ME

Foreign Exchange Basics
Definition of a Currency Pair

The value of a currency is determined by its comparison to
another currency. The first currency of a currency pair is called
the "base currency", and the second currency is called the
"quote currency". The currency pair shows how much of the
quote currency is needed to purchase one unit of the base
currency.
Eg USD/INR: USD is the base currency & INR is the quote

(counter) currency (INR per 1 USD)
Buying & Selling A Currency Pair
•All forex trades involve the simultaneous buying of one
currency and selling of another.
•The currency pair itself can be thought of as a single unit, an

instrument that is bought or sold. If you buy a currency pair,
you buy the base currency and sell the quote currency.
•When you sell the currency pair, you sell the base currency
and receive the quote currency
Major Currency Pairs
• Major currency pairs all contain
the US Dollar on one side –
either on the base side or quote
side.
• They are the most frequently
traded pairs in the FOREX
market.
• The majors generally have the
lowest spread (difference
between bid and ask rates) and
are the most liquid.
• The EUR/USD is the most
traded pair. Less volatile due to
high liquidity.
• Combined trade value of these
pairs accounts for over 85% of
the total global forex trade.
Minor Currency Pairs
• Currency pairs that do not contain
the US Dollar are known as cross-
currency pairs or simply “crosses”.
• Historically, if we wanted to convert a
currency, we would have had to first
convert the currency into US dollars
and then into the currency which we
desired.
• With the introduction of currency
crosses we no longer have to do this
tedious calculation as all brokers now
offer the direct exchange rates.
• The most active crosses are derived
from the three major non-US dollar
currencies (the Euro, the UK Pound
and Yen).
• These currency pairs are also known
as minors.
Exotic Currencies
• Exotic currency pairs are
made up of a major currency
paired with the currency of an
emerging or a strong but
smaller economy from a
global perspective.
• These pairs are not traded as

often as the majors or minors,
so often the cost of trading
these pairs can be higher than
the majors or minors due to
the lack of liquidity in these
markets.
• High interest rate differentials

and frequent price fluctuations
provide opportunities for
higher returns, but with a
higher risk factor.
Freely Convertible Currencies
Freely convertible currencies (also called as fully

convertible currencies) are those that anyone can convert
into another foreign currency without restrictions or
interventions by government of the original country, at the
market determined exchange rate.
Eg. USD, Euro, JPY, GBP, Swiss Franc
Note: Indian Rupee is a partially convertible currency.

Exchange Rate Determinants
Rupee Trend in 2020 and 2021
• From a year’s high of 70.73 to a low of over 77 and finally settling around
73.22 with nearly 3% YoY depreciation (2020)
• Rupee remained one of the most affected and worst-performing emerging

market currencies.
• While major Asian currencies have appreciated against the US dollar such as
Chinese yuan by 6.10 per cent, Korean won by 5.50 per cent and Malaysian
ringgit by 1 per cent, the Indian rupee depreciated by 3.10 per cent
• Why did the rupee depreciate in 2020?

Reasons for Rupee Depreciation
• COVID Pandemic
• Growth Concerns
• Fiscal deficit
• Widening trade deficits
- Since June 2019, India’s exports have been negative for 15 of the past 17
months
• High Inflation
• RBI Dollar buying
Rupee Appreciation in 2021
• Rupee is up by 4% against the US dollar for FY21 despite having much
higher interest rates and inflation than the US.
• Sustained foreign fund inflows into India's listed stocks ensured a strong year
for the Indian currency.
• For 2021-22, foreign investors have poured in $35.22 billion, the biggest
inflow since 2014-15. India’s performance best among emerging markets.
Most emerging markets witnessed outflows
• India has attracted the highest-ever FDI inflows at $67.54 billion during the
first nine months of the financial year 2020-21.
• Exports jumped by 58.23 per cent to $34 billion in March 2021 as key sectors
such as engineering, gems and jewellery and pharmaceuticals recorded
healthy growth rate during the month
• Exports during April-March 2020-21, however, dipped by 7.4 per cent to

$290.18 billion
• imports contracted by 10.89 per cent to $306.67 billion

Challenges for the rupee ahead
• Federal Reserve interest rate hike and US tax hike are the major challenges
• Slow and steady tapering of asset purchases before the end of the year,
possibly involving a twist which may keep all emerging market currencies
• US-China cold war, pick-up in global crude oil prices, increase in India's
imports compared to exports, and fears of the current account falling into
deficit may also put pressure on the rupee.
• RBI would cap the rupee from appreciating sharply because of export
competitiveness
• Strengthening of oil prices, which could see twin deficits in the form of
current and fiscal accounts, will weigh on the currency.
• Global growth, vaccine rollouts, economic recovery will all determine where
the rupee goes
USDX
• The U.S. Dollar Index (DXY)

tracks the strength of the
dollar against a basket of
currencies.
Dollar Depreciation
• Global recovery from pandemic
• Expectation of economic boon as vaccines arrive
• Dollar loses safe haven status
• US Fed interest rates at an all time low
• Investors moving away from dollar
• Massive stimulus packages, spending
• Expectation of higher corporate taxes/foreign demand for US equities falls
• Global commodity prices moving up
• High twin deficits (CAD 3.1% in 2020- a 12-yr high, 2.2% in 2019, FD $3.1
trillion- 15.2% of GDP, Largest since 1945)
Factors Impacting Exchange Rates
• Inflation
• Interest Rates/Monetary Policy
• Current Account Deficit
• Fiscal Deficit
• External Debt
• Political/Geopolitical Events
• Central Bank actions
• Exchange rate regimes
• Capital Inflows/Outflows
• Economic health
• Financial Sector strength/vulnerabilities
Exchange Rates
Brief Introduction and Types of Exchange Rates

USD Turkish Lira Exchange Rate Trend
Depreciation- 45% since mid-2018, 30%

in 2020
Lira depreciation: Geopolitical tensions
(US, Armenia-Azerbaijan conflict,
strained relations with EU over
migration)
Steep interest rate cuts & fiscal spending,
high inflation, high short-term external
debt and falling forex reserves.
https://www.xe.com/currencycharts/?from=USD&to=TRY&view=10Y
USD Saudi Riyal Exchange Rate Trend
https://www.xe.com/currencycharts/?from=USD&to=SAR&view=10Y
What Is The International Monetary System?
The international monetary system refers to the institutional arrangements

that countries adopt to govern exchange rates
Types of Exchange Rates
• A floating exchange rate system exists when a country allows the foreign
exchange market to determine the relative value of a currency
• the U.S. dollar, the EU euro, the Japanese yen, and the British pound all float freely
against each other
• their values are determined by market forces and fluctuate day to day
• A pegged exchange rate system exists when a country fixes the value of its
currency relative to a reference currency
• Many Gulf states peg their currencies to the U.S. dollar
• A dirty float/managed float exists when a country tries to hold the value of its
currency within some range of a reference currency such as the U.S. dollar
• India, Brazil, Indonesia, Philippines, Turkey
IMF Classification of Exchange Rate Regimes
Type Categories
Hard Pegs No Separate Currency Board

Legal Tender
Soft Pegs Conventional Pegged Stabilized Crawling Crawl-like
Peg Exchange rates arrangement peg arrangement
within
horizontal bands
Floating Floating Free floating

regimes (managed
(market- float)
determined)
Residual Other
managed
arrangements
Source: IMF Annual Report on Exchange Rate Arrangements 2014
IMF Annual Report on Exchange Arrangements and Exchange Restrictions 2019
Hard Pegs
• Exchange arrangements with no separate legal tender (13
countries)
The currency of another country circulates as the sole legal
tender (formal dollarization), Adopting such regimes implies
the complete surrender of the monetary authorities' control over
domestic monetary policy.
Eg. Ecuador, El Salvador, Panama, Kosovo, Montenegro,
Kiribati, Tuvalu
• Currency board arrangements (11 countries)
A monetary regime based on an explicit legislative
commitment to exchange domestic currency for a
specified foreign currency at a fixed exchange rate,
combined with restrictions on the issuing authority to ensure
the fulfillment of its legal obligation. This implies that domestic
currency will be issued only against foreign exchange and that
domestic money supply remains fully backed by foreign assets
Eg. Hong Kong, Djibouti, Bulgaria, Brunei
Soft Pegs
• Conventional Peg (42 countries)
The country pegs its currency within margins of ±1 percent or less
(fluctuation allowed less than ±1%) vis-à-vis another currency or a basket
of currencies. 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. Country authorities stand ready to maintain the
fixed parity through direct or indirect investment.
Eg. Saudi Arabia, Jordan, Oman, Qatar, UAE, Bahrain, Denmark, Nepal,
Bhutan & several African countries
….Soft Pegs
• Crawling Peg (3 countries)
The domestic currency is pegged to another currency or basket of currencies at
an established target rate. The target rate is adjusted periodically in small
amounts at a fixed rate or in response to changes in selective
quantitative indicators, such as past inflation differentials vis-à-vis major
trading partners, differentials between the inflation target and expected
inflation in major trading partners. The exchange rate remains within +/- 1%
relative to the targeted value.
Eg. Nicaragua, Botswana, Honduras
• Crawl Like Arrangements (18 countries)
The domestic currency is pegged to another currency or basket of currencies.
The exchange rate must remain in a narrow band of 2% relative to a
“statistically identified trend” (with the exception of a specified number
of outliers) for at least 6 months. An arrangement is considered crawl-like
with an annualized rate of change of at least 1%, provided the exchange rate
appreciates or depreciates in a sufficiently monotonic and continuous manner
Eg. Bangladesh, Sri Lanka, Tunisia, Singapore, Tanzania
• Stabilized Arrangement (25 countries)
Classification as a stabilized arrangement entails a spot market
exchange rate that remains within a margin of 2% for six months
or more (with the exception of a specified number of outliers) and
is not floating. The required margin of stability can be met either with
respect to a single currency or a basket of currencies, where the anchor
currency or the basket is ascertained or confirmed using statistical
techniques. Classification as a stabilized arrangement requires that the
statistical criteria are met and that the exchange rate remains stable as
a result of official action. The classification does not imply a policy
commitment on the part of the country authorities.
Eg. Iran, Vietnam, Nigeria, Lebanon, Egypt
….Soft Pegs
• Pegged Exchange Rates within Horizontal Bands (1 country)
The domestic currency is pegged to another currency or group of currencies.
The value of the currency is maintained within certain margins of fluctuation
of at least ±1% around a fixed central rate, or a margin between the
maximum and minimum value of the exchange rate that exceeds 2%.
Usually, the exchange rate is maintained within bands that are wider than +/-
1% of the established target.
Eg Tonga
Floating
• Managed Floating/Floating (35 countries)
Exchange rates are largely market determined without
obvious policy interference. Intervention can be direct or
indirect, but only serves to “moderate the rate of change
and prevent undue fluctuations in the exchange rate.” The
monetary authority attempts to influence the exchange
rate without having a specific exchange rate path or
target.
Eg. India, Brazil, South Africa, Thailand, Philippines,
Indonesia, South Korea, Turkey, Switzerland
• Independently or Freely Floating (31 countries)
The exchange rate is market-determined and intervention
occurs only “exceptionally” with the aim being to calm
markets.
Eg. U.S., U.K., Japan, Australia, Canada, Sweden, Mexico,
all countries in the Euro zone
Residual
• Other Managed Arrangements (13 countries)
A residual category, which captures countries that cannot be placed into
others. Countries in this category are typically characterized by frequent
changes in policy.
Eg. Cambodia, Syria, Pakistan, Afghanistan
Exchange Rates
Evolution of the International Monetary System

What Was The Gold Standard?
• The gold standard refers to a system in which countries peg currencies to
gold and guarantee their convertibility
• the gold standard dates back to ancient times when gold coins were a medium of
exchange, unit of account, and store of value
• payment for imports was made in gold or silver
• later, payment was made in paper currency which was linked to gold at a fixed
rate
• in the 1880s, most nations followed the gold standard
• $1 = 23.22 grains of “fine” (pure) gold
• the gold par value refers to the amount of a currency needed to purchase one
ounce of gold
Why Did The
Gold Standard Make Sense?
• The great strength of the gold standard was that it contained a powerful
mechanism for achieving balance-of-trade equilibrium by all countries
• when the income a country’s residents earn from its exports is equal to the
money its residents pay for imports
• It is this feature that continues to prompt calls to return to a gold standard
Why Did The
• The gold standard worked well from the 1870s until 1914
• but, many governments financed their World War I expenditures by printing
money and so, created inflation
• People lost confidence in the system
• demanded gold for their currency putting pressure on countries' gold reserves,
and forcing them to suspend gold convertibility
• By 1939, the gold standard was dead
What Was The Bretton Woods System?
• In 1944, representatives from 44 countries met at Bretton Woods, New
Hampshire, to design a new international monetary system that would
facilitate postwar economic growth
• Under the new agreement
• a fixed exchange rate system was established
• all currencies were fixed to gold, but only the U.S. dollar was directly convertible
to gold
• devaluations could not to be used for competitive purposes
• a country could not devalue its currency by more than 10% without IMF approval
What Institutions Were Established At Bretton Woods?
• The Bretton Woods agreement also established two multinational
institutions
1. The International Monetary Fund (IMF) to maintain order in the
international monetary system through a combination of discipline
and flexibility
2. The World Bank to promote general economic development
• also called the International Bank for Reconstruction and Development
(IBRD)
2. The World Bank
• Countries can borrow from the World Bank in two ways
1. Under the IBRD scheme, money is raised through bond sales in the
international capital market
• borrowers pay a market rate of interest - the bank's cost of funds plus a margin
for expenses.
2. Through the International Development Agency, an arm of the bank
created in 1960
• IDA loans go only to the poorest countries
Why Did The Fixed Exchange Rate System Collapse?
• Bretton Woods worked well until the late 1960s
• It collapsed when huge increases in welfare programs and the Vietnam War were
financed by increasing the money supply and causing significant inflation
• other countries increased the value of their currencies relative to the U.S. dollar in
response to speculation the dollar would be devalued
• However, because the system relied on an economically well managed U.S., when
the U.S. began to print money, run high trade deficits, and experience high inflation,
the system was strained to the breaking point
• the U.S. dollar came under speculative attack
What Was The Jamaica Agreement?
• A new exchange rate system was established in 1976 at a meeting in
Jamaica
• The rules that were agreed on then are still in place today
• Under the Jamaican agreement
• floating rates were declared acceptable
• gold was abandoned as a reserve asset
• total annual IMF quotas - the amount member countries contribute to the IMF -
were increased to $41 billion – today they are about $657 billion
Exchange Rate Systems Prevalent in the World Today
Residual/Other
Managed Hard Peg
7% 13%
Floating
34%
Soft Peg
46%
Source: IMF Annual Report on Exchange Arrangements and Exchange Restrictions 2019
Foreign Exchange Basics
Definition of a Currency Pair
The value of a currency is determined by its comparison to
another currency. The first currency of a currency pair is called
the "base currency", and the second currency is called the
"quote currency". The currency pair shows how much of the
quote currency is needed to purchase one unit of the base
currency.
Eg USD/INR: USD is the base currency & INR is the quote

(counter) currency (INR per 1 USD)
Buying & Selling A Currency Pair
•All forex trades involve the simultaneous buying of one
currency and selling of another.
•The currency pair itself can be thought of as a single unit, an

instrument that is bought or sold. If you buy a currency pair,
you buy the base currency and sell the quote currency.
•When you sell the currency pair, you sell the base currency
and receive the quote currency
Major Currency Pairs
• Major currency pairs all contain
the US Dollar on one side –
either on the base side or quote
side.
• They are the most frequently
traded pairs in the FOREX
market.
• The majors generally have the
lowest spread (difference
between bid and ask rates) and
are the most liquid.
• The EUR/USD is the most
traded pair. Less volatile due to
high liquidity.
• Combined trade value of these
pairs accounts for over 85% of
the total global forex trade.
Minor Currency Pairs
• Currency pairs that do not contain
the US Dollar are known as cross-
currency pairs or simply “crosses”.
• Historically, if we wanted to convert a
currency, we would have had to first
convert the currency into US dollars
and then into the currency which we
desired.
• With the introduction of currency
crosses we no longer have to do this
tedious calculation as all brokers now
offer the direct exchange rates.
• The most active crosses are derived
from the three major non-US dollar
currencies (the Euro, the UK Pound
and Yen).
• These currency pairs are also known
as minors.
Exotic Currencies
• Exotic currency pairs are
made up of a major currency
paired with the currency of an
emerging or a strong but
smaller economy from a
global perspective.
• These pairs are not traded as

often as the majors or minors,
so often the cost of trading
these pairs can be higher than
the majors or minors due to
the lack of liquidity in these
markets.
• High interest rate differentials

and frequent price fluctuations
provide opportunities for
higher returns, but with a
higher risk factor.
Freely Convertible Currencies
Freely convertible currencies (also called as fully

convertible currencies) are those that anyone can convert
into another foreign currency without restrictions or
interventions by government of the original country, at the
market determined exchange rate.
Eg. USD, Euro, JPY, GBP, Swiss Franc
Note: Indian Rupee is a partially convertible currency.

