments adjustment or to gain an unfair competitive advantage over other members.”
    - A member will be considered to be manipulating exchange rates to gain an unfair competitive advantage only if the Fund determines both that:
      - (A) the member is engaged in these policies for the purpose of securing fundamental exchange rate misalignment in the form of an undervalued exchange rate; and
      - (B) the purpose of securing such misalignment is to increase net exports.
- Responsibility and evidentiary approach:
  - The Fund is responsible for making an objective assessment based on all available evidence, including consultation with the member concerned.
  - Any representation made by the member regarding the purpose of its policies will be given the benefit of any reasonable doubt.

*https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/np/pp/eng/2012/_062612.pdf*

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_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/np/pp/eng/2012/_062612.pdf_