Explanation of IMF 90-Day Rule

[Floridian]

4-4-2018   Newshound Guru Kaperoni   There continues to be people challenging the IMF rule about waiting 90 days to meet compliance. This 90 days is critical as described as a "financial soundness indicator." In other words, the IMF wants the CBI to prove themselves they are ready for Article VIII.  Quote:   “The exchange rate may fluctuate within narrow margins of less than ±1 percent around a central rate, or the maximum and minimum values of the exchange rate may remain within a narrow margin of 2 percent for at least three months.”

[jeepguy]

and  some folks think the  90 day start 60 days ago , and some think it has already passed , as in "  the 90 days has passed " and the central bank of Iraq let out the statement  " Central Bank: We have succeeded in ending the exchange rate gap  "   and this quote seems to say it all  !   ( they started in the first of the new year and now it has been completed ...   and they even added the following   "The reform carried out by the Central Bank, based on three axes, the first close the exchange rate gap, Carrying out financial inclusion and settling salaries and the third related to the process of technical development within the banking system".   ----- >so  as we  talk about why the dinar is still idle as  toilet paper in the  septic tank  , we  are on the same page as  lets watch the elections !  if abidie  thinks he has a shoe in election he will not do anything for his followers , and  in return  will be  just like  the last guy  ( malarkey )   although  abidie  has made super great strides in his  few years as prime minister  or president  which ever he is ,  (  what would make his name stand out for quite a long time would be to give the h-c-l  too all ---- and  also finally push the dinar value  up  both at the same time frame ,  why would any one  look at him with  a dinar value so bad  , and say  he was a great leader  , he gave us  oil profit sharing , which only buys us  --- 1) loaf of bread and  one shoe , not 2   ...  so in my opinion  if he is for the people   election  will be  something to watch and hopefully the Iraqi people will have a hell of a week of festival !     

[csd9013]

52 minutes ago, Botzwana said:

I don´t think Abadi has the power to do an RV.  That is only for the CBI to do.

Abadi might not have the actual power to do an RV but he has the power to influence the CBI.

[normala rashid]

4 hours ago, Botzwana said:

I don´t think Abadi has the power to do an RV.  That is only for the CBI to do.

We need batman 

[DinarThug]

1 hour ago, normala rashid said:

We need batman 

 

Sorry - The Best That We’ve Got Is A Joker !  

 

 

     

[zul]

7 hours ago, Floridian said:

The exchange rate may fluctuate within narrow margins of less than ±1 percent around a central rate, or the maximum and minimum values of the exchange rate may remain within a narrow margin of 2 percent for at least three months.”

 

Sorry Kap, that is not a pre-req for article 8 compliance or the 90-day rule. 

What u have there is an explaination on exchange rate policy that falls under "Other Conventional Fixed Peg Arrangements" 

 

Title of IMF Article:

Classification of Exchange Rate Arrangements and Monetary Policy Frameworks.

 

Basically, it distinguishes among different forms of exchange rate regimes, in addition to arrangements with no separate legal tender, to help assess the implications of the choice of exchange rate arrangement for the degree of monetary policy independence. 

 

Category : Other Conventional Fixed Peg Arrangements.

 

The country (formally or de facto) pegs its currency at a fixed rate to another currency or a basket of currencies, where the basket is formed from the currencies of major trading or financial partners and weights reflect the geographical distribution of trade, services, or capital flows. The currency composites can also be standardized, as in the case of the SDR. There is no commitment to keep the parity irrevocably. The exchange rate may fluctuate within narrow margins of less than ±1 percent around a central rate-or the maximum and minimum value of the exchange rate may remain within a narrow margin of 2 percent-for at least three months. The monetary authority stands ready to maintain the fixed parity through direct intervention (i.e., via sale/purchase of foreign exchange in the market) or indirect intervention (e.g., via aggressive use of interest rate policy, imposition of foreign exchange regulations, exercise of moral suasion that constrains foreign exchange activity, or through intervention by other public institutions). Flexibility of monetary policy, though limited, is greater than in the case of exchange arrangements with no separate legal tender and currency boards because traditional central banking functions are still possible, and the monetary authority can adjust the level of the exchange rate, although relatively infrequently.

http://www.imf.org/external/np/mfd/er/2004/eng/0604.htm#fn1

 

[Floridian]

7 hours ago, zul said:

 

Sorry Kap, that is not a pre-req for article 8 compliance or the 90-day rule. 

What u have there is an explaination on exchange rate policy that falls under "Other Conventional Fixed Peg Arrangements" 

 

Title of IMF Article:

Classification of Exchange Rate Arrangements and Monetary Policy Frameworks.

 

Basically, it distinguishes among different forms of exchange rate regimes, in addition to arrangements with no separate legal tender, to help assess the implications of the choice of exchange rate arrangement for the degree of monetary policy independence. 

 

Category : Other Conventional Fixed Peg Arrangements.