Exchange Rates
Brief Introduction and Types of Exchange Rates

USD Turkish Lira Exchange Rate Trend
Depreciation- 45% since mid-2018, 30%

in 2020
Lira depreciation: Geopolitical tensions
(US, Armenia-Azerbaijan conflict,
strained relations with EU over
migration)
Steep interest rate cuts & fiscal spending,
high inflation, high short-term external
debt and falling forex reserves.
https://www.xe.com/currencycharts/?from=USD&to=TRY&view=10Y
USD Saudi Riyal Exchange Rate Trend
https://www.xe.com/currencycharts/?from=USD&to=SAR&view=10Y
What Is The International Monetary System?
The international monetary system refers to the institutional arrangements

that countries adopt to govern exchange rates
Types of Exchange Rates
• A floating exchange rate system exists when a country allows the foreign
exchange market to determine the relative value of a currency
• the U.S. dollar, the EU euro, the Japanese yen, and the British pound all float freely
against each other
• their values are determined by market forces and fluctuate day to day
• A pegged exchange rate system exists when a country fixes the value of its
currency relative to a reference currency
• Many Gulf states peg their currencies to the U.S. dollar
• A dirty float/managed float exists when a country tries to hold the value of its
currency within some range of a reference currency such as the U.S. dollar
• India, Brazil, Indonesia, Philippines, Turkey
IMF Classification of Exchange Rate Regimes
Type Categories
Hard Pegs No Separate Currency Board

Legal Tender
Soft Pegs Conventional Pegged Stabilized Crawling Crawl-like
Peg Exchange rates arrangement peg arrangement
within
horizontal bands
Floating Floating Free floating

regimes (managed
(market- float)
determined)
Residual Other
managed
arrangements
Source: IMF Annual Report on Exchange Rate Arrangements 2014
IMF Annual Report on Exchange Arrangements and Exchange Restrictions 2019
Hard Pegs
• Exchange arrangements with no separate legal tender (13
countries)
The currency of another country circulates as the sole legal
tender (formal dollarization), Adopting such regimes implies
the complete surrender of the monetary authorities' control over
domestic monetary policy.
Eg. Ecuador, El Salvador, Panama, Kosovo, Montenegro,
Kiribati, Tuvalu
• Currency board arrangements (11 countries)
A monetary regime based on an explicit legislative
commitment to exchange domestic currency for a
specified foreign currency at a fixed exchange rate,
combined with restrictions on the issuing authority to ensure
the fulfillment of its legal obligation. This implies that domestic
currency will be issued only against foreign exchange and that
domestic money supply remains fully backed by foreign assets
Eg. Hong Kong, Djibouti, Bulgaria, Brunei
Soft Pegs
• Conventional Peg (42 countries)
The country pegs its currency within margins of ±1 percent or less
(fluctuation allowed less than ±1%) vis-à-vis another currency or a basket
of currencies. 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. Country authorities stand ready to maintain the
fixed parity through direct or indirect investment.
Eg. Saudi Arabia, Jordan, Oman, Qatar, UAE, Bahrain, Denmark, Nepal,
Bhutan & several African countries
….Soft Pegs
• Crawling Peg (3 countries)
The domestic currency is pegged to another currency or basket of currencies at
an established target rate. The target rate is adjusted periodically in small
amounts at a fixed rate or in response to changes in selective
quantitative indicators, such as past inflation differentials vis-à-vis major
trading partners, differentials between the inflation target and expected
inflation in major trading partners. The exchange rate remains within +/- 1%
relative to the targeted value.
Eg. Nicaragua, Botswana, Honduras
• Crawl Like Arrangements (18 countries)
The domestic currency is pegged to another currency or basket of currencies.
The exchange rate must remain in a narrow band of 2% relative to a
“statistically identified trend” (with the exception of a specified number
of outliers) for at least 6 months. An arrangement is considered crawl-like
with an annualized rate of change of at least 1%, provided the exchange rate
appreciates or depreciates in a sufficiently monotonic and continuous manner
Eg. Bangladesh, Sri Lanka, Tunisia, Singapore, Tanzania
• Stabilized Arrangement (25 countries)
Classification as a stabilized arrangement entails a spot market
exchange rate that remains within a margin of 2% for six months
or more (with the exception of a specified number of outliers) and
is not floating. The required margin of stability can be met either with
respect to a single currency or a basket of currencies, where the anchor
currency or the basket is ascertained or confirmed using statistical
techniques. Classification as a stabilized arrangement requires that the
statistical criteria are met and that the exchange rate remains stable as
a result of official action. The classification does not imply a policy
commitment on the part of the country authorities.
Eg. Iran, Vietnam, Nigeria, Lebanon, Egypt
….Soft Pegs
• Pegged Exchange Rates within Horizontal Bands (1 country)
The domestic currency is pegged to another currency or group of currencies.
The value of the currency is maintained within certain margins of fluctuation
of at least ±1% around a fixed central rate, or a margin between the
maximum and minimum value of the exchange rate that exceeds 2%.
Usually, the exchange rate is maintained within bands that are wider than +/-
1% of the established target.
Eg Tonga
Floating
• Managed Floating/Floating (35 countries)
Exchange rates are largely market determined without
obvious policy interference. Intervention can be direct or
indirect, but only serves to “moderate the rate of change
and prevent undue fluctuations in the exchange rate.” The
monetary authority attempts to influence the exchange
rate without having a specific exchange rate path or
target.
Eg. India, Brazil, South Africa, Thailand, Philippines,
Indonesia, South Korea, Turkey, Switzerland
• Independently or Freely Floating (31 countries)
The exchange rate is market-determined and intervention
occurs only “exceptionally” with the aim being to calm
markets.
Eg. U.S., U.K., Japan, Australia, Canada, Sweden, Mexico,
all countries in the Euro zone
Residual
• Other Managed Arrangements (13 countries)
A residual category, which captures countries that cannot be placed into
others. Countries in this category are typically characterized by frequent
changes in policy.
Eg. Cambodia, Syria, Pakistan, Afghanistan
Exchange Rates
Evolution of the International Monetary System

What Was The Gold Standard?
• The gold standard refers to a system in which countries peg currencies to
gold and guarantee their convertibility
• the gold standard dates back to ancient times when gold coins were a medium of
exchange, unit of account, and store of value
• payment for imports was made in gold or silver
• later, payment was made in paper currency which was linked to gold at a fixed
rate
• in the 1880s, most nations followed the gold standard
• $1 = 23.22 grains of “fine” (pure) gold
• the gold par value refers to the amount of a currency needed to purchase one
ounce of gold
Why Did The
• The great strength of the gold standard was that it contained a powerful
mechanism for achieving balance-of-trade equilibrium by all countries
• when the income a country’s residents earn from its exports is equal to the
money its residents pay for imports
• It is this feature that continues to prompt calls to return to a gold standard
Why Did The
• The gold standard worked well from the 1870s until 1914
• but, many governments financed their World War I expenditures by printing
money and so, created inflation
• People lost confidence in the system
• demanded gold for their currency putting pressure on countries' gold reserves,
and forcing them to suspend gold convertibility
• By 1939, the gold standard was dead
What Was The Bretton Woods System?
• In 1944, representatives from 44 countries met at Bretton Woods, New
Hampshire, to design a new international monetary system that would
facilitate postwar economic growth
• Under the new agreement
• a fixed exchange rate system was established
• all currencies were fixed to gold, but only the U.S. dollar was directly convertible
to gold
• devaluations could not to be used for competitive purposes
• a country could not devalue its currency by more than 10% without IMF approval
• The Bretton Woods agreement also established two multinational
institutions
1. The International Monetary Fund (IMF) to maintain order in the
international monetary system through a combination of discipline
and flexibility
2. The World Bank to promote general economic development
• also called the International Bank for Reconstruction and Development
(IBRD)
2. The World Bank
• Countries can borrow from the World Bank in two ways
1. Under the IBRD scheme, money is raised through bond sales in the
international capital market
• borrowers pay a market rate of interest - the bank's cost of funds plus a margin
for expenses.
2. Through the International Development Agency, an arm of the bank
created in 1960
• IDA loans go only to the poorest countries
Why Did The Fixed Exchange Rate System Collapse?
• Bretton Woods worked well until the late 1960s
• It collapsed when huge increases in welfare programs and the Vietnam War were
financed by increasing the money supply and causing significant inflation
• other countries increased the value of their currencies relative to the U.S. dollar in
response to speculation the dollar would be devalued
• However, because the system relied on an economically well managed U.S., when
the U.S. began to print money, run high trade deficits, and experience high inflation,
the system was strained to the breaking point
• the U.S. dollar came under speculative attack
What Was The Jamaica Agreement?
• A new exchange rate system was established in 1976 at a meeting in
Jamaica
• The rules that were agreed on then are still in place today
• Under the Jamaican agreement
• floating rates were declared acceptable
• gold was abandoned as a reserve asset
• total annual IMF quotas - the amount member countries contribute to the IMF -
were increased to $41 billion – today they are about $657 billion
Exchange Rate Systems Prevalent in the World Today
Residual/Other
Managed Hard Peg
7% 13%
Floating
34%
Soft Peg
46%
Source: IMF Annual Report on Exchange Arrangements and Exchange Restrictions 2019
Exchange Rate Determinants
Rupee Trend in 2020 and 2021
• From a year’s high of 70.73 to a low of over 77 and finally settling around
73.22 with nearly 3% YoY depreciation (2020)
• Rupee remained one of the most affected and worst-performing emerging

market currencies.
• While major Asian currencies have appreciated against the US dollar such as
Chinese yuan by 6.10 per cent, Korean won by 5.50 per cent and Malaysian
ringgit by 1 per cent, the Indian rupee depreciated by 3.10 per cent
• Why did the rupee depreciate in 2020?

Reasons for Rupee Depreciation
• COVID Pandemic
• Growth Concerns
• Fiscal deficit
• Widening trade deficits
- Since June 2019, India’s exports have been negative for 15 of the past 17
months
• High Inflation
• RBI Dollar buying
Rupee Appreciation in 2021
• Rupee is up by 4% against the US dollar for FY21 despite having much
higher interest rates and inflation than the US.
• Sustained foreign fund inflows into India's listed stocks ensured a strong year
for the Indian currency.
• For 2021-22, foreign investors have poured in $35.22 billion, the biggest
inflow since 2014-15. India’s performance best among emerging markets.
Most emerging markets witnessed outflows
• India has attracted the highest-ever FDI inflows at $67.54 billion during the
first nine months of the financial year 2020-21.
• Exports jumped by 58.23 per cent to $34 billion in March 2021 as key sectors
such as engineering, gems and jewellery and pharmaceuticals recorded
healthy growth rate during the month
• Exports during April-March 2020-21, however, dipped by 7.4 per cent to

$290.18 billion
• imports contracted by 10.89 per cent to $306.67 billion

Challenges for the rupee ahead
• Federal Reserve interest rate hike and US tax hike are the major challenges
• Slow and steady tapering of asset purchases before the end of the year,
possibly involving a twist which may keep all emerging market currencies
• US-China cold war, pick-up in global crude oil prices, increase in India's
imports compared to exports, and fears of the current account falling into
deficit may also put pressure on the rupee.
• RBI would cap the rupee from appreciating sharply because of export
competitiveness
• Strengthening of oil prices, which could see twin deficits in the form of
current and fiscal accounts, will weigh on the currency.
• Global growth, vaccine rollouts, economic recovery will all determine where
the rupee goes
USDX
• The U.S. Dollar Index (DXY)

tracks the strength of the
dollar against a basket of
currencies.
Dollar Depreciation
• Global recovery from pandemic
• Expectation of economic boon as vaccines arrive
• Dollar loses safe haven status
• US Fed interest rates at an all time low
• Investors moving away from dollar
• Massive stimulus packages, spending
• Expectation of higher corporate taxes/foreign demand for US equities falls
• Global commodity prices moving up
• High twin deficits (CAD 3.1% in 2020- a 12-yr high, 2.2% in 2019, FD $3.1
trillion- 15.2% of GDP, Largest since 1945)
Factors Impacting Exchange Rates
• Inflation
• Interest Rates/Monetary Policy
• Current Account Deficit
• Fiscal Deficit
• External Debt
• Political/Geopolitical Events
• Central Bank actions
• Exchange rate regimes
• Capital Inflows/Outflows
• Economic health
• Financial Sector strength/vulnerabilities
Fixed Vs Floating Exchange Rates
Which is better?
Fixed/Pegged Exchange Rates & Floating Exchange
Rates
• A country following a pegged exchange rate system pegs the value of its
currency to that of another major currency. For instance in case the smaller
currency is pegged to the US dollar, and if the USD rises the pegged
currency rises too and vice versa
• popular among the world’s smaller nations
• imposes monetary discipline and leads to low inflation
• adopting a pegged exchange rate regime can moderate inflationary
pressures in a country
• Floating exchange rates are valued according to the market forces of

demand and supply. There is little or no intervention by the monetary
authorities in the forex market.
Advantages of Floating Rates
Monetary policy autonomy
• Removing the obligation to maintain exchange rate parity restores
monetary control to a government
• In a fixed or a pegged system the ability of a country to expand or
reduce its money supply independent of the exchange rate effects
is restricted
• For eg. , if China which is in a slowdown phase expands its money
supply to stimulate growth, that would lead to a depreciation in its
currency. It cannot afford this as it still follows some kind of a
controlled exchange rate system
• Similarly if a country with a pegged exchange rate wants to reduce
money supply to control inflation, it may want to increase interest
rates- this may attract foreign capital flows and would put an
upward pressure on exchange rates, which it has to avoid to
maintain the peg
• In a floating exchange rate system countries have freedom to use
monetary policy for achievement of growth and inflation targets
Automatic trade balance adjustments
• Under Bretton Woods, if a country developed a permanent deficit in
its balance of trade that could not be corrected by domestic policy,
the IMF would have to agree to a currency devaluation.
• In a flexible exchange rate system the current account deficit can

be naturally corrected by a depreciation. Depreciation makes
exports cheaper and imports costlier, hence exports increase,
imports reduce thereby reducing the country’s CAD.
Help countries recover from financial crises

• In times of financial crisis, exchange rate adjustments in a floating
exchange rate system also automatically help the economy recover.
For eg., the banking crisis in Iceland caused its currency to heavily
depreciate in the foreign exchange market. At some point however, the
currency becomes so cheap that it begins to stimulate exports and
tourism. In Iceland by 2009 exports of fish and aluminium were
booming and helped the economy recover from the crisis.
• Similarly the South Korean won collapsed during the 1997 Asian
currency crisis- this helped South Korea increase in exports and
helped in an export-led recovery.
Disadvantages of a floating exchange rate regime- volatility, uncertainty,

opportunity for speculation. Also a lack of prudence in monetary/fiscal
policies- governments may choose populist/expansionary policies as they
may not be concerned about inflation or currency depreciation.
Advantages of Fixed Rates
Provides monetary discipline
• Countries with pegged currencies will be wary of indiscriminately
increasing/expanding money supply as that could result in inflation and
a pressure on the currency to depreciate.
• Similarly these countries may not be able to increase interest rates to

tackle inflationary pressures as this would lead to capital inflows and
the pressure on their currencies to appreciate.
• So some kind of monetary stability is maintained but it could be at a

cost. For eg, Saudi Arabia’s slowing economy needs lower interest
rates, but it cannot lower rates for fear of capital outflows and a
pressure on the riyal to depreciate.
• Monetary discipline comes at the cost of monetary independence.

Advantages/Disadvantages of Fixed Rates
• Fixed/Pegged exchange rates make imports cheaper but again lose
out on export competitiveness as depreciation is avoided.
• Smaller countries find pegging their currencies to the dominant

currencies as a confidence building measure for a positive investor
sentiment towards their economies. For eg, Middle-East oil exporting
countries.
• The biggest drawback for such currencies is that many times

especially in times of crisis they might seem overvalued and not in
tune with their economic realities. This attracts speculators to attack
such currencies.
• Speculation and volatility is avoided, and a pegged currency brings

certainty and stability to the exchange rates. Good for investors and
traders.
Which Is Better – Fixed
Rates Or Floating Rates?
• A strict pegged/fixed system does not allow automatic trade balance
adjustments or the automatic recovery mechanism that a substantial
depreciation bestows on economies that choose to float their currencies.
• Higher exports due to depreciation of a currency can actually be the

recovery path of a crisis-afflicted economy. For eg., South-East Asian
economies abandoning their pegs to float their currencies in 2007-08
Who Is Right?
• There is no real agreement as to which system is better
• We know that a Bretton Woods-style fixed exchange rate regime will not
work
• But a different kind of fixed exchange rate system might be more enduring
• could encourage stability that would facilitate more rapid growth in international
trade and investment
Trilemma or The Impossible
Trinity
Impossible Trinity
A country cannot have all the three of the
following at the same time:
• Free Capital flows
• Independent Monetary Policy
• Pegged/Controlled Exchange rate
Impossible Trinity in Action
• US has an independent monetary policy and no capital
controls, resulting in a flexible exchange rate.
• Countries in the Euro area have given up monetary
policy independence for a stable exchange rate and
financial integration.
• To stem rupee depreciation in Aug 2013 RBI imposed
partial capital controls. Direct investments by Indian
companies abroad were curtailed, remittances limits for
Indians sending money abroad were reduced and a
scheme to encourage foreign currency non-resident
(FCNR) deposits was introduced. As the rupee
stabilized, these measures were gradually removed.
Therefore, opting for a stable exchange rate, partial
controls were enacted.
https://www.livemint.com/Opinion/8zXO5x6PUmEjhtf2sCwl1K/Indias-impossible-trinity-problem.html
Options for Countries
• Option 1: A stable/pegged exchange rate and free capital flows (but not
an independent monetary policy). If there are capital inflows the pegged
currency would be under pressure to appreciate. So the country’s
monetary policy choice has to be an expansionary one to prevent
appreciation and maintain the exchange rate peg/stability. Eg. Saudi
Arabia
• Option 2: An independent monetary policy and free capital flows (but
not a stable/pegged exchange rate). If there are capital inflows/outflows
the country allows its currency to appreciate/depreciate as it has a
floating exchange rate regime. So there is no monetary policy compulsion
to maintain a fixed/pegged rate. Eg. US, Japan
• Option 3: A pegged exchange rate and independent monetary policy (but
no free capital flows, which would require the use of capital controls). A
country with a pegged currency wanting to maintain independence in its
monetary policy will have to prevent capital inflows/outflows to maintain
the exchange rate peg. Eg. China
Fixed Vs Floating Exchange Rates
Which is better?
Fixed/Pegged Exchange Rates & Floating Exchange
Rates
• A country following a pegged exchange rate system pegs the value of its
currency to that of another major currency. For instance in case the smaller
currency is pegged to the US dollar, and if the USD rises the pegged
currency rises too and vice versa
• popular among the world’s smaller nations
• imposes monetary discipline and leads to low inflation
• adopting a pegged exchange rate regime can moderate inflationary
pressures in a country
• Floating exchange rates are valued according to the market forces of

demand and supply. There is little or no intervention by the monetary
authorities in the forex market.
Monetary policy autonomy
• Removing the obligation to maintain exchange rate parity restores
monetary control to a government
• In a fixed or a pegged system the ability of a country to expand or
reduce its money supply independent of the exchange rate effects
is restricted
• For eg. , if China which is in a slowdown phase expands its money
supply to stimulate growth, that would lead to a depreciation in its
currency. It cannot afford this as it still follows some kind of a
controlled exchange rate system
• Similarly if a country with a pegged exchange rate wants to reduce
money supply to control inflation, it may want to increase interest
rates- this may attract foreign capital flows and would put an
upward pressure on exchange rates, which it has to avoid to
maintain the peg
• In a floating exchange rate system countries have freedom to use
monetary policy for achievement of growth and inflation targets
Automatic trade balance adjustments
• Under Bretton Woods, if a country developed a permanent deficit in
its balance of trade that could not be corrected by domestic policy,
the IMF would have to agree to a currency devaluation.
• In a flexible exchange rate system the current account deficit can

be naturally corrected by a depreciation. Depreciation makes
exports cheaper and imports costlier, hence exports increase,
imports reduce thereby reducing the country’s CAD.
Help countries recover from financial crises

