Shinji Takagi

Masahiro Kawai

A coordinated action by East Asian countries to stabilize their currencies against a common basket of major currencies (broadly representative of their average structure of trade and foreign direct investment) would help stabilize both intraregional exchange rates and effective exchange rates, in a way consistent with the medium-term objective of promoting trade investment and growth in the region.

Proposed Strategy for a Regional Exchange Rate Arrangement in Post-crisis East Asia

Conquering the Fear of Freedom presents an analytical review of Japanese exchange rate policy from the end of World War II to the present. It examines how authorities, starting with the imposition of draconian controls over all international financial flows, moved toward eliminating virtually all state interference regulating foreign exchange transactions, including official intervention in the foreign exchange market. It describes how policy and institutional frameworks evolved, explains their domestic and international contexts, and assesses the impacts and consequences of policy actions. Following successful exchange rate-based stabilization in the early 1950s, Japan entered the world trading system with an overvalued currency, which helped perpetuate exchange and capital controls. As the culture of administrative control became ingrained, Japan took a decidedly gradualist approach to establishing current and capital account convertibility. The protracted capital account liberalization, coupled with slow domestic financial liberalization, created large swings in the yen's exchange rate when it was floated in the 1970s. Politicization by major trading partners of Japan's large bilateral trade surplus pressured authorities to subordinate domestic stability to external objectives. The ultimate outcome was costly: from the late 1980s, Japan successively experienced asset price inflation, a banking crisis, and economic stagnation. The book concludes by arguing that the shrinking trade surplus against the background of profound structural changes, the rise of China that has diminished the political intensity of any remaining bilateral economic issues, and the world's sympathy over two decades of deflation have given Japan, at least for now, the freedom to use macroeconomic policies for domestic purposes.

Japanese Exchange Rate Policy Since 1945

Conquering the Fear of Freedom

Japanese Exchange Rate Policy since 1945

International Monetary Fund. Independent Evaluation Office

IMF Independent Evaluation Office

Kevin Barnes

International Monetary Fund, Independent Evaluation Office

Benjamin H. Cohen

Ali M. Mansoor

The report focuses on the role of the IMF in three recent currency crises in Indonesia (1997-98), Korea (1997-98), and Brazil (1998-99). The evaluation examines the internal processes by which important decisions were made by IM. In the case of Indonesia, IMF surveillance did identify vulnerabilities in the banking sector, but underestimated the potential macroeconomic risks posed by them. In Korea, IMF surveillance failed adequately to identify the risks posed by the uneven pace of capital account liberalization and the extent of banking sector weaknesses, owing to the adoption of a conventional approach that focused on macroeconomic variables.In Brazil, IMF surveillance was successful in identifying key vulnerabilities, in part owing to the fact that they were largely macroeconomic in nature. However, it progressively downplayed the scale of overvaluation, and had little impact in persuading the Brazilian authorities to take sufficient corrective action even in areas where the diagnosis was correct. This report also includes recommendations on how IMF can improve its procedures.

The IMF and Recent Capital Account Crises: Indonesia, Korea, Brazil

Shinji Takagi

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