Edited by Klaus Liebscher, Josef Christl, Peter Mooslechner and Doris Ritzberger-Grünwald
Chapter 5: Exchange Rates from a Multilateral and South-East Asian Perspective
5. Exchange rates from a multilateral and South-East Asian perspective Hans Genberg1 This chapter discusses two issues related to international economic cooperation and policy strategies of small open economies. First, for multilateral consultations on and assessment of economic policies to be eﬀective, they must have a basis in an appropriate pairing of instruments and objectives. In particular, the surveillance work of the IMF should de-emphasize the assessment of exchange rate levels, and instead focus on fundamental ﬁscal and monetary policy choices. The reason is that focusing on exchange rate levels to address current account imbalances is based on weak analytical foundations and is likely to be ineﬀective at best, and may in fact divert attention away from more fundamental policy adjustments required for lasting solutions to global imbalances. Second, this chapter will discuss some aspects of monetary and exchange rate policy in small open economies with particular reference to economies in South-East Asia. The major point I would like to convey here is that there has been a substantial shift in the monetary policy strategies in the region in recent years, towards the adoption of price stability as the primary objective of policy and away from focusing on the exchange rate as a nominal anchor. This switch has important implications for monetary and ﬁnancial cooperation in the region, as well as for how one should interpret their growth strategies. 5.1 INTERNATIONAL SURVEILLANCE OF ECONOMIC POLICIES: THE IMPORTANCE OF A PROPER PAIRING OF OBJECTIVES AND INSTRUMENTS One of the...
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