• In times of financial crisis, exchange rate adjustments in a floating
exchange rate system also automatically help the economy recover.
For eg., the banking crisis in Iceland caused its currency to heavily
depreciate in the foreign exchange market. At some point however, the
currency becomes so cheap that it begins to stimulate exports and
tourism. In Iceland by 2009 exports of fish and aluminium were
booming and helped the economy recover from the crisis.
• Similarly the South Korean won collapsed during the 1997 Asian
currency crisis- this helped South Korea increase in exports and
helped in an export-led recovery.
Disadvantages of a floating exchange rate regime- volatility, uncertainty,

opportunity for speculation. Also a lack of prudence in monetary/fiscal
policies- governments may choose populist/expansionary policies as they
may not be concerned about inflation or currency depreciation.
Advantages of Fixed Rates
Provides monetary discipline
• Countries with pegged currencies will be wary of indiscriminately
increasing/expanding money supply as that could result in inflation and
a pressure on the currency to depreciate.
• Similarly these countries may not be able to increase interest rates to

tackle inflationary pressures as this would lead to capital inflows and
the pressure on their currencies to appreciate.
• So some kind of monetary stability is maintained but it could be at a

cost. For eg, Saudi Arabia’s slowing economy needs lower interest
rates, but it cannot lower rates for fear of capital outflows and a
pressure on the riyal to depreciate.
• Monetary discipline comes at the cost of monetary independence.

Advantages/Disadvantages of Fixed Rates
• Fixed/Pegged exchange rates make imports cheaper but again lose
out on export competitiveness as depreciation is avoided.
• Smaller countries find pegging their currencies to the dominant

currencies as a confidence building measure for a positive investor
sentiment towards their economies. For eg, Middle-East oil exporting
countries.
• The biggest drawback for such currencies is that many times

especially in times of crisis they might seem overvalued and not in
tune with their economic realities. This attracts speculators to attack
such currencies.
• Speculation and volatility is avoided, and a pegged currency brings

certainty and stability to the exchange rates. Good for investors and
traders.
Which Is Better – Fixed
Rates Or Floating Rates?
• A strict pegged/fixed system does not allow automatic trade balance
adjustments or the automatic recovery mechanism that a substantial
depreciation bestows on economies that choose to float their currencies.
• Higher exports due to depreciation of a currency can actually be the

recovery path of a crisis-afflicted economy. For eg., South-East Asian
economies abandoning their pegs to float their currencies in 2007-08
Who Is Right?
• There is no real agreement as to which system is better
• We know that a Bretton Woods-style fixed exchange rate regime will not
work
• But a different kind of fixed exchange rate system might be more enduring
• could encourage stability that would facilitate more rapid growth in international
trade and investment
Annual Report
on
Exchange Arrangements
and Exchange Restrictions
2019
I N T E R N A T I O N A L M O N E T A R Y F U N D
Annual Report
on
and Exchange Restrictions
2019
I N T E R N A T I O N A L M O N E T A R Y F U N D
©2020 International Monetary Fund
Cataloging-in-Publication Data
IMF Library
Names: International Monetary Fund, publisher.

Title: Annual report on exchange arrangements and exchange restrictions.
Other titles: AREAER. | Exchange arrangements and exchange restrictions. |
Annual report on exchange restrictions.
Description: Washington, DC : International Monetary Fund, 1950– | Annual. |
Report year ends March 31. | Began with issue for March 1950. | 1950–1978:
Annual report on exchange restrictions.
Identifiers: ISSN 0250-7366 (print) | ISSN 2304-0831 (online)
Subjects: LCSH: Foreign exchange—Law and legislation—Periodicals. | Foreign
exchange administration—Periodicals.
Classification: LCC K4440.A13 I57
ISSN (Online) 2304-0831

ISSN (Print) 0250-7366
ISBN 978-1-49832-457-1 (paper)

978-1-51353-079-6 (ePub)
978-1-51354-878-4 (web PDF)
Disclaimer: The analysis and policy considerations expressed in this publication

are those of the IMF staff and do not represent official IMF policy or the views
of the IMF Executive Directors or their national authorities.
Recommended citation: International Monetary Fund. 2020. Annual Report on

Exchange Arrangements and Exchange Restrictions 2019. Washington, DC: IMF.
ANNUAL REPORT ON EXCHANGE ARR ANGEMENTS AND EXCHANGE RESTRIC TIONS 2019
Contents
Country Chapters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .iv
Preface . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .vi
Abbreviations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . vii
Overview . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Table 1. Classification of Exchange Rate Arrangements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Overall Developments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Developments in Exchange Arrangements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Figure 1. Reclassification of De Facto Exchange Rate Arrangements, 2015–19 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Figure 2. Exchange Rate Arrangements, 2010–19 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Table 2. De Facto Classification of Exchange Rate Arrangements, as of April 30, 2019, and Monetary Policy Frameworks . . . . . . 6
Table 3. Exchange Rate Arrangements, 2011–19 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Table 4. Changes and Resulting Reclassifications of Exchange Rate Arrangements, May 1, 2018–April 30, 2019 . . . . . . . . . . . 9
Table 5. Monetary Policy Frameworks and Exchange Rate Anchors, 2011–19 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Table 6. Foreign Exchange Market Structure, 2016–19 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Member Countries’ Obligations and Status under Articles VIII and XIV . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Figure 3. IMF Members That Have Accepted the Obligations of Article VIII, Sections 2(a), 3, and 4, 1945–2018 . . . . . . . . . 19
Table 7. Exchange Restrictions and Multiple Currency Practices, January 1–December 31, 2018 . . . . . . . . . . . . . . . . . . . . . . 21
Table 8. Exchange Restrictions and/or Multiple Currency Practices, by Country, as of December 31, 2018 . . . . . . . . . . . . . . 23
Regulatory Framework for Foreign Exchange Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Figure 4. Net Capital Inflows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Figure 5. Controls on Capital Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Figure 6. Controls on Capital Transactions, by Direction of Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Figure 7. Controls on Capital Transactions, by Direction of Change and Country Group. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Figure 8. Controls on Capital Transactions, by AREAER Categories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Figure 9. Advanced Economies: Controls on Capital Transactions, by AREAER Categories and Direction . . . . . . . . . . . . . . . . 37
Figure 10. Provisions Specific to the Financial Sector, January 1, 2018–August 31, 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Compilation Guide . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Summary Features of Exchange Arrangements and Regulatory Frameworks for Current and Capital Transactions
in Member Countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Country Table Matrix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
International Monetary Fund | 2019 iii

Country Chapters1
Afghanistan Denmark
Albania Djibouti
Algeria Dominica
Angola Dominican Republic
Antigua and Barbuda Ecuador
Argentina Egypt
Armenia El Salvador
Aruba Equatorial Guinea
Australia Eritrea
Austria Estonia
Azerbaijan Eswatini
The Bahamas Ethiopia
Bahrain Fiji
Bangladesh Finland
Barbados France
Belarus Gabon
Belgium The Gambia
Belize Georgia
Benin Germany
Bhutan Ghana
Bolivia Greece
Bosnia and Herzegovina Grenada
Botswana Guatemala
Brazil Guinea
Brunei Darussalam Guinea-Bissau
Bulgaria Guyana
Burkina Faso Haiti
Burundi Honduras
Cabo Verde Hong Kong SAR
Cambodia Hungary
Cameroon Iceland
Canada India
Central African Republic Indonesia
Chad Islamic Republic of Iran
Chile Iraq
China Ireland
Colombia Israel
Comoros Italy
Democratic Republic of the Congo Jamaica
Republic of Congo Japan
Costa Rica Jordan
Côte d’Ivoire Kazakhstan
Croatia Kenya
Curaçao and Sint Maarten Kiribati
Cyprus Korea
Czech Republic Kosovo
1 These chapters are available on AREAER Online (www.elibrary-areaer.imf.org/). The term “country,” as used in
this publication, does not in all cases refer to a territorial entity that is a state as understood by international law and
practice; the term also covers some territorial entities that are not states but for which statistical data are maintained
and provided internationally on a separate and independent basis.
iv International Monetary Fund | 2019

Kuwait Rwanda
Kyrgyz Republic St. Kitts and Nevis
Lao P.D.R. St. Lucia
Latvia St. Vincent and the Grenadines
Lebanon Samoa
Lesotho San Marino
Liberia São Tomé and Príncipe
Libya Saudi Arabia
Lithuania Senegal
Luxembourg Serbia
Madagascar Seychelles
Malawi Sierra Leone
Malaysia Singapore
Maldives Slovak Republic
Mali Slovenia
Malta Solomon Islands
Marshall Islands Somalia
Mauritania South Africa
Mauritius South Sudan
Mexico Spain
Micronesia Sri Lanka
Moldova Sudan
Mongolia Suriname
Montenegro Sweden
Morocco Switzerland
Mozambique Syria
Myanmar Tajikistan
Namibia Tanzania
Nauru Thailand
Nepal Timor-Leste
Netherlands Togo
New Zealand Tonga
Nicaragua Trinidad and Tobago
Niger Tunisia
Nigeria Turkey
Republic of North Macedonia Turkmenistan
Norway Tuvalu
Oman Uganda
Pakistan Ukraine
Palau United Arab Emirates
Panama United Kingdom
Papua New Guinea United States
Paraguay Uruguay
Peru Uzbekistan
Philippines Vanuatu
Poland Venezuela
Portugal Vietnam
Qatar Yemen
Romania Zambia
Russia Zimbabwe
International Monetary Fund | 2019 v

Preface
The Annual Report on Exchange Arrangements and Exchange Restrictions has been published by the IMF since
1950. It draws on information available to the IMF from a number of sources, including that provided in the
course of official staff visits to member countries, and has been prepared in close consultation with national
authorities.
This project was coordinated in the Monetary and Capital Markets Department by a staff team led by
Annamaria Kokenyne under the overall supervision of Gaston Gelos, and comprising Ricardo Cervantes,
Salim M. Darbar, Gergana Gencheva, Ingibjoerg Gudbjartsdottir, Thorvardur Tjoervi Olafsson, Gurnain
Kaur Pasricha, Svetlana Popova, Yi Xue, Hanqing Ye, and Viktoriya Zotova (external consultant). It draws on
the specialized contributions of that department (for specific countries), with assistance from staff members
of the IMF’s five area departments, together with staff of other departments. The report was edited and pro-
duced by Rumit Pancholi, Hyoun Woo Park, and Lucy Scott Morales of the Communications Department.
vi International Monetary Fund | 2019

Abbreviations1
ACU Asian Clearing Union (Bangladesh, Bhutan, India, Islamic Republic of Iran,
Myanmar, Nepal, Pakistan, Sri Lanka)
AD Authorized dealer
AFTA ASEAN Free Trade Area (see ASEAN, below)
AGOA African Growth and Opportunity Act (United States)
AIFMD Alternative Investment Fund Managers Directive
AIFs Alternative investment funds
AMU Asian monetary unit
ASEAN Association of Southeast Asian Nations (Brunei Darussalam, Indonesia, Malaysia,
Philippines, Singapore, Thailand)
BCEAO Central Bank of West African States (Benin, Burkina Faso, Côte d’Ivoire, Guinea-
Bissau, Mali, Niger, Senegal, Togo)
BEAC Bank of Central African States (Cameroon, Central African Republic, Chad,
Republic of Congo, Equatorial Guinea, Gabon)
CACM Central American Common Market (Costa Rica, El Salvador, Guatemala, Honduras,
Nicaragua)
CAMU Central African Monetary Union
CAFTA Central American Free Trade Agreement
CAP Common agricultural policy (of the EU)
CARICOM Caribbean Community and Common Market (Antigua and Barbuda, Barbados,
Belize, Dominica, Grenada, Guyana, Haiti, Jamaica, Montserrat, St. Kitts and
Nevis, St. Lucia, St. Vincent and the Grenadines, Suriname, Trinidad and Tobago);
The Bahamas is also a member of CARICOM, but it does not participate in the
Common Market
CB Central bank
CD Certificate of deposit
CEFTA Central European Free Trade Area (Bulgaria, Hungary, Poland, Romania, Slovak
Republic, Slovenia)
CEMAC Central African Economic and Monetary Community (members of the BEAC)
CEPGL Economic Community of the Great Lakes Countries (Burundi, Democratic
Republic of the Congo, Rwanda)
CET Common external tariff
CFA Communauté financière d’Afrique (administered by the BCEAO) and Coopération
financière en Afrique centrale (administered by the BEAC)
CIMA Code Chartered Institute of Management Accountants Code of Ethics for Professional
Accountants
CIS Commonwealth of Independent States (Armenia, Azerbaijan, Belarus, Georgia,
Kazakhstan, Kyrgyz Republic, Moldova, Russian Federation, Tajikistan,
Turkmenistan, Ukraine, Uzbekistan)
CITES Convention on International Trade in Endangered Species of Wild Fauna and Flora
CMA Common Monetary Area (a single exchange control territory comprising Eswatini,
Lesotho, Namibia, and South Africa)
1 Note: This list does not include acronyms of purely national institutions mentioned in the country chapters.
International Monetary Fund | 2019 vii

CMEA Council for Mutual Economic Assistance (dissolved; formerly Bulgaria, Cuba,
Czechoslovakia, German Democratic Republic, Hungary, Mongolia, Poland,
Romania, U.S.S.R., Vietnam)
CRD Capital Requirements Directive
CRR Capital Requirements Regulation
COMESA Common Market for Eastern and Southern Africa (Burundi, Comoros, Democratic
Republic of Congo, Djibouti, Egypt, Eritrea, Eswatini, Ethiopia, Kenya, Madagascar,
Malawi, Mauritius, Namibia, Rwanda, Seychelles, Sudan, Uganda, Zambia,
Zimbabwe)
CPI Consumer price index
DSTI Debt-service-to-income
EAC East African Community
EBRD European Bank for Reconstruction and Development
EC European Council (Council of the European Union)
ECB European Central Bank
ECCB Eastern Caribbean Central Bank (Anguilla, Antigua and Barbuda, Dominica,
Grenada, Montserrat, St. Kitts and Nevis, St. Lucia, St. Vincent and the Grenadines)
ECCU Eastern Caribbean Currency Union
ECOWAS Economic Community of West African States (Benin, Burkina Faso, Cape Verde,
Côte d’Ivoire, The Gambia, Ghana, Guinea, Guinea-Bissau, Liberia, Mali, Niger,
Nigeria, Senegal, Sierra Leone, Togo)
ECSC European Coal and Steel Community
EEA European Economic Area
EFSF European Financial Stability Facility
EFSM European Financial Stability Mechanism
EFTA European Free Trade Association (Iceland, Liechtenstein, Norway, Switzerland)
EIB European Investment Bank
EMU European Economic and Monetary Union (Austria, Belgium, Cyprus, Estonia,
Finland, France, Germany, Greece, Ireland, Italy, Latvia, Luxembourg, Malta,
Netherlands, Portugal, Slovak Republic, Slovenia, Spain)
EPZ Export processing zone
ERM Exchange rate mechanism (of the European monetary system)
EU European Union (formerly European Community); Austria, Belgium, Bulgaria,
Croatia, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany,
Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, the
Netherlands, Poland, Portugal, Romania, Slovak Republic, Slovenia, Spain, Sweden,
United Kingdom)
FATF Financial Action Task Force on Money Laundering (of the OECD)
FDI Foreign direct investment
FEC Foreign exchange certificate
FIU Financial intelligence unit
FSU Former Soviet Union
FTA Free trade agreement
G7 Group of Seven advanced economies (Canada, France, Germany, Italy, Japan, United
Kingdom, United States)
GAFTA Greater Arab Free Trade Agreement
viii International Monetary Fund | 2019

