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😁 The MCP policy is a cornerstone of the legal and policy framework for the Fund’s jurisdiction over exchange rates. WHY DOES THE FUND NEED AN MCP POLICY? 13. The prohibition of MCPs was part of a larger effort by the Fund to eliminate restrictions on current international payments and transfers after the destructive trade wars of the 1930s.10 During this period, which saw a variety of distortive trade barriers followed by waves of retaliatory tariffs, countries frequently established different rates of exchange for selectedcommodities to stimulate exports and suppress imports. To preserve scarce supplies of FX, countries also concluded BPAs with each other using exchange rates that did not reflect market conditions. These measures disrupted trade, increased economic difficulties, and stimulated destructive spillovers and retaliatory measures between countries. 14. MCPs have historically been used for two main purposes. First, as an attempt to mitigate BOP pressures. Second, to achieve non-BOP objectives—such as revenue mobilization or allocation of resources to specific entities or sectors—without having to resort to more direct methods of taxation or subsidies. As MCPs can, in some cases, be adopted by executive order or central bank regulation, they have often been used instead of other measures that require legislation. Snip/s... MCP policy is a cornerstone . The MCP policy is a cornerstone of the legal and policy framework for the Fund’s jurisdiction over exchange rates. The term “multiple currency practice” is a misnomer. It is not concerned with the maintenance of more than one currency on a member’s territory, but with the maintenance of multiple exchange rates on a member’s territory. The obligation of member countries to refrain from engaging in MCPs is an original provision of the Articles. It has promoted the objective of maintaining orderly exchange arrangements and unified exchange rates. WHAT IS AN MCP? 6. The Fund’s Articles prohibit members from engaging in MCPs in certain circumstances but do not define the term. 1 They allow the Executive Board, through interpretation and by decision, to give content to the term through the MCP policy. 2 While the content of the policy can be modified to reflect changing realities, the Fund cannot decide not to apply it. Given that the Articles prohibit members from engaging in MCPs, unless otherwise authorized therein, the Fund must apply this provision and enforce compliance with this obligation by its members. Snip... Second, while the 1981 Decision underlying the current policy defines MCPs as exchange rate spreads that actually exceed the applicable thresholds, over time application of the policy has evolved to include official action that could potentially give rise to such spreads, even if they have not emerged in practice (i.e., “potentiality”), unless there is a mechanism in place to keep the spread within the permissible range. 5 Box 1 provides examples of exchange measures that typically give rise to an MCP. Box 1. Exchange Measures that Give Rise to MCPs While not exhaustive, the list below describes measures that are typically considered to give rise to MCPs under the current policy. Different rates for different transactions. The authorities set different exchange rates for different categories of transactions which result in spreads of more than two percent between these rates, or against market rates. This will occur, for example, when the authorities set an official exchange rate for governmental transactions (e.g., servicing external debt, other government operations) which differs by more than two percent from prevailing market rates or other official rates. An MCP will also arise when members impose surrender requirements, whereby certain market participants (e.g., exporters) must sell their FX proceeds at a special rate which differs by more than two percent from the market rate or other official rates. Dual or multiple FX markets. The authorities establish separate exchange markets and the rates at which exchange transactions are conducted by participants in the two markets exceed the permissible spreads. Exchange taxes. A tax payable on exchange transactions is closely enough related to the exchange of currencies to be considered part of the effective exchange rate by increasing the cost of the exchange transaction. 1 If such costs imposed by the authorities exceed two percent, an MCP will arise. Bilateral payments agreements (BPAs). The authorities have an agreement under which two central banks settle current transactions (e.g., imports and exports) between the two countries on pre-defined dates at specific exchange rates, and the exchange rates used in the agreement differ by more than two percent from those prevailing in the FX markets. Exchange guarantee schemes. The authorities put in place a scheme to cover exchange risks of certain market participants (e.g., exporters). Depending on the features of the scheme, the compensation for exchange losses is considered to be part of the effective exchange rate that can give rise to an MCP. 2 FX auctions. The authorities allocate FX outside the auction at a different exchange rate than the auction rate, or the auction rate differs from the market exchange rate, and these rates differ by more than two percent. In addition, a multi-price auction also gives rise to an MCP if the rates at which successful bidders are sold FX at the same auction differ by more than two percent. Import deposit requirements. The authorities require an import deposit to be made before a letter of credit is opened or FX purchased. If the interest rate on the deposits is lower than the prevailing market interest rate, this is considered an additional cost of the FX transaction that can give rise to an MCP. Snip... Multiple Currency Practices and Surveillance 29. Article VIII, Section 3 and Article IV are also closely related. Under Article IV, Fund members undertake to collaborate with the Fund and other members to assure orderly exchange arrangements and to promote a stable system of exchange rates, and to observe several, specific obligations with respect to its domestic economic, financial and exchange rate policies. 