Euro currency symbol in Frankfurt, Germany: IMF's new surveillance Decision specifically addresses currency unions (photo: Sean Gallup/Getty Images)
NEW SURVEILLANCE FRAMEWORK
The IMF's Executive Board decided on June 15 on a new framework for IMF bilateral surveillance—the way in which the Fund monitors and assesses its member countries' economies.
Members of currency unions—such as the European Monetary Union or the Economic and Monetary Community of Central Africa— have delegated responsibility for certain policies—typically monetary and exchange rate policies—to union-level institutions, but they have the same obligations under Article IV as other IMF members, and the Decision notes that "each member is accountable for those policies that are conducted by union-level institutions on its behalf."
Surveillance in currency unions involves a combination of bilateral discussions with individual union members on the policies conducted at their level and discussions with union-level institutions on the common policies for which they are responsible. The union-level discussions are considered to be an integral part of the bilateral Article IV consultations with individual members.
The Decision clarifies that the IMF will assess whether relevant policies implemented at the level of the currency union (including exchange rate and monetary policies) are promoting the external stability of the union. The notion of external stability—a balance of payments position that does not, and is not likely to, give rise to disruptive exchange rate movements—applies only at the level of the union itself, because only the union has an exchange rate.
Domestic stability
The IMF will also assess whether relevant policies implemented at the level of members are promoting the external stability of the union. The way country-level policies do this is by promoting the domestic stability of individual members: for instance, the external stability of the union may be put at risk if a member runs an excessively loose fiscal policy that affects the overall union balance, or pursues policies that put pressure on all-union policies.
Because union members' balances of payments matter for the domestic stability of members and the external stability of the union, the Decision makes clear that surveillance over individual union members should always include an evaluation of developments in the member's balance of payments.