 

The country (formally or de facto) pegs its currency at a fixed rate to another currency or a basket of currencies, where the basket is formed from the currencies of major trading or financial partners and weights reflect the geographical distribution of trade, services, or capital flows. The currency composites can also be standardized, as in the case of the SDR. There is no commitment to keep the parity irrevocably. The exchange rate may fluctuate within narrow margins of less than ±1 percent around a central rate-or the maximum and minimum value of the exchange rate may remain within a narrow margin of 2 percent-for at least three months. The monetary authority stands ready to maintain the fixed parity through direct intervention (i.e., via sale/purchase of foreign exchange in the market) or indirect intervention (e.g., via aggressive use of interest rate policy, imposition of foreign exchange regulations, exercise of moral suasion that constrains foreign exchange activity, or through intervention by other public institutions). Flexibility of monetary policy, though limited, is greater than in the case of exchange arrangements with no separate legal tender and currency boards because traditional central banking functions are still possible, and the monetary authority can adjust the level of the exchange rate, although relatively infrequently.

http://www.imf.org/external/np/mfd/er/2004/eng/0604.htm#fn1

 

 

Thanks, Zul.

I hope ReVbo sees this.  I would like to get his thoughts on it.  He, among others on Kaperoni's board are big believers in his theory as they have also read the IMF documents themselves.

[ReVbo]

It’s been a long time, Floridian, and I really don’t want to do all the research again, but I’ve seen lots of references to the 2% rule from the IMF over the years. I don’t know that it HAS to go for three months, but the IMF was never going to allow a move to Article 8 while the multiple currency practice (spread between the official rate and market rate being excessive) was going on. 

 

Here’s the link to the IMF definition of MCP:

 

http://www.imf.org/external/SelectedDecisions/Description.aspx?decision=6790-(81/43)

 

• (i) Action by a member or its fiscal agencies that of itself gives rise to a spread of more than 2 percent between buying and selling rates for spot exchange transactions between the member’s currency and any other member’s currency would be considered a multiple currency practice and would require the prior approval of the Fund.

 

 

[Floridian]

4 hours ago, ReVbo said:

It’s been a long time, Floridian, and I really don’t want to do all the research again, but I’ve seen lots of references to the 2% rule from the IMF over the years. I don’t know that it HAS to go for three months, but the IMF was never going to allow a move to Article 8 while the multiple currency practice (spread between the official rate and market rate being excessive) was going on. 

 

Here’s the link to the IMF definition of MCP:

 

http://www.imf.org/external/SelectedDecisions/Description.aspx?decision=6790-(81/43)

 

• (i) Action by a member or its fiscal agencies that of itself gives rise to a spread of more than 2 percent between buying and selling rates for spot exchange transactions between the member’s currency and any other member’s currency would be considered a multiple currency practice and would require the prior approval of the Fund.

 

 

 

Thanks, ReVbo.  I appreciate it.  

[zul]

7 hours ago, ReVbo said:

It’s been a long time, Floridian, and I really don’t want to do all the research again, but I’ve seen lots of references to the 2% rule from the IMF over the years. I don’t know that it HAS to go for three months, but the IMF was never going to allow a move to Article 8 while the multiple currency practice (spread between the official rate and market rate being excessive) was going on. 

 

Here’s the link to the IMF definition of MCP:

 

http://www.imf.org/external/SelectedDecisions/Description.aspx?decision=6790-(81/43)

 

• (i) Action by a member or its fiscal agencies that of itself gives rise to a spread of more than 2 percent between buying and selling rates for spot exchange transactions between the member’s currency and any other member’s currency would be considered a multiple currency practice and would require the prior approval of the Fund.

 

 

 

Hi Revbo 

Nice to see u here again. 

 

I agree with you that IMF continues to remind Iraq to do away with the MCP.

However, MCP is not only about the 2%. That is only 1 part of the problem. 

According to IMF: "The MCP arises from the official action:

1. to limit the purchase of foreign exchange,

2. with no mechanism to ensure that exchange rates in the official auction and in the market do not deviate from each other by more than two percent."

 

There is no way, in my mind, CBI could make sure that the official rate vs market rate will always stay within 2% IF they can't fulfill the market demands for USD (meaning ~ if they continue to limit the foreign exchange)

 

So how do you close the gap? To always remain within 2%

~ liberalize FULLY the supply of foreign currency (USD). This is the mechanism IMF is talking about. 

When foreign exchange is fully liberalize, supply = demand, exchange rate will stabilize.

 

Kap is looking at the downstream process whereas the real problem upstream. 

 

The next question is.....can u (CBI) liberalize fully the supply of USD, to meet the demand of the market, while u r under article 14 WITHOUT draining your foreign reserves?

 

 

[skeetdog]

19 minutes ago, zul said:

The next question is.....can u (CBI) liberalize fully the supply of USD, to meet the demand of the market, while u r under article 14 WITHOUT draining your foreign reserves?

....This's a 'tater'...Uh...Umm..."No"....