GCC Gulf Cooperation Council (Cooperation Council for the Arab States of the Gulf;
Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, United Arab Emirates)
GDP Gross domestic product
GSP Generalized System of Preferences
HIPC Heavily Indebted Poor Countries
IAS International Accounting Standards
IBRD International Bank for Reconstruction and Development (World Bank)
IFRS International Financial Reporting Standards
IMF International Monetary Fund
IRB Internal ratings-based approach
IORP Institutions for Occupational Retirement Provision
ISIL Islamic State of Iraq and the Levant
LAIA Latin American Integration Association (Argentina, Bolivia, Brazil, Chile, Colombia,
Ecuador, Mexico, Paraguay, Peru, Uruguay, Venezuela)
LC Letter of credit
LCR Liquidity coverage ratio
LIBID London interbank bid rate
LIBOR London interbank offered rate
LTD Loan-to-deposit
MCP Multiple currency practice
MERCOSUR Southern Cone Common Market (Argentina, Brazil, Paraguay, Uruguay)
MFN Most favored nation
MOF Ministry of finance
MoU Memorandum of Understanding
MPC Monetary policy committee
NAFTA North American Free Trade Agreement
NAV Net asset value
NPL Non performing loans
OECD Organization for Economic Cooperation and Development
OECS Organization of Eastern Caribbean States (Antigua and Barbuda, Dominica,
Grenada, Montserrat, St. Kitts and Nevis, St. Lucia, St. Vincent and the Grenadines)
OGL Open general license
OTC Over the counter
PACER Pacific Agreement on Closer Economic Relations (of the Pacific Islands Forum;
Australia, Cook Islands, Fiji, Kiribati, Marshall Islands, Micronesia, Nauru, New
Zealand, Niue, Palau, Papua New Guinea, Samoa, Solomon Islands, Tonga, Tuvalu,
Vanuatu)
PICTA Pacific Island Countries Trade Agreement (of the Pacific Islands Forum); Cook
Islands, Fiji, Kiribati, Marshall Islands, Micronesia, Nauru, Niue, Palau, Papua New
Guinea, Samoa, Solomon Islands, Tonga, Tuvalu, Vanuatu)
RCPSFM Regional Council on Public Savings and Financial Markets (an institution of
WAEMU countries that is involved in issuance and marketing of securities
authorization)
RIFF Regional Integration Facilitation Forum (formerly Cross-Border Initiative);
Burundi, Comoros, Eswatini, Kenya, Madagascar, Malawi, Mauritius,
Namibia, Rwanda, Seychelles, Tanzania, Uganda, Zambia, Zimbabwe)
International Monetary Fund | 2019 ix

SACU Southern African Customs Union (Botswana, Eswatini, Lesotho, Namibia,

South Africa)
SADC Southern Africa Development Community (Angola, Botswana, Democratic Republic
of the Congo, Eswatini, Lesotho, Malawi, Mauritius, Mozambique, Namibia,
Seychelles, South Africa, Tanzania, Zambia, Zimbabwe)
SDR Special drawing right
SWIFT Society for Worldwide Interbank Financial Telecommunication
UCITS Undertakings for the Collective Investment of Transferable Securities
UDEAC Central African Customs and Economic Union (Cameroon, Central African
Republic, Chad, Republic of Congo, Equatorial Guinea, Gabon)
UN United Nations
UNSC UN Security Council
VAT Value-added tax
WAEMU West African Economic and Monetary Union (formerly WAMU; members of the
BCEAO)
WAMA West African Monetary Agency (formerly WACH)
WAMZ West African Monetary Zone
W-ERM II Exchange rate mechanism (of the WAMZ)
WTO World Trade Organization
x International Monetary Fund | 2019

Overview
This is the 70th issue of the Annual Report on Exchange Arrangements and Exchange Restrictions (AREAER),
which provides a yearly description of the foreign exchange arrangements, exchange and trade systems, and
capital controls of all IMF member countries.1 The AREAER reports on restrictions in effect under Article
XIV, Section 2, of the IMF’s Articles of Agreement in accordance with Section 3 of Article XIV, which man-
dates annual reporting on such restrictions.2 It also provides information relating to paragraph 25 of the 2012
Integrated Surveillance Decision, which restates the obligation of each member country under the IMF’s
Articles of Agreement to notify the IMF of the exchange arrangement it intends to apply and any changes in
that arrangement.3
The AREAER provides a description of global exchange and trade systems. It covers restrictions on current
international payments and transfers and multiple currency practices (MCPs) subject to the IMF’s jurisdiction
in accordance with Article VIII, Sections 2(a) and 3, in addition to those maintained under Article XIV of
the IMF’s Articles of Agreement.4 The report also provides information on the operation of foreign exchange
markets, controls on international trade, controls on capital transactions, and measures implemented in the
financial sector, including prudential measures. In addition, the AREAER reports on exchange measures
imposed by member countries solely for national and/or international security reasons, including those
reported to the IMF in accordance with relevant decisions by the IMF Executive Board.5
The AREAER provides information, relating to paragraph 25 of the 2012 Integrated Surveillance Decision,
on exchange rate arrangements of member countries: the de jure arrangements as described by the countries
and the de facto arrangements, which are classified into 10 categories (Table 1). This classification is based
on the information available on members’ de facto arrangements, as analyzed by IMF staff, which may differ
from countries’ officially announced (de jure) arrangements. The methodology and the characteristics of the
categories are described in the Compilation Guide included in this report.
Table 1. Classification of Exchange Rate Arrangements

Type Categories
Hard pegs Exchange arrangement Currency board
with no separate legal arrangement
tender
Soft pegs Conventional pegged Pegged exchange rate Stabilized Crawling peg Crawl-like
arrangement within horizontal bands arrangement arrangement
Floating regimes (market- Floating Free floating
determined rates)
Residual Other managed
arrangement
Note: This methodology became effective February 2, 2009, and reflects an attempt to provide greater consistency and objectivity of exchange
rate classifications across countries and to improve the transparency of the IMF’s bilateral and multilateral surveillance in this area.
1 In addition to the 189 IMF member countries, the report includes information on Hong Kong SAR (People’s Republic of China)
as well as Aruba and Curaçao and Sint Maarten (both in the Kingdom of the Netherlands).
2 The IMF’s Articles of Agreement are available at www.imf.org/external/pubs/ft/aa/index.htm.
3 www.imf.org/external/np/sec/pn/2012/pn1289.htm.
4 The information on exchange restrictions and MCPs consists of verbatim quotes from each country’s most recent published
IMF staff report as of December 31, 2018. In cases in which the information is drawn from IMF staff reports that have not been
made public, the quotes have been included with the express consent of the member country. In the absence of such consent, the
relevant information is reported as “not publicly available.” Any changes to these restrictions and MCPs implemented after the
relevant IMF report has been issued will be reflected in the subsequent issue of the AREAER that covers the year during which
the IMF staff report with information on such changes is issued.
5 The information on exchange measures imposed for security reasons is based solely on information provided by country
authorities.
International Monetary Fund | 2019 1

Several tools help navigate and interpret the findings of this report. A single table compares the charac-
teristics of the exchange and trade systems of all IMF member countries: Summary Features of Exchange
Arrangements and Regulatory Frameworks for Current and Capital Transactions in IMF Member Countries.
The Country Table Matrix lists the categories of data reported for each country, and the Compilation Guide
includes definitions and explanations used to report the data.
The AREAER is available online. Starting January 1, 2020, access to AREAER online has been made freely
available to all; previously a subscription was required. The AREAER Online database includes the over-
view and detailed information for each of the 189 member countries and the three territories.6 In addition,
AREAER Online contains data published in previous issues of the AREAER and is searchable by year, coun-
try, and category of measure; it also allows cross-country comparisons for time series.7,8
In general, the 2019 AREAER includes a description of exchange and trade systems as of December 31, 2018.
However, any changes made to member countries’ exchange rate arrangements before April 30, 2019, are
reflected in the report, as are some other developments through August 31, 2019.9
Overall Developments
The liberalization of foreign exchange transactions continued during the reporting period against the backdrop
of softer global growth—in particular in the second half of 2018—accompanied by weakening net capital
flows to emerging market economies. The weaker expansion occurred in both advanced and emerging market
and developing economies. In part, this resulted from escalation of US-China trade tensions, macroeconomic
stress in large emerging market economies, tighter credit policies in China, and the global financial tightening
associated to some extent with steps toward normalization of monetary policy in some advanced economies.
Financial conditions tightened in emerging market economies in 2018 before recovering in early 2019. Much
of 2018 saw capital outflow pressures in these economies. Most major asset markets sold off in late 2018—
except safe haven assets—driven in part by investors’ expectations of US monetary policy normalization
and concerns about weakening global economic activity against a backdrop of lingering trade tensions and
policy uncertainty. Many emerging market economies responded at the time by allowing the exchange rate to
weaken, although several also raised interest rates and intervened in the foreign exchange market to stem rapid
depreciation. Some countries used capital flow management measures, macroprudential measures, and trade
measures. Portfolio flows rebounded in early 2019 as market sentiment improved and expectations about the
pace of US monetary policy tightening were scaled back.
The 2019 AREAER documents the following major trends and significant developments:
• Changes in de facto exchange rate arrangements during the reporting period indicate a modest shift toward
more flexible or less clearly defined exchange rate regimes, likely motivated by external shocks and height-
ened uncertainty in the economic environment. This change is more evident in countries reclassified to
the residual category (other managed arrangement) as most of them had tightly managed exchange rate
arrangements during the previous reporting period. Given balance of payments challenges and deprecia-
tion pressure on their currencies, central banks were forced to allow more flexibility. At the same time, but
slightly less remarkable, there was a shift toward less exchange rate flexibility by some countries, which
defended their currencies and moved them to a more stable regime.
6Aruba, Curaçao and Sint Maarten, and Hong Kong SAR.

7For further information on these resources, see www.bookstore.imf.org/areaer-and-macroprudential-statistics-gateway or
www.imf.org/en/publications/search?when=After&series=Annual+Report+on+Exchange+Arrangements+and+Exchange+Restric
tions.
8 The number of yearly changes reported by each country can be compared directly with the previous two reporting periods
but not with years before that because of the update to the format of the yearly changes table, which was introduced with the
2017 publication (see 2017 AREAER).
9 The date of the latest reported development is indicated as the position date for each country in the country chapters in the
AREAER Online database. A few countries reported developments beyond August 2019. The exchange rate classification for all
countries reflects the status as of April 30, 2019, regardless of the position date.
2 International Monetary Fund | 2019

• The share of countries that target a monetary aggregate increased as some countries moved away from
exchange rate targeting. The number of member countries anchored to a composite of currencies and those
in other monetary policy frameworks fell relative to the previous reporting period.
• More countries reported using derivatives as an alternative instrument to intervene in the foreign exchange
market. Among the instruments most frequently used were options, nondeliverable forwards, and interven-
tions through swaps triggered when the exchange rate moves above or below a specified range with respect
to the previous day’s closing rate.
• The move to modernize and update foreign exchange market structures continued, including through expand-
ing the scope of market activities. Most notably, more countries allowed greater exchange rate flexibility in the
interbank and retail markets, and among member countries that maintain dual and multiple exchange rate
structures, several took action to reduce the deviation between official and market exchange rates.
• The number of IMF member countries accepting the obligations of Article VIII, Sections 2(a), 3, and 4,
increased by 1 in 2018 to 172 at the end of the year. Correspondingly, the number of members who make
use of the transitional arrangement under Article XIV dropped by 1 to 17. Of these 17 members, 3 main-
tain no restrictions but have not yet decided to accept the obligations under Article VIII.
• The composition of countries maintaining restrictive exchange measures changed only marginally, while the
overall number of countries with such measures remained unchanged in 2018. One member removed pre-
viously identified restrictive measures and maintains an exchange system free of exchange restrictions and
MCPs; one other member with an exchange system previously free of restrictions introduced a restrictive
exchange measure in 2018. Eleven new measures were introduced or newly identified, which were partly
offset by the elimination of some previous measures, increasing the overall number of restrictive exchange
measures by 6 in 2018—mostly by Article XIV countries.
• Members continued toward liberalization of current account transactions. Easing measures for payments
and proceeds for invisible transactions and current transfers continued to dominate, similarly to the previ-
ous reporting period. The developments in the regulatory framework for trade were more balanced, with
easing measures only moderately exceeding tightening measures for imports and import payments and for
exports and export proceeds.
• IMF members continued to liberalize capital transactions but at a somewhat slower pace than in the previ-
ous period against a backdrop of trade tensions, slowing global growth, and lower capital flows. Measures
eased both inflows and outflows, with easing of outflows dominating as countries that introduced outflow
controls during recent crisis episodes removed them because the economy recovered. However, the num-
ber of measures, in particular easing outflows, was markedly lower compared with the previous reporting
period, probably reflecting the uncertain global outlook during most of 2018. While the overall number of
measures was lower, actions were taken in 2018 by a larger number of economies than in 2017.
• Developments in the financial sector indicate that a significant share of post-global-financial-crisis reforms
have already been implemented, since easing measures exceeded tightening measures for the second report-
ing period in a row. Liberalization of controls on capital flows continued, particularly regarding easing
restrictions on capital outflows. Reserve requirements continued to be used extensively to implement
monetary policy and financial stability objectives and as policy responses to capital flow volatility. Several
countries introduced or continued to phase in the liquidity coverage ratio for commercial banks and also
introduced or tightened measures to address their foreign-exchange-related risks. Measures regarding insti-
tutional investors were mostly eased, in particular with respect to capital controls.
The remainder of this overview highlights the major developments covered in the individual country chapters
that are part of this report.
Developments in Exchange Arrangements

This section documents major changes and trends in the following related areas: exchange rate arrangements,
intervention, monetary anchors, and the operation and structure of foreign exchange markets. It also reports
on significant developments with respect to exchange taxes, exchange rate structures, and national currencies.

There are five tables within this section. Table 2 summarizes the detailed descriptions in the country chapters
by reporting each IMF member country’s monetary policy framework as indicated by country officials and the
classification of their de facto exchange rate arrangements. Table 3 breaks down countries’ de facto exchange
rate arrangements for 2011–19. Table 4 highlights changes in the reclassification of the de facto exchange rate
arrangements between May 1, 2018, and April 30, 2019. Table 5 outlines IMF member countries’ monetary
policy frameworks as reported by country authorities and exchange rate anchors for 2011–19, and Table 6
reports the foreign exchange market structure among the membership for 2016–19.
Exchange Rate Arrangements10

Fluctuations in exchange rate movements intensified under capital outflow pressure in emerging markets and
a worsening global economic environment, particularly during the second half of 2018. Hence, a number of
de facto exchange rate regimes were reclassified for countries that used the exchange rate as a shock absorber,
allowing the exchange rate to be more flexible, and for those that moved to a more stable regime. In contrast
to the previous AREAER, changes in de facto exchange rate arrangements during this reporting period indi-
cated a slight move toward more flexible or less clearly defined exchange rate regimes. Of the 42 countries
in categories “crawl-like” and “stabilized,” 8 (19 percent) were reclassified to “floating” and “other managed”
(compared with 3 of 34 countries, or 9 percent, during the previous reporting period). At the same time, of
the 48 countries that at the end of April 2018 were classified as “floating” or the residual “other managed,”
8 (17 percent) were reclassified between May 1, 2018, and April 30, 2019, to “crawl-like” and “stabilized”
(compared with 11 of 56 countries, or 20 percent, during the previous reporting period).
The number of reclassifications was higher than during the previous reporting period (Figure 1). The trend
of increasing reclassifications to soft pegs observed in previous years reversed. The share of countries whose
exchange rate arrangement was reclassified to a soft peg fell by 27 percentage points from its high of 86 per-
cent in the previous period. In contrast, reclassifications to (1) the residual other managed category rose by
21 percentage points, from 5 percent, and (2) floating had a modest increase of 6 percentage points, from 9
percent in the previous AREAER.
Figure 1. Reclassification of De Facto Exchange Rate Arrangements, 2015–19

(Percent of total reclassifications as of April 30)
100 30
90
25
80
70
20
60
50 15
40
10
30
20
5
10
0 0
2015 2016 2017 2018 2019
Soft peg Floating Other managed Total number of reclassifications

(right scale)
Source: AREAER database.
10 This section summarizes developments between May 1, 2018, and April 30, 2019.