29 For its part, the Fund is required to exercise surveillance over each member’s policies. Article VIII, Section 3 is designed to help further that goal. To assist surveillance, both the Integrated Surveillance Decision (“ISD”) and its predecessors have recognized several indicators which may suggest the need for additional consultations between the Fund and a member in order to ensure that the member is in compliance with its Article IV obligations. While the obligations under Article VIII, Section 3 are “in addition” to members’ obligations under Article IV, both provisions deal with members’ exchange rate policies. The Second Amendment eliminated the explicit link between the two articles with respect to permissible spreads (see above) but close links remain. In particular: • While members have the freedom to determine their exchange rate arrangements, this does not permit members to engage in MCPs. • If substantial spreads arise in the market but do not give rise to MCPs (e.g., because they do not arise as a result of official action), the Fund may call on a member to consult with it under the obligation to collaborate with the Fund under Article IV.31 • MCPs may be considered in assessing indicators that may signal the need for additional discussion of compliance with the Principles for the Guidance of Members’ Policies under the ISD. • The approval criteria for MCPs echo the provision of Article IV, Section 1(iii) that prohibits members from manipulating exchange rates to gain an unfair competitive advantage over other members. 29 Under Article IV, Section 1, Fund members shall (i) endeavor to direct its economic and financial policies toward the objective of fostering orderly economic growth with reasonable price stability, with due regard to its circumstances; (ii) seek to promote stability by fostering orderly underlying economic and financial conditions and a monetary system that does not tend to produce erratic disruptions; (iii) avoid manipulating exchange rates or the international monetary system in order to prevent effective balance of payments adjustment or to gain an unfair competitive advantage over other members; and (iv) follow exchange policies compatible with the undertakings under Article IV. 30 The Legal Aspects Paper, p. 26. 31 Before the Second Amendment, on several occasions the Fund relied on the members’ obligation to collaborate set forth in Article IV to either call on or recommend to members that they take certain actions or refrain from taking actions in order to achieve the objectives set forth in this provision. See Article IV of the Fund’s Articles of Agreement – An Overview of the Legal Framework, June 28, 2006, pp. 9-11. 30. In principle, both MCPs and exchange restrictions must be covered in Article IV consultations. 32 In light of the importance of MCPs and exchange restrictions for surveillance, as part of the Article IV consultation staff must determine whether a member has introduced or continues to maintain MCPs or exchange restrictions that require Fund approval or under Article XIV. MCPs and exchange restrictions are required to be identified in the staff report, and the staff appraisal should make a recommendation concerning Board approval. Staff should inform members that failure to notify and seek Fund approval would be a breach of their obligation under the Articles. Box 4. Consultations Under Article IV, Article VIII, and Article XIVConsultations under Articles IV, VIII and XIV: Xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx The Integrated Surveillance Decision (ISD) provides that, in principle, consultations under Article IV shall include the regular consultations under Article VIII and Article XIV, and shall take place annually. 1 During an Article VIII consultation, the Fund assesses any measures (i.e., exchange restrictions and MCPs) maintained by the member which are subject to IMF approval under Article 👉VIII, Sections 2 and 3, and may decide to approve such measures. Under Article XIV, members are required to consult annually as to the further retention of any measures maintained under this article (i.e., those restrictions or MCPs that were in effect on the date it became a member of the Fund). This requirement ceases once the member no longer maintains such measures.