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View Full Version : Exchange Rate Mechanics with Iraq & IMF Analysis by NEO



neo
11-12-2011, 04:53 PM
After a cursory review of the IMF articles that relate to member countries managing their currency in relation to other countries, It is interesting to note that there are well documented guidelines that instruct countries what they can and cannot do with their currencies and procedures that must be followed when revaluing a currency or modify exchange rates to adjust for domestic and international policy.
These “best practices” are clearly defined under Article IV. I am concerned as you all probably are that as countries like Iraq participate in the IMF’s lending programs as a borrower, they have in essence sold their sole if you will to a regime that has practices that are manipulative and extend far beyond covering their liability as an international lender. Now the big question I have is in regard to Notification to the exchange arrangement and when Iraq will or has made such a request that defines the parameters of this RV we are looking for. In respect to their obligations the facts are well defined. The IMF clearly states that:

“If a member’s exchange arrangement includes a specified exchange rate, the member’s ability to choose this rate would be constrained by its obligation under Article IV, Section 1 to collaborate with the Fund to promote a stable system of exchange rates.”

Now about the 30 day notice noted in Article IV!

Article IV, section 2 of the IMF Articles of Agreement now provides under (a) and (b) concerning general exchange arrangements:
(a) Each member shall notify the Fund, within thirty days after the date of the second amendment of this Agreement, of the exchange arrangements it intends to apply in fulfillment of its obligations under Section 1 of this Article, and shall notify the Fund promptly of any changes in its exchange arrangements.

Article IV, Section 1 provides that ―each member shall undertake to collaborate with the Fund and other members to assure orderly exchange arrangements and to promote a stable system of exchange rates. This provision also sets forth more specific obligations (Article IV, Sections 1 (I)–(iv)) that are identified as being particularly important means of implementing this general obligation.

http://www.imf.org/external/pubs/ft/aa/index.htm#art4 (http://www.imf.org/external/pubs/ft/aa/index.htm#art4)

You see where I am going with all this! Iraq (CBI) has procedures to comply with changes to the program rate or nominal rate since there is limited international commerce where the dinar is and will contribute to a stable exchange rate mechanism as defined by the IMF.
I would welcome your thoughts on this, and must assume at this juncture that Shabibi has or will follow the prescribed protocols detailed under the IMF Articles (see link above). I understand that representatives from the IMF have a staff in Baghdad and they are and have been working closely with them. Perhaps these canned proceedures under article IV are suggested guidelines for those countries that do not have the intimate relationship Iraq does?

In America if large corporate entities rather than countries, presented their regional pricing schedules to an one who keeps watch over and directs the work and profitability of others (an overseer), we would instantly think antitrust laws or a monopoly of sorts where basically this is price fixing!
If you noticed I am not a big fan of the IMF for bigger reasons, that are not dinar related! lol Anyway I would love your input on this.

SallyDS
11-12-2011, 06:47 PM
Hi Neo
I so appreciate the work you do for this site!
You did ask for comments, and I will do so...IF you accept that what I usefully can contribute to this conversation is extremely limited.
The IMF cannot be viewed as a dictator. It is a voluntary organization, although a powerful one. It can suggest and urge, but - by its own guidelines* -must defer in certain aspects of 'good governance' to the politics of the country it is trying to help. The guidelines they publish are 'for good governance' but I don't read them as requirements per se. At least that is the way I perceive it. But even if you view them that way, isn't it logical that Shabs did notify them? And keeps them informed of 'progress'?
* http://www.imf.org/external/pubs/ft/exrp/govern/govindex.htm

Got-UR-back dino
11-12-2011, 11:04 PM
Thanks again Neo for bringing a topic for discussion. In keeping with tradition, SallyDS has capably weighed in and so I guess I’ll go ahead and follow same again. (Altho never got a response on last attempt)
Frankly, imo Article IV has left the station. I agree with Sally in some respects. Here’s where we are and in my mind more importantly – how do we get from XIV to VIII? Will we see the 1-1 peg first until Ch 7 is removed and then the ever mythical Article VIII basket of 3+ in a managed float?