The changes in individual categories are as follows:

• Other managed arrangements—The number of countries classified as “other managed” tends to increase during
volatile foreign exchange market conditions because it becomes difficult to maintain a more clearly defined
exchange rate arrangement. Although the number of countries in this residual category remained at 13 (Figure
2; Table 3), there were 14 changes from May 2018 through April 2019. Seven countries abandoned this cate-
gory: three were reclassified to a stabilized arrangement (Democratic Republic of the Congo, Kyrgyz Republic,
Sudan), two to a crawl-like arrangement (Algeria, Liberia), and two to floating (Belarus, Zimbabwe). Similarly,
seven countries were added: four were reclassified from a stabilized arrangement (Angola, Kenya, Myanmar,
Pakistan), two from a crawl-like arrangement (Afghanistan, China), and one from floating (Mongolia). The
percentage of countries in this category remained similar to the previous period.
• Floating arrangement—The number of countries classified as floating remained at 35, with eight changes
in the group’s composition. Four abandoned this category: 2 were reclassified to a stabilized arrangement
(Armenia, Romania), 11 1 to a crawl-like arrangement (Paraguay), and 1 to “other managed” (Mongolia12).
Four countries were added: 2 from the residual other managed (Belarus, Zimbabwe), 1 from a stabilized
arrangement (Indonesia), and 1 from a crawl-like arrangement (Costa Rica).
• Soft pegs—The total number of countries with soft pegs remained the same as in the previous AREAER.
This group had the majority of reclassifications from May 2018 through April 2019, with most of the
changes in crawl-like and stabilized arrangements. Countries with soft pegs continue to make up the single
largest type of exchange rate arrangement, accounting for 46.4 percent of all members.
 Crawl-like arrangements—The number of countries with crawl-like arrangements increased by 3, to
18. This category had the most changes within the soft peg group. Eight countries were added: 5 were
reclassified from a stabilized arrangement (Ethiopia, Singapore, South Sudan, Tanzania, Uzbekistan13), 2
from “other managed” (Algeria, Liberia), and 1 from floating (Paraguay). Five countries exited this clas-
sification: 2 moved to a stabilized arrangement (Islamic Republic of Iran, Serbia), 2 to “other managed”
(Afghanistan, China), and 1 met the criteria for a floating arrangement (Costa Rica). Countries adopting
stabilized and crawl-like arrangements often adjust their exchange rates in response to external events,
including differences in inflation across countries, capital flow pressures, and new trends in world trade.
As a result, they are often reclassified to other categories within the soft peg group.
 Stabilized arrangements—The number of countries with stabilized arrangements decreased by 2, to
25. Eight countries were added: 3 from “other managed” (Democratic Republic of the Congo, Kyrgyz
Republic, Sudan), 2 from floating (Armenia, Romania),14 2 from a crawl-like arrangement (Islamic
Republic of Iran, Serbia), and 1 from a conventional peg arrangement (Morocco). Ten countries left the
group: 4 to “other managed” (Angola, Kenya, Myanmar, Pakistan), 5 to crawl-like (Ethiopia, Singapore,
South Sudan, Tanzania, Uzbekistan), and 1 to floating (Indonesia). Two countries were reclassified twice
during this reporting period, reverting to a stabilized arrangement (Guatemala,15 Tajikistan16). The cat-
egory “stabilized arrangement” remained the second largest among the soft pegs, with 28 percent.
 Conventional pegs—The number of countries in this category dropped by 1, to 42. Morocco left the
group for “stabilized,” as it changed its de jure arrangement from “conventional peg” to “pegged exchange
rate within horizontal bands” in January 2018, when the fluctuation band for the dirham was increased
to ±2.5 percent. The conventional peg arrangement holds the largest share among soft pegs, with 47
percent, which has been slowly decreasing from its peak of 58 percent since April 2016.
 Pegged exchange rates within horizontal bands—Only Tonga maintains this arrangement. Three additional
countries have de jure pegged exchange rates within horizontal bands, but two have a de facto stabilized
arrangement (Maldives, Morocco), and one has a de facto other managed arrangement (Syria).
11 Armenia was reclassified retroactively to stabilized from a floating arrangement in January 2017. Romania was reclassified
retroactively to crawl-like from floating in July 2016 and to stabilized from crawl-like in January 2018. Retroactive changes are
reflected as of January 1, 2018, corresponding to the first day of the period covered in this year’s AREAER.
12 Mongolia was reclassified twice—to “crawl-like” in January 2018 and to “other managed” in September 2018.
13 Uzbekistan was reclassified twice—to “other managed” in May 2018 and to “crawl-like” in July 2018.
14 Armenia and Romania were reclassified retroactively, overriding classifications in previous AREAERs. See footnote 11.
15 Guatemala was reclassified twice—to “crawl-like” in January 2018 and back to “stabilized” in September 2018.
16 Tajikistan was reclassified twice—to “other managed” in April 2018 and back to “stabilized” in July 2018.

• Free floating—The number of countries with free-floating arrangements remained at 31.

• Hard pegs (no separate legal tender and currency boards)—The number of countries in this category remained unchanged at
24. Changes in this category are rare, because countries with such arrangements tend to maintain their exchange rate policies
unless their economies undergo large structural changes that result in an exit.
Figure 2. Exchange Rate Arrangements, 2010–19

(Number of countries as of end-April)
50
Conventional peg
45
Floating
40
Free floating
35
Stabilized arrangement
30
Crawl-like arrangement
25
Other managed arrangement
20
No separate legal tender
15
Currency board
10
Crawling peg
5
Pegged exchange rate within
0 horizontal bands
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Table 2. De Facto Classification of Exchange Rate Arrangements, as of April 30, 2019, and Monetary Policy Frameworks
The classification system is based on the members’ actual, de facto pegs (or stabilized arrangements) with or without bands, crawling pegs
arrangements as identified by the IMF staff, which may differ from (or crawl-like arrangements), and other managed arrangements.
their officially announced, de jure arrangements. The system classifies
exchange rate arrangements primarily on the basis of the degree to which Monetary aggregate target
the exchange rate is determined by the market rather than by official The monetary authority uses its instruments to achieve a target growth
action, with market-determined rates being on the whole more flexible. rate for a monetary aggregate, such as reserve money, M1, or M2, and
The system distinguishes among four major categories: hard pegs (such as the targeted aggregate becomes the nominal anchor or intermediate
exchange arrangements with no separate legal tender and currency board target of monetary policy.
arrangements); soft pegs (including conventional pegged arrangements,
pegged exchange rates within horizontal bands, crawling pegs, stabilized Inflation-targeting framework
arrangements, and crawl-like arrangements); floating regimes (such as This involves the public announcement of numerical targets for inflation, with
floating and free floating); and a residual category, other managed. This an institutional commitment by the monetary authority to achieve these tar-
table presents members’ exchange rate arrangements against alternative gets, typically over a medium-term horizon. Additional key features normally
monetary policy frameworks to highlight the role of the exchange rate in include increased communication with the public and the markets about the
broad economic policy and illustrate that different exchange rate regimes plans and objectives of monetary policymakers and increased accountability
can be consistent with similar monetary frameworks. The monetary of the central bank for achieving its inflation objectives. Monetary policy deci-
policy frameworks are as follows: sions are often guided by the deviation of forecasts of future inflation from
the announced inflation target, with the inflation forecast acting (implicitly
Exchange rate anchor or explicitly) as the intermediate target of monetary policy.
The monetary authority buys or sells foreign exchange to maintain the
exchange rate at its predetermined level or within a range. The exchange Other
rate thus serves as the nominal anchor or intermediate target of mone- The country has no explicitly stated nominal anchor; rather, it monitors
tary policy. These frameworks are associated with exchange rate arrange- various indicators in conducting monetary policy. This category is also
ments with no separate legal tender, currency board arrangements, used when no relevant information on the country is available.

Table 2 (continued)
Monetary policy framework
Exchange rate Exchange rate anchor Monetary Inflation-
arrangement aggregate targeting
(Number of US dollar Euro Composite Other target framework Other1
countries) (38) (25) (8) (9) (26) (41) (45)
No separate Ecuador Palau Kosovo San Kiribati
legal tender El Salvador Panama Montenegro Marino Nauru
(13) Marshall Timor-Leste Tuvalu
Islands
Micronesia
Currency Djibouti St. Kitts and Bosnia and Brunei
board (11) Hong Kong Nevis Herzegovina Darussalam
SAR St. Lucia Bulgaria
St. Vincent
ECCU and the
Antigua and Grenadines
Barbuda
Dominica
Grenada
Conventional Aruba Iraq Cabo Verde CEMAC Fiji Bhutan Samoa4 Solomon
peg (42) The Bahamas Jordan Comoros Cameroon Kuwait Eswatini Islands4
Bahrain Oman Denmark2 Central Libya Lesotho
Barbados Qatar São Tomé and African Namibia
Belize Saudi Arabia Príncipe Rep. Nepal
Curaçao Turkmenistan Chad
and Sint United Arab WAEMU Rep. of
Maarten Emirates Benin Congo
Eritea Burkina Faso Equatorial
Côte d’Ivoire Guinea
Guinea-Bissau Gabon
Mali
Niger
Senegal
Togo
Stabilized Guyana Maldives Croatia Morocco3 Bolivia5 Armenia5,9 Azerbaijan5
arrangement Iran5 (8/18) Trinidad and North (1/18) Democratic Rep. (1/17) Egypt5
(25) Lebanon Tobago Macedonia Vietnam5 of the Congo5 Guatemala5,10 Kyrgyz Rep.5,9
(1/18) (9/18) (7/17)
Guinea5 Romania6,9,10 Sudan5 (1/18)
Malawi5 (1/18) Tajikistan5,7,10
Nigeria5 Sarbia6 (3/18) (7/18)
Suriname5
Yemen5
Crawling Honduras Botswana
peg (3) Nicaragua
Crawl-like Liberia (7/18) Singapore Algeria5 (6/18) Dominican Haiti5
arrangement (2/18) Bangladesh5 Republic5 Lao P.D.R
(18) Burundi5 Paraguay5 Mauritania5
Ethiopia5 (7/18) (6/18) Sri Lanka5,7
Papua New South Sudan5,9
Guinea5 (9/17)
Rwanda5 Tunisia6,7
Tanzania5 Uzbekistan5,7,10
(1/18) (7/18)
Pegged Tonga4
exchange
rate within
horizontal
bands (1)
Other Cambodia Syria Afghanistan Kenya7 (10/18)
managed (5/18) Mongolia7,9,10
arrangement Angola (1/18) (4/18)
(13) China (6/18) Pakistan9
Myanmar (4/18) (12/17)
Sierra Leone Vanuatu
The Gambia Venezuela

Table 2 (concluded)
Monetary policy framework
Exchange rate Exchange rate anchor Monetary Inflation-
arrangement aggregate targeting
(Number of US dollar Euro Composite Other target framework Other1
countries) (38) (25) (8) (9) (26) (41) (45)
Floating (35) Argentina Albania Malaysia
Belarus (8/18) Brazil Mauritius
Madagascar Costa Rica (8/18) Mozambique7
Seychelles Colombia Switzerland
Zimbabwe Czech Republic Zambia
(2/19) Georgia
Ghana
Hungary
Iceland
India
Indonesia (1/18)
Israel
Jamaica8
Kazakhstan
Korea
Moldova
New Zealand
Peru
Philippines
South Africa
Thailand
Turkey
Uganda
Ukraine
Uruguay
Free floating Australia Somalia11
(31) Canada United States
Chile EMU
Japan Austria
Mexico Belgium
Norway Cyprus
Poland Estonia
Russia Finland
Sweden France
United Kingdom Germany
Greece
Ireland
Italy
Latvia
Lithuania
Luxembourg
Malta
Netherlands
Portugal
Slovak Rep.
Slovenia
Spain

Note: If the member country’s de facto exchange rate arrangement has been reclassified during the reporting period, the date of change is indicated in parentheses (month, year).
CEMAC = Central African Economic and Monetary Community; ECCU = Eastern Caribbean Currency Union; EMU = European Economic and Monetary Union;
WAEMU = West African Economic and Monetary Union.
1 Includes countries that have no explicitly stated nominal anchor, but rather monitor various indicators in conducting monetary policy.
2 The member participates in the European Exchange Rate Merchanism (ERM II).
3 Within the framework of an exchange rate fixed to a currency composite, the Bank Al-Maghrib adopted a monetary policy framework in 2006 based on various infla-
tion indicators, with the orvernight interest rate as its operational target to pursue its main objective of price stability.
4 The country maintains a de facto exchange rate anchor to a composite.
5 The country maintains a de facto exchange rate anchor to the US dollar.
6 The country maintains a de facto exchange rate anchor to the euro.
7 The central bank is in transition toward inflation targeting.
8 The authorities reported that their monetary policy framework is referred to as inflation targeting “lite.”
9 The exchange rate arrangement or monetary policy framework was reclassified retroactively, overriding a previously published classification.
10 The exchange rate arrangement was reclassified twice during this reporting period.
11 Currently the Central Bank of Somalia does not have a monetary policy framework.

Table 3. Exchange Rate Arrangements, 2011–19

(Percent of IMF members as of April 30)1
Exchange Rate Arrangement 20112 20122 2013 2014 2015 20163 2017 2018 2019
Hard peg 13.2 13.2 13.1 13.1 12.6 13.0 12.5 12.5 12.5
No separate legal tender 6.8 6.8 6.8 6.8 6.8 7.3 6.8 6.8 6.8
Currency board 6.3 6.3 6.3 6.3 5.8 5.7 5.7 5.7 5.7
Soft peg 43.2 39.5 42.9 43.5 47.1 39.6 42.2 46.4 46.4
Conventional peg 22.6 22.6 23.6 23.0 23.0 22.9 22.4 22.4 21.9
Stabilized arrangement 12.1 8.4 9.9 11.0 11.5 9.4 12.5 14.1 13.0
Crawling peg 1.6 1.6 1.0 1.0 1.6 1.6 1.6 1.6 1.6
Crawl-like arrangement 6.3 6.3 7.9 7.9 10.5 5.2 5.2 7.8 9.4
Pegged exchange rate within horizontal bands 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0.5
Floating 34.7 34.7 34.0 34.0 35.1 37.0 35.9 34.4 34.4
Floating 18.9 18.4 18.3 18.8 19.4 20.8 19.8 18.2 18.2
Free floating 15.8 16.3 15.7 15.2 15.7 16.1 16.1 16.1 16.1
Residual
Other managed arrangements 8.9 12.6 9.9 9.4 5.2 10.4 9.4 6.8 6.8

1 Includes 189 member countries and three territories: Aruba, Curaçao and Sint Maarten, and Hong Kong SAR.
2 As published in the 2011 and 2012 AREAERs; does not include South Sudan, which became an IMF member on April 18, 2012.
3 Includes Nauru, which became an IMF member on April 12, 2016.
Table 4. Changes and Resulting Reclassifications of Exchange Rate Arrangements, May 1, 2018–April 30, 2019
De facto arrangement
De jure Previous Current Effective date of
Country arrangement arrangement1 (2019 AREAER) reclassification
Algeria Managed floating Other managed Crawl-like June 15, 2018
Angola Floating Stabilized Other managed January 9, 2018
Armenia2 Free floating Floating Stabilized January 2, 2017
Belarus Managed floating Other managed Floating August 1, 2018
China Managed floating Crawl-like Other managed June 22, 2018
Congo, Democratic Republic of the Floating Other managed Stabilized January 3, 2018
Costa Rica Managed float Crawl-like Floating August 21, 2018
Ethiopia Managed floating Stabilized Crawl-like July 27, 2018
Guatemala Floating Stabilized Crawl-like January 17, 2018
Guatemala3 Floating Stabilized September 26, 2018
Indonesia Free floating Stabilized Floating January 1, 2018
Iran, Islamic Republic of Managed floating Crawl-like Stabilized August 7, 2018
Kenya Free floating Stabilized Other managed October 31, 2018
Kyrgyz Republic2 Floating Other managed Stabilized July 11, 2017
Liberia Managed floating Other managed Crawl-like July 23, 2018
Mongolia2 Floating Floating Crawl-like September 18, 2017
Mongolia3 Floating Other managed April 11, 2018
Morocco Pegged within horizontal bands Conventional peg Stabilized January 15, 2018
Myanmar Managed floating Stabilized Other managed April 20, 2018
Pakistan2 Floating Stabilized Other managed December 11, 2017
Paraguay Floating Floating Crawl-like June 11, 2018
Romania2 Managed floating Floating Crawl-like July 22, 2016
Romania3 Managed floating Stabilized January 25, 2018

Table 4 (concluded) De facto arrangement

De jure Previous Current Effective date of
Country arrangement arrangement1 (2019 AREAER) reclassification
Serbia Floating Crawl-like Stabilized March 2, 2018
Singapore Other managed Stabilized Crawl-like February 9, 2018
South Sudan2 Floating Stabilized Crawl-like September 6, 2017
Sudan Managed float Other managed Stabilized January 22, 2018
Tajikistan Managed floating Stabilized Other managed April 11, 2018
Tajikistan3 Managed floating Stabilized July 11, 2018
Tanzania Free floating Stabilized Crawl-like January 1, 2018
Uzbekistan Floating Stabilized Other managed May 8, 2018
Uzbekistan3 Floating Crawl-like July 19, 2018
Zimbabwe Floating Other managed Floating February 20, 2019

1 This column refers to the arrangements as reported in the 2018 AREAER, except when a reclassification took place during January 1–April 30, 2018, in which case it
refers to the arrangement preceding such a reclassification.

2 The exchange rate arrangement was reclassified retroactively, overriding a previously published classification for the entire reporting period or part of the period.
3 Cells in the “Previous arrangement” column are blank if there was a subsequent reclassification during the reporting period.
Monetary Anchors17
The exchange rate remained the anchor for monetary policy for fewer than half of member countries—41.7 percent (Table 5).
There were two changes in official monetary anchors, compared with one in the previous reporting period: one country
(Zimbabwe) left the group of countries anchored to the US dollar (38) and moved to a monetary aggregate target. One country
moved from the group of countries anchored to a composite (8) to anchor to the US dollar. There were no changes in other
groups of members anchored to the euro (25) or to another single currency (9) (see Table 2).
Table 5. Monetary Policy Frameworks and Exchange Rate Anchors, 2011–19

(Percent of IMF members as of April 30)1
Other Monetary Inflation

Year US dollar Euro Composite currency aggregate targeting Other2
20113 25.3 14.2 7.4 4.2 15.3 16.3 17.4
20123 22.6 14.2 6.8 4.2 15.3 16.8 20.0
2013 23.0 14.1 6.8 4.2 13.6 17.8 20.4
2014 22.5 13.6 6.3 4.2 13.1 17.8 22.5
2015 22.0 13.1 6.3 4.2 13.1 18.8 22.5
20164 20.3 13.0 4.7 4.7 12.5 19.8 25.0
2017 20.3 13.0 4.7 4.7 12.5 20.8 24.0
2018 19.8 13.0 4.7 4.7 12.5 21.4 24.0
2019 19.8 13.0 4.2 4.7 13.5 21.4 23.4

1 Includes 189 member countries and three territories: Aruba, Curaçao and Sint Maarten, and Hong Kong SAR.
2 Includes countries that have no explicitly stated nominal anchor but instead monitor various indicators in conducting monetary policy.
3 Does not include South Sudan, which became an IMF member on April 18, 2012.
4 Includes Nauru, which became an IMF member on April 12, 2016.
17 Monetary anchors are defined as the main intermediate target the authorities pursue to achieve their policy goals (which, overwhelmingly, is price
stability). The inventory of monetary anchors is based mainly on members’ declarations in the context of the yearly AREAER update or Article IV con-
sultations and is not necessarily consistent with the de facto exchange rate arrangement.