👈 The modalities for concluding these consultations differ, as follows: • Article IV: Article IV consultations are typically concluded by way of a summing up, rather than a formal Board decision. • Article VIII: Where approval of an exchange restriction or MCP is not being sought, no formal Board decision is taken. The Board makes a finding of an exchange restriction or MCP in the summing up when it endorses the conclusions of staff set forth in the staff appraisal. Where staff recommends approval of measures subject to Article VIII, and the Board agrees, a formal Board decision is taken. • Article XIV: A formal Board decision is required to conclude the consultation. _________________________________ Snip/s... IMPLICATIONS OF IMPOSITION OF MCPs 33. An unapproved MCP is a breach of a member’s obligations under the Articles and therefore could lead to the imposition of sanctions under Article XXVI, Section 2(a), which sets out possible the legal consequences of a breach of obligation (i.e., ultimately, compulsory withdrawal). In practice, many Fund members have maintained MCPs which would have required approval by the Fund, and have either not requested temporary approval for such MCPs, or the Fund has not approved their maintenance. This places them in breach of their obligations under the Articles. While it would be possible for the Fund to establish a policy framework under which members in breach of their obligations respecting MCPs (or exchange restrictions) would be subject to escalating remedial measures such as a declaration of censure or noncooperation (similar to the procedure for breaches of obligation under Article VIII, Section 5),38 to date the Fund has opted for a collaborative approach and has refrained from applying the sanctions available under Article XXVI, Section 2(a) in such cases.39 Indeed, Management has not to date issued a “complaint” to the Executive Board, the first step in applying sanctions under Article XXVI, Section 2(a), alleging that a member has breached its obligations in respect to Article VIII, Section 3. All found here in THE IMF June update PDF https://www.google.com/url?sa=t&source=web&rct=j&url=https://www.imf.org/~/media/Files/Publications/PP/2019/PPEA2019015.ashx&ved=2ahUKEwjGnp_bs-LjAhVK7J4KHcsmCPIQFjADegQIBxAB&usg=AOvVaw0jCLOA6RRNM0OmVP6mHNah

IMF. 2019 article IV consultation Some notes of mine I made it easy to follow along imo 🤓 Avail.....verb LITERARY help or benefit Iraq continues to avail itself of the transitional arrangements under Article XIV, Section 2 but no longer maintains any exchange restrictions or multiple currency practices subject to Article XIV, Section 2, and currently maintains one multiple currency practice (MCP) subject to Fund approval under Article VIII, Section 3. (30) (Sub note: 30) xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx The authorities have imposed a requirement that, to access the CBI foreign exchange window, a purchaser must have at least one bank account that has been opened for a minimum of six months. This requirement does not apply for access to foreign exchange from other sources, including purchases of foreign exchange from commercial banks’ own resources. Staff will monitor the implementation of this requirement to ascertain whether any undue burdens on access to foreign exchange for current international transactions emerge from its application in practice. Xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx The MCP arises from the lack of a mechanism to ensure that the exchange rate at the CBI foreign exchange window and the market rates (retail exchange rates of commercial banks and exchange bureaus for the sale of foreign currency from sources other than the CBI foreign exchange window) do not deviate from each other by more than 2 percent. A previously identified exchange restriction arising from an Iraqi balance owed to Jordan under an inoperative bilateral payment agreement has been eliminated. ---------------‐ Article XIV Section 2. Exchange restrictions A member that has notified the Fund that it intends to avail itself of transitional arrangements under this provision may, notwithstanding the provisions of any other articles of this Agreement, maintain and adapt to changing circumstances the restrictions on payments and transfers for current international transactions that were in effect on the date on which it became a member. Members shall, however, have continuous regard in their foreign exchange policies to the purposes of the Fund, and, as soon as conditions permit, they shall take all possible measures to develop such commercial and financial arrangements with other members as will facilitate international payments and the promotion of a stable system of exchange rates. In particular, members shall withdraw restrictions maintained under this Section as soon as they are satisfied that they will be able, in the absence of such restrictions, to settle their balance of payments in a manner which will not unduly encumber their access to the general resources of the Fund. Article VIII Section 3. Avoidance of discriminatory currency practices No member shall engage in, or permit any of its fiscal agencies referred to in Article V, Section 1 to engage in, any discriminatory currency arrangements or multiple currency practices, whether within or outside margins under Article IV or prescribed by or under Schedule C, except as authorized under this Agreement or approved by the Fund. If such arrangements and practices are engaged in at the date when this Agreement enters into force, the member concerned shall consult with the Fund as to their progressive removal unless they are maintained or imposed under Article XIV, Section 2, in which case the provisions of Section 3 of that Article shall apply. Article V (Section 1. Agencies dealing with the Fund Each member shall deal with the Fund only through its Treasury, central bank, stabilization fund, or other similar fiscal agency, and the Fund shall deal only with or through the same agencies.) Article IV: Obligations Regarding Exchange Arrangements 1. General obligations of members 2. General exchange arrangements 3. Surveillance over exchange arrangements 4. Par values 5. Separate currencies within a member's territories [ ] Schedule "C" Schedule 😄 Par Values 1. The Fund shall notify members that par values may be established for the purposes of this Agreement, in accordance with Article IV, Sections 1, 3, 4, and 5 and this Schedule, in terms of the special drawing right, or in terms of such other common denominator as is prescribed by the Fund. The common denominator shall not be gold or a currency. 