Keeping the Wheels of Commerce Turning

IMF Blog, June 10, 2019

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Tariff disputes and trade tensions highlight the fragility of the global system of free trade.
Multiple currency practices (MCPs) include imposing different exchange rates for different transactions or offering favorable rates to selected industries to stimulate exports, discourage imports, raise fiscal revenues, or allocate resources to specific entities or sectors.
The IMF’s Articles of Agreement forbid its members to maintain MCPs in most circumstances.

Mid-1950s: about two-thirds of member countries maintained MCPs.
1986: 55 countries maintained MCPs.
End of 2017: the proportion had dropped to about 15 percent, or 28 countries.
Countries that maintained MCPs into the 1980s included advanced economies such as Belgium, France, Italy, and the UK, and large emerging markets such as Argentina, Indonesia, Mexico, and Turkey.
The remaining MCPs at end-2017 are dominated by lower-middle and low-income economies, mainly in Africa and the Middle East, including Armenia, Burundi, Ghana, Kyrgyz Republic, Nigeria, Pakistan, and Sudan.

MCPs can be distortionary and create unfair competitive advantages.
MCPs can hamper international trade and foreign investment.
Historical precedent: trade wars in the 1930s deepened the Great Depression, motivating post–World War II tariff reductions and cooperative rules.

The IMF is reviewing its policy on MCPs, which was last updated in 1981, to keep up with developments in foreign exchange markets.
The goal of the review: to maintain the downward trend in MCPs and prevent a resurgence, including among larger economies, and to maintain a level playing field in international trade.

IMFBlog is a forum for the views of IMF staff and officials on pressing economic and policy issues of the day.
The IMF, based in Washington D.C., is an organization of 191 countries, working to foster global monetary cooperation and financial stability around the world.
The views expressed are those of the author(s) and do not necessarily represent the views of the IMF and its Executive Board.

Source: Keeping the Wheels of Commerce Turning — The Editors, June 10, 2019 (IMFBlog).