Fifty-four member countries report an officially announced fixed exchange rate policy—either a currency board
or a conventional peg—which implies the use of the exchange rate as the unique monetary anchor, with two
exceptions. Although the official (de jure) exchange rate regime of both Samoa and the Solomon Islands is a
peg against a basket of currencies, the monetary policy framework was reported to comprise a mix of anchors,
including the exchange rate. Among the 66 countries with de facto floating exchange rate arrangements—
floating or free floating—the monetary anchor varies among monetary aggregates (5), inflation targeting (35),
and other (26, including the 19 European Economic and Monetary Union [EMU] countries). Twenty-one
countries implementing soft pegs and other managed arrangements target monetary aggregates. Countries with
either stabilized or crawl-like arrangements (43) report reliance on a variety of monetary frameworks, includ-
ing monetary aggregates and inflation-targeting frameworks. Other managed arrangements are split among
exchange rate anchors (2), monetary aggregate targets (6), and other monetary policy frameworks (5).
• The share of IMF members with the exchange rate as the main policy target declined slightly, to 41.7
percent. Countries with hard pegs and soft pegs make up 97.5 percent of this group. Three currency
unions—the Central African Economic and Monetary Community, Eastern Caribbean Currency Union,
and West African Economic and Monetary Union—have exchange rate anchors for their respective com-
mon currency.
• Although the US dollar maintained its position as the dominant exchange rate anchor, the share of coun-
tries using it as an anchor has been steadily decreasing, from 26.5 percent in 2010 to 19.8 percent in 2018
and 2019. From April 2018 to April 2019, there were two changes in this group. One country abandoned
the anchor to the US dollar and reported a change in the monetary policy framework to “monetary aggre-
gate target” (Zimbabwe) in the context of adopting a more flexible exchange rate arrangement. One country
switched its anchor currency to the US dollar and abandoned the anchor to a composite (Islamic Republic
of Iran).
• The share or composition of countries using an exchange rate anchored to the euro remained unchanged
at 13.0 percent. Countries whose currencies are anchored to the euro generally have historical ties with
European countries—for example, the Communauté Financière d’Afrique (CFA) franc area countries—are
part of the European Union (EU), or have strong trade relations with western Europe, including central and
eastern European countries—for example, Bulgaria, Montenegro, and North Macedonia.
• Nine countries maintain an exchange rate anchored to another single currency. Three of these countries
(Kiribati, Nauru, Tuvalu) use the Australian dollar as their legal tender, and one (Brunei Darussalam) has
a currency board arrangement with the Singapore dollar. The remaining five have conventional pegged
arrangements: three (Eswatini, Lesotho, Namibia) with the South African rand and two (Bhutan, Nepal)
with the Indian rupee. Half the countries in this group are landlocked, bordering either partially or exclu-
sively the country whose currency they use as their exchange rate anchor. The anchor currency is typically
freely usable in the country and is often legal tender.
• Eight countries anchor their exchange rate to a currency composite. Three track the special drawing right
(SDR) as the sole currency basket or as a component of a broader reference basket (Botswana, Libya, Syria).
Morocco tracks a euro and US dollar basket, and the remaining four countries do not disclose the composi-
tion of their reference currency baskets (Fiji, Kuwait, Singapore, Vietnam).
Most IMF member countries, representing the overwhelming share of global output, are split among mon-
etary aggregate targeting, inflation targeting, and “other” (which includes monetary policy not committed to
a specific target).
• The number of countries targeting a monetary aggregate increased by 2, to 26, compared with the previ-
ous reporting period. However, there were four changes: one country switched from monetary aggregate
targeting to “other monetary framework” (Tajikistan), and three countries moved to a monetary aggregate
target, two from “other monetary framework” (Papua New Guinea, Samoa) and one from an exchange rate
anchored to the US dollar (Zimbabwe). This category does not include any country with a free-floating
exchange rate arrangement. In fact, monetary aggregates are often the choice of economies with less-
developed financial markets and managed exchange rates. The objective of the arrangement is to influence
consumer prices and, eventually, asset prices through the control of monetary aggregates. Reserve money is
often used as the operational target to control credit growth through the credit multiplier.

• The number of countries that directly target inflation was unchanged at 41, and there were no changes
reported in this category. As in the previous AREAER, Jamaica described its monetary policy framework
as inflation targeting “lite”18 during this reporting period. The countries in this group are mostly middle
income but include some advanced economies as well. Of these, 35 have either floating or free-floating
exchange rate arrangements, policy frameworks that require considerable monetary policy credibility to
make up for the loss of transparent intermediate targets.19 The central bank is responsible for setting the
inflation target for 19 of the 41 countries in this category, and in 16 countries the central bank and the
government jointly set the targets. More than half of the countries (24) have a target with a tolerance band,
with only one country targeting core inflation. Most of the countries are in line with the inflation-targeting
regime’s commitments to transparency and accountability, 39 and 34 countries, respectively.
• The “other monetary policy framework” category total shrank by 1 to 45. The number of countries that are
not committed to a specific target (the “other” column in Table 2) was affected by three changes during the
reporting period: one country (Tajikistan) reported the use of a multiple-indicator approach to monetary
policy, and two countries (Papua New Guinea, Samoa) moved to a monetary aggregate target. A few coun-
tries in this category are in transition to an inflation-targeting framework (Kenya, Mongolia, Mozambique,
Sri Lanka, Tajikistan, Tunisia, Uzbekistan). This category includes many of the largest economies, such as
the euro area and the United States, where the monetary authorities have sufficient credibility to implement
monetary policy without a specific monetary anchor. It is also used as a residual classification for countries
for which no relevant information is available and for those with alternative monetary policy frameworks
not categorized in this report.
Foreign Exchange Interventions

The IMF staff regularly assesses whether the frequency of foreign exchange intervention is consistent with
de facto free-floating arrangements or whether classification as a soft peg is appropriate (see the Compilation
Guide). These assessments draw on information that is publicly available, information reported to the IMF
by member countries, market reports, and other sources, including information obtained during official staff
visits to member countries.
Intervention purpose
In general, central banks intervene to build reserves or to dampen excessive market volatility, but they may
also intervene in the foreign exchange market to fight depreciation pressure on the country’s currency, which
may have contributed to the reduction in reserves in emerging market and developing economies during the
second half of 2018. During this period, some countries’ currencies depreciated substantially—most notably
Angola, Argentina, Sudan, Venezuela, and, to a lesser extent, Haiti, Iceland, Kazakhstan, Liberia, Pakistan, Sri
Lanka, Tunisia, Turkey, and Zambia. From January 2019 through April 2019, among these countries, a few
currencies continued to depreciate rapidly (Argentina, Haiti, Venezuela), some substantially reduced the pace
of depreciation (Angola, Kazakhstan, Liberia, Turkey) or stabilized (Pakistan, Sudan, Zambia), and others
showed modest appreciation (Colombia, Iceland, Sri Lanka, Tunisia).
Intervention techniques
IMF members typically conduct foreign exchange interventions in the spot foreign exchange market, either
by directly contacting market participants (all or only a selection—for example, market makers) or through
foreign exchange auctions (for more information on auctions, see the Foreign Exchange Markets section of
this report). However, foreign exchange interventions occasionally also take place in the forward or options
markets or through verbal interventions.
18 Inflation targeting “lite” is viewed as a transitional regime that countries use before obtaining a legal mandate to operate a
full-fledged inflation-targeting regime.

19 Inflation targeting aims to address the problem of exchange rates and monetary aggregates that do not have a stable relation-
ship with prices, making intermediate targets less suitable for inflation control.

Preannounced programs of future purchases and/or sales of foreign exchange typically are counted as one
intervention in the foreign exchange market for the purpose of the de facto classification, with the assump-
tion that the market prices the new information on the day the program is announced.20 To avoid influencing
market expectations for the exchange rate, the program of interventions should indicate in advance the nature,
frequency, and size of the central bank’s foreign exchange transactions. Among the mechanisms currently
used in preannounced intervention programs, countries may accumulate reserves following a preannounced
calendar of auctions (Albania) or conduct purchases and sales of foreign exchange for the government pen-
sion fund (Norway). Similarly, Russia bases its volume of intervention on the amount of oil and gas revenue
in the federal budget. As long as the actual Urals price exceeds the benchmark oil price of US$40 a barrel (in
real 2017 terms, adjusted for US inflation), the Ministry of Finance purchases foreign exchange through the
Central Bank of Russia equal to the amount of additional oil and gas revenue. If actual prices drop below this
level, the Ministry of Finance sells foreign exchange equal to the amount of the resulting shortfall in oil and
gas revenue. The size of these operations is announced at the beginning of every month, and purchases are
evenly distributed within the month. Because of depreciation pressures, the Central Bank of Russia suspended
foreign exchange purchases from August to December 2018. All deferred purchases were to be carried out
regularly over 36 months starting in February 2019.
Some countries use derivatives as an alternative instrument to intervene in the foreign exchange market. In
January 2019, the National Bank of Georgia introduced foreign exchange put options to accumulate reserves,
which are sold via auctions. The Central Bank of Mexico uses nondeliverable forwards with maturity of up
to 12 months and settled in pesos. Similarly, the Central Bank of Colombia can intervene in the foreign
exchange market through (1) direct uniform price auction sales of put or call options, (2) direct uniform
price or discriminatory price auction sales of foreign exchange with three minutes of bids, and (3) spot sales
of foreign exchange by means of foreign exchange swap contracts at rates set by the central bank in auctions
or over the counter. The Bank of Korea can also intervene in the market with its funds and funds from the
Foreign Exchange Equalization Fund when it is deemed necessary for market stability. The Central Reserve
Bank of Peru can intervene through dollar-indexed bonds, foreign exchange swaps, and repurchase agree-
ments. The Central Bank of Brazil can also intervene in the derivatives market using foreign exchange swaps.
Other countries, including Albania, Armenia, Denmark,21 New Zealand, the Philippines, and Tunisia, have
also reported foreign exchange swaps as an intervention method.
Official Exchange Rates

The vast majority (167) of IMF member countries report that they publish official exchange rates. This
includes not only countries that have officially determined exchange rates; by definition, it also refers
to any reference or indicative exchange rate that is computed and/or published by the central bank (see
the Compilation Guide). The calculation of these exchange rates is often based on market exchange
rates, such as those used in interbank market transactions or in a combination of interbank and bank-
client transactions in a specified observation period. The published exchange rate is used as a guide for
market participants in their foreign exchange transactions, for accounting and customs valuation pur-
poses, in exchange transactions with the government, and sometimes mandatorily in specific exchange
transactions.
During the 2018–19 reporting period, several countries adopted new methods for calculating their offi-
cial exchange rates (Islamic Republic of Iran, Myanmar, Tunisia, Ukraine). Countries from all income
levels and various geographic regions are represented among the 25 members that report no official or
reference exchange rates; about half (12) are countries with no separate legal tender, 3 are soft pegs, 9
are floating or free floating, and 1 has the residual other managed de facto exchange rate arrangement.
Among the countries that do not compute an official exchange rate, some, including Japan, Peru, and
Singapore, publish the market-determined rates on their monetary authority’s website to promote infor-
mation transparency.
20 Very small, retail-type transactions are disregarded.

21 Denmark has a conventional peg arrangement to the euro.

Foreign Exchange Markets

The liberalization of foreign exchange markets continued during 2018 and through August 2019. Changes
in the structure and operation of members’ foreign exchange markets are summarized in Table 6. Foreign
exchange market practices overall remained largely similar to those during the previous reporting period,
although several countries, such as Ukraine and Uzbekistan, took considerable steps toward liberalizing the
foreign exchange market.
Member countries reported 99 changes related to foreign exchange markets. These were mostly easing mea-
sures (57) and neutral measures (27). Fifteen changes were tightening measures, with Serbia and Turkey
accounting for 3 each. Of the easing measures, slightly more than half are attributable to six countries:
Ukraine (7), Honduras (6), Turkey (5), Colombia (4), Morocco (4), and Serbia (4). These measures helped
facilitate trading in the foreign exchange market by easing restrictions on setting prices, holding foreign
exchange, and for hedging purposes.
Table 6. Foreign Exchange Market Structure, 2016–19

(Number of IMF members as of April 30)1
Market type 2016 2017 2018 2019

Spot exchange market 189 189 190 190
Operated by the central bank 119 118 118 119
Foreign exchange standing facility 72 71 70 68
Allocation 27 27 27 19
Auction 38 38 40 41
Fixing 5 5 5 5
Interbank market 170 171 174 173
Over the counter 137 138 142 145
Brokerage 51 51 51 49
Market making 73 72 72 71
Forward exchange market 139 140 140 140

¹ Includes 189 member countries and three territories: Aruba, Curaçao and Sint Maarten, and Hong Kong SAR.
Foreign exchange standing facility, allocations, auctions, and fixing

The number of countries with some type of official central bank facility in the spot foreign exchange market
increased by 1 to 119, reflecting the introduction of a central bank foreign exchange auction by Argentina in
June 2018. Central banks may provide access to foreign exchange to market participants through a standing
facility, allocation to certain market participants, or the purchase and sale of foreign exchange through auc-
tions or fixing sessions.
• Foreign exchange standing facilities—Sixty-eight countries reported standing facilities in their jurisdictions.
When a country has a foreign exchange standing facility it means that the central bank typically stands
ready to buy or sell foreign exchange to banks, thus providing a maximum and minimum exchange rate
for their currency for a given day. Such facilities are usually instrumental in maintaining a hard or soft peg
arrangement.
The countries with foreign exchange standing facilities include all those with currency boards (11); all
conventional pegs, except Iraq and São Tomé and Príncipe (40); all crawling pegs, except Honduras (2);
the only country with a pegged exchange rate within horizontal bands, Tonga (1); countries with crawl-
like arrangements (3); countries classified as stabilized arrangements (7); and countries with other man-
aged arrangements (2). The credibility of such arrangements depends largely on the availability of foreign

exchange reserves backing the facility. Two countries with flexible exchange rates reported that they had
foreign exchange standing facilities, similarly to last year’s report. These countries are Turkey (floating) and
Russia (free floating). Regarding Turkey, the Central Bank of the Republic of Turkey (CBRT) resumed
its intermediary function in the foreign exchange deposit market in August 2018 by guaranteeing foreign
exchange transactions between banks at a specified interest rate and maturity. In addition, the CBRT con-
ducts bilateral transactions in the Borsa Istanbul swap market and lends US dollars and euros to banks at
various maturities. Similarly, the Central Bank of Russia’s standing facility involves lending foreign exchange
by means of foreign exchange swaps to provide liquidity to the banking sector for financial stability reasons.
Compared with the previous issue of the AREAER, two additional countries reported the absence of stand-
ing facilities. No new countries introduced standing facilities during the reporting period, confirming the
pattern observed in recent years, when the number of countries operating standing facilities has declined
by one or two each year.
• Foreign exchange auctions—The number of countries reporting official foreign exchange auctions increased
by 1 to 41. The number and composition of countries that conducted auctions remain similar to the
previous year. In a significant majority (33 of 41) of countries foreign exchange auctions are the only
mechanism operated by the central bank. More than a third (14) have de facto exchange rate regimes that
are floating, including two that are free floating. Foreign exchange auctions can be used to intervene in
the foreign exchange market and influence the exchange rate, support price discovery, and manage foreign
exchange reserves. Among various changes reported, Argentina introduced a multiple price auction in 2018
as a mechanism to intervene in the market to smooth disorderly conditions while allowing the market to
determine the exchange rate. Sierra Leone resumed auctions in 2018 to smooth excess volatility after a brief
suspension of auctions in 2017. Tunisia introduced auctions to support price discovery in August 2018 and
later increased the frequency of auctions as they became the sole intervention mechanism since the begin-
ning of 2019. Colombia undertook a temporary program of reserve accumulation through monthly put
options. Auction participation was broadened in Colombia and Mauritius. On the other hand, limits on
bid spreads were tightened in Angola and Honduras to eliminate multiple currency practices that violated
their obligations under Article VIII.
• Foreign exchange allocation systems—The composition of countries with allocation systems remained the
same as in the previous reporting period.22 Nineteen countries reported having a foreign exchange alloca-
tion system. More than half of the countries (11) with allocation systems also rely on other mechanisms,
mainly standing facilities or auctions. Virtually all of them have a de facto soft peg arrangement. Foreign
exchange allocation is often used to provide foreign exchange for strategic imports, such as oil or food, when
foreign exchange reserves are scarce. For instance, this facility is used to bolster exports (Bangladesh) and
finance priority sector projects (Ethiopia) and strategic imports (Sudan and Suriname).
• Fixing sessions—This arrangement is characteristic of the early stage of foreign exchange market develop-
ment, when price discovery may be difficult. Fixing sessions allow the central bank to organize sessions in
which market participants can submit buying and selling bids. The central bank uses these bids to find the
market clearing exchange rate. The number of countries that reported operating fixing sessions remained
at five: the Islamic Republic of Iran, Mauritania, Mozambique, Syria, and Uzbekistan. Except for Iran, all
rely solely on fixing sessions to intervene in the foreign exchange market. For example, Mauritania and
Uzbekistan used this mechanism to determine the exchange rate based on the supply of and demand for
foreign currency. Uzbekistan also added the euro in its sessions. Serbia has not conducted any fixing sessions
since 2009, so it eliminated the possibility of organizing fixing sessions in April 2018.
Interbank and retail foreign exchange markets