2. A member that intends to establish a par value for its currency shall propose a par value to the Fund within a reasonable time after notice is given under 1 above. 3. Any member that does not intend to establish a par value for its currency under 1 above shall consult with the Fund and ensure that its exchange arrangements are consistent with the purposes of the Fund and are adequate to fulfill its obligations under Article IV, Section 1. XXXXXXXXXXXXXXXXXXXXXXXXXXXXX (Article IV Section 1) Section 1. General obligations of members Recognizing that the essential purpose of the international monetary system is to provide a framework that facilitates the exchange of goods, services, and capital among countries, and that sustains sound economic growth, and that a principal objective is the continuing development of the orderly underlying conditions that are necessary for financial and economic stability, each member undertakes to collaborate with the Fund and other members to assure orderly exchange arrangements and to promote a stable system of exchange rates. In particular, each member shall: XXXXXXXXXXXXXXXXXXXXXXXXXXXXXX 4. The Fund shall concur in or object to a proposed par value within a reasonable period after receipt of the proposal. A proposed par value shall not take effect for the purposes of this Agreement if the Fund objects to it, and the member shall be subject to 3 above. The Fund shall not object because of the domestic social or political policies of the member proposing the par value. 5. Each member that has a par value for its currency undertakes to apply appropriate measures consistent with this Agreement in order to ensure that the maximum and the minimum rates for spot exchange transactions taking place within its territories between its currency and the currencies of other members maintaining par values shall not differ from parity by more than four and one-half percent or by such other margin or margins as the Fund may adopt by an eighty-five percent majority of the total voting power. 6. A member shall not propose a change in the par value of its currency except to correct, or prevent the emergence of, a fundamental disequilibrium. A change may be made only on the proposal of the member and only after consultation with the Fund. 7. When a change is proposed, the Fund shall concur in or object to the proposed par value within a reasonable period after receipt of the proposal. The Fund shall concur if it is satisfied that the change is necessary to correct, or prevent the emergence of, a fundamental disequilibrium. The Fund shall not object because of the domestic social or political policies of the member proposing the change. A proposed change in par value shall not take effect for the purposes of this Agreement if the Fund objects to it. If a member changes the par value of its currency despite the objection of the Fund, the member shall be subject to Article XXVI, Section 2. Maintenance of an unrealistic par value by a member shall be discouraged by the Fund. 8. The par value of a member's currency established under this Agreement shall cease to exist for the purposes of this Agreement if the member informs the Fund that it intends to terminate the par value. The Fund may object to the termination of a par value by a decision taken by an eighty-five percent majority of the total voting power. If a member terminates a par value for its currency despite the objection of the Fund, the member shall be subject to Article XXVI, Section 2. A par value established under this Agreement shall cease to exist for the purposes of this Agreement if the member terminates the par value despite the objection of the Fund, or if the Fund finds that the member does not maintain rates for a substantial volume of exchange transactions in accordance with 5 above, provided that the Fund may not make such finding unless it has consulted the member and given it sixty days notice of the Fund's intention to consider whether to make a finding. 9. If the par value of the currency of a member has ceased to exist under 8 above, the member shall consult with the Fund and ensure that its exchange arrangements are consistent with the purposes of the Fund and are adequate to fulfill its obligations under Article IV, Section 1. 10. A member for whose currency the par value has ceased to exist under 8 above may, at any time, propose a new par value for its currency. 11. Notwithstanding 6 above, the Fund, by a seventy percent majority of the total voting power, may make uniform proportionate changes in all par values if the special drawing right is the common denominator and the changes will not affect the value of the special drawing right. The par value of a member's currency shall, however, not be changed under this provision if, within seven days after the Fund's action, the member informs the Fund that it does not wish the par value of its currency to be changed by such action.