Bundesbank president Axel Weber has suggested that the IMF’s nascent multilateral exchange rate surveillance process should focus on broader policy, rather than the specific levels of major currencies. Weber urged that the debate be refocused in an interview with Emerging Markets. “This is a normative judgement based on models, and we all know there are a multitude of models that will give you a broad range of answers”, he said.
Weber emphasized the importance of flexibility in “the general surveillance framework”, with respect to trade as well as exchange rates. “This is about whether to adopt market-based exchange rates, to open the current account, the trade balance, and the liberalization of the capital flows, both inward and outward.”
Asked about capital flows, Weber noted that policies in this regard are linked to the growth of large sovereign wealth funds in emerging markets. “The question is: will emerging market economies channel their investment flows privately, or only through government sources, through sovereign wealth funds?”
Weber also underlined the IMF’s “clear mandate” to focus on issues relevant to international financial stability, but argued that some countries would still need more attention than others.
“The issue is one of balance, focusing on countries where work is needed on policy advice, rather than focusing equally on all member countries. Even-handedness should be interpreted as a similar degree of attention for similar risks.”
In any event, Weber said he did not expect firm conclusions from the current meetings, as members would want to give the incoming managing director, Dominique Strauss-Kahn, an opportunity to present his own vision for the Fund’s core activities. On the European economy, Weber noted that the strength of the euro was “not the only risk” for Europe, as it comes alongside the high oil price and unwinding of the sub-prime story in the US – and he reiterated the IMF’s projection of overall steady global growth.