The number of countries that reported having a foreign exchange interbank market stood at 173. The 19
jurisdictions that do not have an interbank market are typically places where either security concerns made
the operation of a foreign exchange market difficult in recent years, such as Somalia, South Sudan, Venezuela,
22 The drop in the number of countries reporting reflects eight WAEMU members reporting that they did not have an alloca-
tion system.

and Yemen; countries where the central bank maintains a conventional peg or currency board; or jurisdictions
where there is no separate legal tender. The latter two groups of countries consist of Aruba, Belize, Bhutan,
Dominica, Eritrea, Kiribati, Lesotho, Libya, the Marshall Islands, Micronesia, Montenegro, Nauru, Palau,
Timor-Leste, and Tuvalu. In most cases, these countries are small, and the size of the territory naturally limits
the number of potential participants in the foreign exchange market.
For countries that have an interbank market, the main types were over-the-counter markets, brokerage
arrangements, and market-making arrangements. Thirty-three members allow all three types of systems.
• Over-the-counter operations—These account for most of the world’s interbank markets. The number of
countries in this group has grown nearly every year since 2013, when it comprised 127 countries, and now
stands at 145. There was a net gain of three compared with the previous reporting period, in part because
of improved reporting; despite no formal interbank foreign exchange market, banks in these countries
(Liberia, St. Kitts and Nevis, St. Vincent and the Grenadines) can trade freely with one another. In contrast,
Somalia reported that interbank trading in foreign exchange is not permitted, and banks may not trade
with one another. Although this type of foreign exchange market appears to be gaining popularity among
IMF members, 28 countries with interbank markets still report that they do not engage in over-the-counter
operations.23 These countries do not share any particular characteristic in terms of size, income level, or
financial market sophistication.
• Brokerage arrangements—49 countries reported having a brokerage system. Compared with the previous
reporting period, Argentina reported that it has not had a brokerage system since the elimination of broker
trading in the electronic foreign exchange market and cancellation of all related licenses. Kosovo revised its
reporting and indicated that there is no brokerage system.
• Market-making agreements—71 countries reported having market-making agreements. This is one less than
during the previous reporting period, since Slovenia reported that its interbank market functioned without
a market-making agreement. Banking institutions in Slovenia participate in the over-the-counter foreign
exchange market. Mauritius suspended its foreign exchange market-making system in May 2018, and
banks, foreign exchange dealers, and money changers now operate over the counter.
Most member countries report a framework for the operation of foreign exchange bureaus; the majority
impose some type of licensing requirement. Curaçao and Sint Maarten have allowed bureaus to operate on
their territory since July 2018 if they obtain a license. Iran also allowed bureaus to operate again in August
2018 after a suspension lasting about four months. Several changes affected bureaus’ operations in various
countries during the reporting period, in general reducing constraints on their activities. For instance, Cabo
Verde, as part of a wide-ranging liberalization of the foreign exchange regime, since 2018 allows foreign
exchange bureaus to maintain accounts abroad without authorization from the central bank. In Morocco, as
a result of the move to more exchange rate flexibility, exchange bureaus, along with other intermediaries, may
set their bid-ask spread within 5 percent, compared with 0.6 percent previously. Uzbekistan allowed bureaus
to sell foreign exchange in cash to resident individuals. Previously, sales of foreign exchange to resident indi-
viduals was cashless and took place through credit to their international bank cards.
Most members refrain from restricting exchange rate spreads and commissions in the interbank market.
Among countries that maintain such restrictions, several relaxed them during the reporting period. Malawi
increased the maximum spread to 3 percent for telegraphic transfers and 6 percent for cash transactions, effec-
tive March 2018 (previously, neither spread could exceed 5 Malawian kwachas). In Morocco, consistently
with increased exchange rate flexibility, the Bank Al-Maghrib allows trading of foreign currency banknotes
against the dirham at ±2.5 percent in relation to the central exchange rate; the limit previously was ±0.3 per-
cent. In Pakistan, the margin between authorized dealers’ buying and selling rates was increased to 50 paisa
from 20 paisa in November 2018. In Uzbekistan, as part of the liberalization of the foreign exchange regime,
the previous limit on banks’ spreads and commissions were eliminated. In Kazakhstan, the limits on exchange
bureaus’ margin between the buying and selling rates of cash in US dollars and euros for tenge were elimi-
nated in January 2019. In Myanmar, the central bank eliminated the trading band around a central reference
rate for licensed money changers and authorized dealers conducting exchange transactions in August 2018.
23 Including seven members that do not specify a form of interbank market.

In contrast, Serbia limited the allowable spread set by the postal operator and authorized dealers: the buying
(selling) rate per euro cannot be more than 1.25 percent lower (higher) than the official midrate of the dinar
against the euro. In addition, the commission for purchases of foreign cash may not exceed 1 percent (previ-
ously 3 percent) of the value of the banknotes involved.
Iran took steps to unify the parallel and official market exchange rates. For this purpose, the Central Bank of
Iran decided to sell oil and gas revenues in the interbank as well as in the parallel market.
Across countries, a variety of easing measures were implemented that expanded the scope of transactions by
authorized dealers. Belarus in August 2018 eliminated the requirement that resident legal entities sell unused
foreign exchange and removed the requirement that residents provide documentation and obtain approval
to buy foreign exchange for current and capital transactions. Bhutan and Jamaica increased the limit above
which authorized dealers must sell their foreign exchange to the central bank. Honduras took steps between
February 2018 and July 2019 to increase the amount of foreign exchange authorized dealers may hold with-
out surrender to the central bank from 10 percent to 40 percent. India broadened the market by permitting
systemically important non-deposit-taking investment and credit companies to apply for licenses to deal in
foreign exchange. Mauritania increased the number of transactions permitted by authorized dealers outside
the organized foreign exchange market. Serbia expanded the number of currencies tradable in the foreign
exchange market, and Ukraine permitted banks to use any available means acceptable to the parties involved
in the transaction (for example, SWIFT) to confirm the purchase or sale of foreign currency in the interbank
currency market.
Other Measures
Most of the changes in other measures during the reporting period refer to forward operations, exchange rate
structure, other legal tender, and taxes on foreign exchange transactions.
• Forwards—Two tightening and 12 easing measures were reported on forward transactions across countries
in this year’s AREAER. Among tightening measures, China imposed an unremunerated reserve requirement
on financial institutions that sell foreign exchange forwards, which is currently set at 20 percent. Paraguay
set limits on the total value of forward contracts and later removed those limits for transactions that do not
involve the local currency. Among easing measures, Colombia permitted authorized agents to undertake
forward transactions to hedge commodity risks—and on any type of underlying assets—and permitted trans-
actions in credit default swaps without approval. To deepen the foreign exchange market, India eliminated
the underlying exposure requirement for foreign portfolio investors’ positions (long or short) for all currency
pairs involving the Indian rupee, up to US$100 million. Previously, foreign portfolio investors could take
positions only in US dollar–rupee pairs of currency derivatives up to US$15 million without establish-
ing an underlying exposure. Lebanon allowed commercial banks and financial institutions to undertake
transactions on behalf of their clients; previously, transactions were allowed only through specialized banks
or brokerage firms. Morocco allowed banks to offer an expanded combination of instruments for hedging
purposes. Turkey established trading of foreign exchange swaps on the regulated securities exchange (Borsa
Istanbul) and permitted banks to participate. Previously, banks traded foreign exchange swap transactions
over the counter. Ukraine lifted the limits on banks’ daily net foreign exchange purchases in the interbank
and retail market for their own positions, including in the forward market. The measure further allowed
banks to undertake forward transactions with other banks or residents involved in foreign economic activity
and eventually permitted hedging of debt operations (previously only risks related to imports and exports
could be hedged).
• Exchange rate structure—There were several changes in the number of countries maintaining a dual or mul-
tiple exchange rate structure. Currently, 22 countries are classified as having more than one exchange rate,
of which 12 are dual and 10 are multiple. This is mainly a result of specific exchange rates applied to certain
transactions or because of actual or potential deviations of more than 2 percent between official and other
exchange rates. During this reporting period, the exchange rate system of São Tomé and Príncipe was reclas-
sified from unitary to dual because of a spread between the official and the parallel market rates. Papua New
Guinea switched from unitary to multiple rates because of a spread of more than 2 percent (1) between the
rates set by the Bank of Papua New Guinea (BPNG) for its foreign exchange allocations to authorized deal-
ers and the rates used by authorized dealers in transactions with their clients and (2) between the rates set

by the BPNG for its foreign exchange transactions with the government and embassies and the rates used
by authorized dealers in transactions with their clients. Venezuela moved from dual to multiple because
of the existence of two legal foreign exchange rates and a parallel market rate. On the other hand, Iraq
was reclassified from multiple to dual and Uzbekistan from dual to unitary. In Uzbekistan, the domestic
currency was devalued by 50 percent, and the exchange rate is determined according to market principles.
This, along with other liberalization measures, eliminated the spread between the official and the parallel
markets, effectively ending the multiple exchange rate system. Although The Bahamas continued to have
a dual structure, it reduced the premium on purchases and sales of foreign currency connected to overseas
investments. Similarly, Sudan continued to have a multiple structure but eliminated the 100 percent cash
margin requirement for imports in October 2018.
• Other legal tender—16 countries officially allow the use of another legal tender in their territory. Compared
with the previous reporting period, Zimbabwe ended its multicurrency system, in place since 2009, and
designated the Zimbabwe dollar as the sole legal tender. In addition, during the reporting period, Bhutan
allowed the use of the new series of 500–Indian rupee banknotes. Previously, these banknotes had been
forbidden following their demonetization by the Indian government.
• Taxes and subsidies on foreign exchange transactions—Overall, 34 countries report taxing or subsidizing for-
eign exchange transactions during the reporting period, which is similar to the previous reporting period.
Libya introduced a new surtax on sales of foreign currency for commercial and personal purposes. The
remaining countries in this group report no change since the previous reporting period; the number has
been stable in recent years, with one tightening and one easing measure. Bolivia tightened its exchange rate
taxes. The financial transaction tax (Impuesto a las Transacciones Financieras) was increased from 0.25 per-
cent to 0.30 percent on January 1, 2018, and the program was extended until December 2023. Mauritius
eliminated its temporary subsidy program for exporters in March 2018.
Member Countries’ Obligations and Status under Articles VIII and XIV
This section provides an overview of the status of IMF members’ acceptance of the obligations of Article VIII,
Sections 2(a), 3, and 4, of the IMF’s Articles of Agreement and of the use of the transitional arrangements of
Article XIV. It also describes recent developments in restrictive exchange measures—namely, exchange restric-
tions and MCPs subject to IMF jurisdiction under Articles VIII and XIV and measures imposed by members
solely for national and/or international security reasons.
In accepting the obligations of Article VIII, Sections 2(a), 3, and 4, members agree not to impose restrictions
on payments and transfers for current international transactions or engage in discriminatory currency arrange-
ments or MCPs, except with IMF approval.24 If Article XIV members introduce exchange restrictions or MCPs
after joining the IMF, these restrictive measures are considered to have been imposed under Article VIII.
Status under Articles VIII and XIV

In 2018 the number of countries that had accepted Article VIII status increased by one (Figure 3). After
almost nine years since joining the IMF, Kosovo accepted Article VIII obligations on January 11, 2018,
increasing the number of Article VIII members to 172. The share of Article VIII members increased in the
first half of the decade 2000–10 and has remained flat at about 90 percent of total members in recent years.
Since 2000, there has been some progress in Article VIII acceptance among countries that have availed them-
selves of the transitional provisions of Article XIV. Their number had dropped from 34 in 2000 to 17 by
the end of 2018. However, this progress was most notable during 2000–05, when 15 Article XIV countries
accepted Article VIII obligations. Since 2000, three countries have joined the IMF accepting Article VIII
obligations (Montenegro, Nauru, Timor-Leste).
24 Countries that have accepted the obligations under Article VIII are referred to as “Article VIII members” or “Article VIII
countries”; similarly, those that have not and continue to avail themselves of the transitional provisions of Article XIV are referred
to as “Article XIV members” or “Article XIV countries” in this report.

Figure 3. IMF Members That Have Accepted the Obligations of Article VIII, Sections 2(a), 3, and 4, 1945–2018¹
200 100
Members that have

180 accepted Article VIII 90
160 IMF membership 80
140 Share of members 70

that have accepted Article VIII
120 (%, right-hand scale) 60
100 50
80 40
60 30
40 20
20 10
0 0`
1945 1950 1955 1960 1965 1970 1975 1980 1985 1900 1995 2000 2005 2010 2015

¹ As of December 31, 2018.
As of December 31, 2018, many members in Article XIV status continue to maintain restrictions subject
to IMF jurisdiction under Article VIII. Among the 17 members25 in Article XIV status, 3 do not maintain
restrictions but have not yet decided to accept the obligations under Article VIII. One country maintains
Article XIV exchange measures only. Three countries maintain both original or adapted Article XIV exchange
measures and Article VIII restrictions. The remaining 10 Article XIV countries maintain exchange measures
under Article VIII only.
Restrictive Exchange Measures

The first section below describes recent developments in exchange restrictions—measures that limit the avail-
ability and use of foreign currency for payments and transfers for current international transactions—and
MCPs subject to IMF jurisdiction under Articles VIII and XIV. In particular, changes in 2018 to exchange
restrictions and MCPs are indicated as reported in the latest IMF staff reports as of December 31, 2018. The
next section describes developments in measures imposed by members solely for national and/or international
security reasons during the reporting period.
Exchange restrictions and multiple currency practices26

The number of countries maintaining restrictive exchange measures remained unchanged overall in 2018, and
their composition has changed only marginally (Table 7).27 Article VIII members maintained more restrictive
exchange measures in 2018 (69 measures) than Article XIV members (62 measures).
25 As of December 31, 2018, the member countries that make use of the transitional arrangements under Article XIV are
Afghanistan, Angola, Bhutan, Bosnia and Herzegovina, Burundi, Eritrea, Ethiopia, Iraq, Liberia, Maldives, Myanmar, Nigeria,
São Tomé and Príncipe, Somalia, South Sudan, Syria, and Turkmenistan.
26 Countries maintaining exchange restrictions or multiple currency practices whose IMF staff reports are unpublished are not
mentioned in this section unless the authorities have consented to publication. However, their restrictive measures are included
in the numbers.
27 The AREAER does not indicate whether the Executive Board of the IMF has approved such measures.

One Article VIII member removed previously identified restrictive measures and maintains an exchange
system free of exchange restrictions and MCPs. In particular, with the liberalization of the foreign exchange
regime in Uzbekistan that started at the end of 2017, all previous measures related to payments and transfers
for current international transactions were eliminated—namely (1) two exchange restrictions arising from
undue delays in the availability of foreign exchange and the authorities’ practice of direct rationing of for-
eign exchange for such payments and transfers; and (2) an MCP arising from non-interest-bearing “blocked
accounts” for conversion of domestic currency to foreign exchange. On the other hand, one other Article
VIII member (Argentina) that previously maintained an exchange system free of restrictions introduced a
multiple price foreign exchange auction in 2018 giving rise to a multiple currency practice. As a result, the
overall number of Article VIII countries and Article XIV members that maintain restrictive exchange measures
remained unchanged in 2018.
The overall number of restrictive exchange measures increased by 6 in 2018, including 5 measures by
Article XIV members and 1 measure by Article VIII countries. In 2018, 5 restrictive measures (4 exchange
restrictions and 1 MCP) were reported to have been eliminated,28 while 11 new measures (7 exchange
restrictions and 4 MCPs) were introduced or newly identified. Article VIII members account for 4 of the
11 new measures (2 exchange restrictions and 2 MCPs) and 3 of the 5 removals (2 exchange restrictions
and 1 MCP).
In addition to Argentina, restrictive measures were introduced by Bhutan (one exchange restriction),
Nigeria (one exchange restriction and one MCP), São Tomé and Príncipe (one exchange restriction and
one MCP), Trinidad and Tobago (one exchange restriction), and Tunisia (one exchange restriction) in
2018. In contrast, Uzbekistan fully removed its restrictive measures, while a few other countries elimi-
nated some restrictive measures, but not all—for example, Bhutan eliminated one exchange restriction
(see below).
Although the overall number of restrictive measures maintained by Article XIV countries was less than in
Article VIII members in 2018, given the relatively small number of Article XIV members, they continued
to maintain significantly more restrictions and MCPs per country than Article VIII countries. The average
number of measures per country increased to 4.4 from 4.1 for Article XIV countries, while for Article VIII
countries it remained unchanged (about 1.9). The overall average number of such measures grew from 2.5 to
2.6 per country in 2018.
The types of newly identified exchange restrictions vary, but most of them apply to payments and transfers
for current international transaction related to imports. In Bhutan, an exchange restriction was identified
because importers’ access to foreign exchange is restricted if they do not provide evidence of importa-
tion of goods for which payments have been made. In Nigeria, an exchange restriction arising from the
central bank’s rationing and prioritization of foreign exchange was reintroduced. An exchange restriction
was identified in São Tomé and Príncipe as a result of rationing of foreign exchange by the central bank
in response to the increasing foreign exchange shortage and to prevent further depletion of international
reserves and safeguard the exchange rate peg. Amid continued foreign exchange market imbalance, the
authorities of Trinidad and Tobago started prioritizing provision of foreign exchange to certain manu-
facturers through a special facility using the Export-Import Bank of Trinidad and Tobago. An exchange
restriction was identified in Tunisia arising from the measures that restrict access to short-term financing
for certain imports.
The elimination of exchange restrictions also mostly affected trade transactions. In Bhutan, a previously
identified restriction limiting the availability of foreign exchange for importers who cannot identify the seller
was eliminated. Uzbekistan eliminated exchange restrictions related to payments and transfers for current
international transactions arising from undue delays in the availability of foreign exchange and the authorities’
rationing of foreign exchange.
28 This section does not reflect changes in members’ restrictive measures eliminated in 2018 but whose removal is reflected in
the IMF staff reports issued after December 31, 2018.

