Global Policy Forum

By Martin Crutsinger

The International Monetary Fund announced Monday it had adopted new guidelines for how countries should conduct their foreign currency policies. The Bush administration had sought the change as a way of applying more pressure to China to reform its currency system.

IMF Managing Director Rodrigo de Rato announced the action in a speech in Montreal, saying it had been adopted by the agency's 24-member executive board last Friday. "The change we are making is the first major revision in the surveillance framework in some 30 years and it is the first ever comprehensive policy statement on surveillance," Rato said in his remarks, copies of which were made available in Washington.

The new guidelines add as a new principle that the IMF's 185 nations should avoid "exchange rate policies that result in external instability." The new rules cap a yearlong effort by the IMF to overhaul its surveillance program, by which the international lending agency seeks to promote the stability of the global economy. The work has gained urgency as an effort to address growing global imbalances including soaring trade deficits in the United States and surging trade surpluses in countries such as China. Rato said the new rule "gives clear guidance to our members on how they should run their exchange rate policies, on what is acceptable to the international community and what is not."

Treasury Secretary Henry Paulson said in a statement that it would send "a strong message that the IMF will put exchange rate surveillance back at the core of its duties and rigorously implement its rules on exchange rate surveillance going forward." Paulson said the action also "demonstrates that the IMF is serious about reforming itself and enhancing its legitimacy and relevance in today's global economic and financial system."

The administration has been trying for nearly three years to get China to allow its currency to rise in value against the dollar as a way of dealing with a U.S.-China trade gap which last year hit $232.6 billion, the highest ever for a single country. Last week, the administration declined to cite China as a country that was manipulating its currency to gain unfair trade advantages but two groups of senators filed legislation that would take a tougher line against China if the country does not move more quickly to allow the yuan to rise in value against the dollar. The administration hopes to win the IMF's support in its lobbying effort with China and sees the new rules as a way to increase international pressure on China. American manufacturers contend that the yuan is undervalued by as much as 40 percent, making Chinese goods cheaper for American consumers but U.S. products more expensive in China.

The new IMF guidelines will go into effect immediately and IMF staff will use the new principles in conducting its individual monitoring exercises designed to alert countries to potential economic problems.