Last Friday's Wall Street Journal (page A1 in the print edition) contained an article that I'm sure had people all over the world reaching for their violins. The headline really said all you need to know:
Booming Economy Leaves the IMF Groping for Mission
With Fewer Global Deadbeats, The Agency Loses Clout, And a Source of Income
Well, shed no tears, dear reader. Bloomberg's Andy Mukherjee reports that the G-7 is coming to the rescue:
Having seen the futility of trying to browbeat China into accepting a stronger currency, the Group of Seven industrial nations has decided to outsource the task.
The job has now gone to the International Monetary Fund. Or so it appears from the G-7 finance ministers' statement at the end of their recently concluded meeting in Washington.
In their April 21 statement, the G-7 finance ministers reiterated that ``greater exchange rate flexibility is desirable in emerging economies with large current account surpluses, especially China.''
In the same breath, the ministers vowed to "support a new remit for bilateral and multilateral surveillance by the IMF'' and added that "an ad hoc quota increase would help better to reflect members' international economic weight.''
Surveillance, at its core, is all about the IMF using its unique mandate to monitor economic policies of member countries and imposing its will on any nation that is endangering global financial stability...
One of [U.S. Treasury's undersecretary of international affairs Tim] Adams's proposals was for the Fund to hold "special consultations'' with countries whose exchange rates were found to be grossly misaligned. The IMF has tried such consultations, a euphemism for organized arm-twisting, only twice in its history - - with Sweden in 1982 and South Korea in 1987.
John Williamson, a senior fellow at the Institute for International Economics in Washington, has made a case for the IMF to publish reference exchange rates for its member economies. Along with internationally accepted rules on the purchase and sale of foreign currencies by central banks, the reference rates are supposed to force countries with skewed exchange rates toward the equilibrium.
I suppose that, in a twisted sort of way, this would move the IMF back toward its original mandate. But is this really a good idea?