Most newly identified MCPs in 2018 arise from multiple price auctions. Argentina, in an effort to sup-
port exchange rate flexibility, introduced a multiple price foreign currency auction. The auction gave rise
to an MCP based on the potential deviation by more than 2 percent between winning bids as well as the
potential spread of more than 2 percent between auction rates and the market exchange rate. The poten-
tial deviation of more than 2 percent between the winning bids within the auction also gave rise to an
MCP in Nigeria. In São Tomé and Príncipe, rationing of foreign exchange by the central bank resulted in
a spread of more than 2 percent between the exchange rates in the formal and parallel markets, resulting
in an MCP.
Only one MCP was reported to have been eliminated in 2018. It was previously maintained by Uzbekistan
and was related to non-interest-bearing “blocked accounts” for conversion of domestic currency to foreign
exchange.
Table 8 provides the description of restrictive exchange measures as indicated in the latest IMF staff reports as
of December 31, 2018. Excluded from Table 8 are member countries that have not consented to the publica-
tion of such measures described in unpublished IMF staff reports.
Exchange measures maintained for security reasons

Some member countries maintain measures solely for national and/or international security reasons, which
could give rise to exchange restrictions under IMF jurisdiction if applied to payments and transfers for cur-
rent international transactions. These restrictions, like others, require prior IMF approval under Article VIII,
Section 2(a). However, because the IMF does not provide a suitable forum to discuss the political and military
considerations that lead to measures of this kind, it established a special procedure for such measures to be
notified to and approved by the IMF.29 In total, 119 member countries reported in 2018 to the IMF that they
maintained measures solely for security reasons, including 17 members who reported introducing or changing
such measures during 2018. The majority of the restrictions are financial sanctions to combat the financing
of terrorism or financial sanctions against certain governments, entities, and individuals in accordance with
United Nations Security Council resolutions, EU regulations, or decisions adopted by members on their own
initiative.
Table 7. Exchange Restrictions and Multiple Currency Practices, January 1–December 31, 2018
Member under …
Article XIV status Article VIII status Total
2016 2017 2018 2016 2017 2018 2016 2017 2018
Total number of restrictions and Multiple

Currency Practices maintained by members1 65 57 62 64 68 69 129 125 131
Restrictions on payments for imports 9 7 6 3 3 4 12 10 10
Advance import deposit and margin requirements 1 2 2 1 2 2
Restrictions on advance payments 1 1 1 1 2 1 1
Requirement to balance imports with export earnings 1 1 1 1 1 1
Restrictive rules on the issuance of import permits 1 1
Tax clearance requirements 2 1 1 2 1 1
Other 4 4 3 1 1 2 5 5 5
29 See Decision No. 144-(52/51) in International Monetary Fund, Selected Decisions and Selected Documents of the International
Monetary Fund, Issue 3, Washington, DC, 2012.

Table 7 (concluded)
Member under …
Article XIV status Article VIII status Total
2016 2017 2018 2016 2017 2018 2016 2017 2018
Restrictions on payments for invisibles 16 16 17 4 5 5 20 21 22
Education 1 1 1 1 1 1
Medical services 1 1 1 1 1 1
Travel services 4 4 4 4 4 4
Income on investment 7 7 7 4 3 3 11 10 10
Tax clearance requirement 3 3 3 1 1 1 4 4 4
Interest on deposits and bonds 1 1 1 2 1 1 3 2 2
Profits and dividends 2 2 2 1 1 1 3 3 3
Foreign exchange balancing for profit remittances 1 1 1 1 1 1
Other 3 3 4 2 2 3 5 6
Restrictions on amortization on external loans 2 2 2 3 2 2 5 4 4
Restrictions on unrequited transfers 3 2 2 1 1 1 4 3 3
Wages and salaries 1 1 1 1 1 1
Clearance of debt to government to remit wages 1 1
Other 2 2 2 2 2 2
Nonresident accounts 2 2 2 2 2 2 4 4 4
Transferability of frozen or blocked deposits 1 1 1 2 2 2 3 3 3
Limits on usage of foreign currency accounts 1 1 1 1 1 1
Restrictions arising from bilateral or regional 2 2 2 5 6 6 7 8 8
payment, barter, or clearing arrangements:
unsettled debit balances
Restrictions with general applicability 12 10 13 19 20 19 31 30 32
Administered allocations, rationing and undue delay 7 6 9 9 10 9 16 16 18
Payments above a threshold 1 1 1 1 1 1
Tax clearance certificates 1 1 1 1 1 1
Exchange taxes 1 1 1 3 3 3 4 4 4
Surrender of export earnings to have access to
foreign exchange 1 1 1 1 1 1
Other 4 3 3 4 4 4 8 7 7
Multiple currency practices 19 16 18 27 29 30 46 45 48
Exchange taxes 3 2 2 1 1 1 4 3 3
Exchange subsidies 2 3 3 2 3 3
Multiple price auctions 2 2 3 3 3 4 5 5 7
Differentials between official, commercial, and 12 11 12 18 18 19 30 29 31
parallel rates
Margin requirements 1 2 2 1 2 2
Non-interest-bearing blocked accounts 1 1 1 1
Non-interest-bearing advance import deposits 1 1 1 1 1 1
Exchange rate guarantees 1 1 1 1 2 1 1
Memorandum items:
Average number of restrictions per member 4.3 4.1 4.4 1.8 1.9 1.9 2.6 2.5 2.6
Number of countries with restrictions 15 14 14 35 36 36 50 50 50
Sources: AREAER database and IMF staff reports as of December 31, 2018.
1 Includes 189 members and 3 territories: Aruba, Curaçao and Sint Maarten, and Hong Kong SAR.

Table 8. Exchange Restrictions and/or Multiple Currency Practices, by Country, as of December 31, 2018
Country1 Exchange Restrictions and/or Multiple Currency Practices2
Albania The IMF staff report for the 2017 Article IV Consultation with Albania states that, as of November 14, 2017,
Albania continues to maintain an exchange restriction in the form of outstanding debit balances on inoperative
bilateral payment agreements. These were in place before Albania became an IMF member in 1991, and relate
primarily to debt in nonconvertible and formerly nonconvertible currencies. (Country Report No. 17/373)
Angola The IMF staff report for the 2018 Article IV Consultation with Angola states that, as of April 25, 2018, Angola
maintained restrictions on the making of payments and transfers for current international transactions under the
transitional arrangements of Article XIV, Section 2. The measures maintained pursuant to Article XIV are: (1) limits
on the availability of foreign exchange for invisible transactions, i.e. travel expenses; and (2) limits on unrequited
transfers to foreign-based individuals and institutions. In addition, Angola maintains three exchange restrictions
subject to IMF jurisdiction under Article VIII, Section 2(a) resulting from (1) the discriminatory application of
the 0.1 percent stamp tax on foreign exchange operations by natural persons; (2) the operation of the priority list
for access to US dollars at the official exchange rate; and (3) a special tax of 10 percent on transfers to nonresidents
under contracts for foreign technical assistance or management services. Angola also maintains three MCPs that are
subject to approval under Article VIII, Section 3 arising from the lack of a mechanism to prevent potential spreads
in excess of 2 percent emerging (1) between successful bids within the National Bank of Angola’s foreign exchange
auction, (2) for transactions that take place at the reference rate in place and the rate at which transactions take place
in the foreign exchange auction on that day, and (3) the discriminatory application of the 0.1 percent stamp tax on
foreign exchange operations by natural persons. (Country Report No. 18/156)
Argentina The IMF staff report for the Request for Stand-By Arrangement with Argentina states that, as of June 19, 2018,
Argentina maintained a multiple price auction that gives rise to an MCP subject to IMF approval under Article
VIII, Section 3 of the Articles of Agreement. In the absence of a mechanism that would prevent (1) a spread
deviation of more than 2 percent in the exchange rates at which the Central Bank of Argentina sells foreign
exchange to successful bidders; and (2) a spread deviation of more than 2 percent between the auction rates and the
market exchange rate, the auction results in an MCP. (Country Report No. 18/219)
Armenia The IMF staff Report for the 2017 Article IV Consultation and Fifth and Final Review under the Extended Arrangement
with Armenia states that as of June 8, 2017, Armenia maintained one MCP, which arises from a 2007 agreement
between the MOF and Central Bank of Armenia to settle some budgetary transactions at an agreed accounting exchange
rate throughout the fiscal year. Armenia maintains no other MCPs or exchange restrictions on the making of payments
and transfers for current international transactions except for exchange restrictions maintained for security reasons and
notified to the IMF pursuant to Executive Board Decision No. 144-(52/51). (Country Report No. 17/226)
Aruba The IMF staff report for the 2017 Article IV Consultation discussions with the Kingdom of the Netherlands—Aruba states
that, as of May 5, 2017, Aruba maintained an unapproved foreign exchange restriction arising from the foreign exchange tax
on payments by residents to nonresidents (1.3 percent of the transaction value). (Country Report No. 17/155)
Bangladesh The IMF staff report for the 2018 Article IV Consultation with Bangladesh states that, as of May 10, 2018, Bangladesh
maintained one restriction subject to IMF approval under Article VIII, Section 2(a) on the convertibility and transferability
of proceeds of current international transactions in nonresident taka accounts. (Country Report No. 18/158)
Bhutan The IMF staff report for the 2018 Article IV Consultation with Bhutan states that, as of August 7, 2018, Bhutan
continues to avail itself of transitional arrangements under Article XIV, Section 2, pursuant to which it maintains
exchange restrictions in connection with: (1) the availability of foreign exchange for travel, except for medical
travel abroad by Bhutanese citizens, invisibles, and private transfers; (2) foreign exchange balancing requirement on
remittances of income in convertible currencies or other foreign currencies from FDI; and (3) on the availability
of foreign exchange for importers who have not provided evidence that goods for which payments have been made
were actually imported. Bhutan also maintains exchange restrictions subject to IMF approval under Article VIII,
Section 2(a) in connection with: (1) the foreign exchange balancing requirements for imports of capital goods (for
projects involving FDI) and primary raw materials (for certain industrial projects); (2) banning residents who do not
comply with the requirement to repatriate export proceeds from accessing foreign exchange for unrelated imports;
(3) requiring foreign direct investment companies to pay for their establishment and operational expenses from their
own convertible currency resources; (4) requiring Bhutanese companies to pay the interest on and amortization
of external loans from their own convertible currency resources; (5) restricting the availability of Indian rupees for
making payments and transfers to India for certain current international transactions and banning the access to
Indian rupees for unrelated current international transactions for those who contravene Royal Monetary Authority’s
2012 guidelines on Indian rupee transactions. (Country Report No.18/300)
Bosnia and The IMF staff report for the 2017 Article IV Consultation, First Review under the Extended Arrangement under
Herzegovina the Extended Fund Facility, Requests for Extension of the Arrangement, Rephasing of Purchases and Waiver of
Nonobservance of Performance Criterion with Bosnia and Herzegovina states that, as of January 29, 2018, Bosnia
and Herzegovina maintained restrictions on the transferability of balances and interest accrued on frozen foreign
currency deposits, subject to IMF jurisdiction under Article VIII. (Country Report No. 18/39)
Brazil The IMF staff report for the 2018 Article IV Consultation with Brazil states that, as of June 20, 2018, the tax on
financial transactions (Imposto sobre Operações Financeiras, IOF) of 6.38 percent on exchange transactions carried out by
credit card, debit card, and traveler’s checks (including cash withdrawals) companies to fulfill their payment obligations
for purchases of goods and services abroad by their customers gives rise to an MCP subject to IMF jurisdiction under
Article VIII, Sections 2(a) and 3. In January 2008, the IOF for these exchange transactions was raised to 2.38 percent
and then further increased to 6.38 percent in March 2011. The scope of operations was expanded to other foreign
exchange transactions than with credit cards in December 2013. (Country Report No. 18/253)

Table 8 (continued)
Burundi The IMF staff report for the 2014 Article IV Consultation, Fifth Review under the Three-Year Arrangement under
the Extended Credit Facility states that, as of July 29, 2014, Burundi maintained one MCP that is inconsistent with
Article VIII, Section 2(a): the exchange rate used for government transactions differs by more than 2 percent from
market exchange rates. (Country Report No. 14/293)
Colombia The IMF staff report for the 2018 Article IV Consultation with Colombia states that, as of April 16, 2018,
Colombia maintained an exchange restriction subject to IMF approval under Article VIII arising from the special
regime for the hydrocarbon sector. (Country Report No. 18/128)
Congo, The IMF staff report for the 2015 Article IV Consultation with the Democratic Republic of the Congo (DRC)
Democratic states that, as of August 17, 2015, the DRC maintained measures that give rise to one exchange rate restriction and
Republic of one MCP subject to IMF approval. The exchange restriction involves an outstanding net debt position against other
the contracting members under the inoperative regional payments agreement with the Economic Community of the
Great Lakes Countries. The MCP relates to a fixed exchange rate provided for in a bilateral payments agreement
with Zimbabwe. (Country Report No. 15/280)
Ecuador The IMF staff report for 2016 Article IV Consultation with Ecuador states that, as of June 27, 2016, Ecuador
maintained an exchange restriction subject to IMF approval arising from a 5 percent tax on transfers for the making
of payments and transfers on current international transactions. Last year, the tax was waived for the outflows relating
to bank loans of over one year for specific sectors identified in the Productive code (e.g. housing and microfinance).
More recently, waivers were added for transactions up to US$5,000 annually related to trips abroad that are paid using
a debit or credit card, while at the same time extending the tax so that any cash taken abroad for tourism in excess of
US$1,098 for each adult and US$366 for each minor will also be taxed at 5 percent. (Country Report No. 19/81)
Egypt The IMF staff report for the 2017 Article IV Consultation with Egypt states that, as of December 11, 2017, Egypt
is an Article VIII member and maintains one exchange restriction subject to IMF jurisdiction under Article VIII,
Sections 2(a) and 3 arising from a net debtor position under an inoperative bilateral payments arrangement with
Bulgaria. (Country Report No. 18/14)
Ethiopia The IMF staff report for the 2018 Article IV Consultation with Ethiopia states that, as of November 13, 2018, Ethiopia
maintained four restrictions on payments and transfers for current international transactions, which relate to: (1) the tax
certification requirement for repatriation of dividend and other investment income; (2) restrictions on repayment of legal
external loans and suppliers of foreign partners credits; (3) the prioritization and rationing of foreign exchange to certain
imports of goods and services, debt payments and invisibles, and (4) the requirement to provide a clearance certificate
from the National Bank of Ethiopia (NBE) to obtain import permits. These restrictions are inconsistent with Article
VIII, Section 2(a), of the IMF’s Articles of Agreement and remain unapproved. In addition, staff is in the process of
assessing whether a significant spread between the parallel market cash rate and the official market exchange rate, or any
other feature of Ethiopia’s exchange system, may give rise to an MCP. (Country Report No. 18/354)
Fiji The IMF staff report for the 2017 Article IV Consultation with Fiji states that, as of January 10, 2018, Fiji
maintained exchange restrictions subject to Article VIII arising from the Fiji Revenue and Customs Authority tax
certification requirements on the transfer abroad of profits and dividends, on the proceeds of airline ticket sales,
and on the making of external debt and maintenance payments and from limits on large payments (for example, oil
imports and dividends repatriation of foreign banks). (Country Report No. 18/34)
Gabon The IMF staff report for the Request for an Extended Arrangement under the Extended Fund Facility states that, as
of June 6, 2017, Gabon maintained a tax on wire transfers, including for the making of payments and transfers for
current international transactions, which gives rise to an exchange restriction subject to IMF approval under Article
VIII, Section 2(a) of the Articles. The authorities have exempted certain transactions from the tax; however, the tax
continues to apply to other transfers subject to IMF jurisdiction. (Country Report No. 17/205)
Ghana The IMF staff report for the 2017 Article IV Consultation, Fourth Review under the Extended Credit Facility
Arrangement, Request for Waiver for Nonobservance of Performance Criteria, and Request for Extension and
Rephasing of the Arrangement with Ghana states that as of August 3, 2017, Ghana maintained one exchange
restriction and an MCP subject to IMF approval. The exchange restriction arises from the limitation/prohibition on
purchasing and transferring foreign exchange for import transactions by importers who have not submitted to the
commercial bank customs entry forms for any past foreign exchange transactions related to imports, and which are
unrelated to the underlying transaction. An MCP also arises, because the Bank of Ghana (BOG) requires the use of
its internal rate (that is, the previous day’s weighted average interbank exchange rate) for government transactions
and the surrender of foreign exchange proceeds from cocoa exports funded through the cocoa syndicated loan
without having a mechanism in place to ensure that, at the time of the transaction, this exchange rate does not differ
from the rate prevailing in the market rate (that is, the interbank exchange rate) and the rates used by banks in their
transactions with their customers by more than 2 percent. (Country Report No. 17/262)
Greece The IMF staff report for the 2018 Article IV Consultation with Greece states that, as of July 13, 2018, Greece
maintained three exchange restrictions subject to IMF approval under Article VIII, Section 2(a) arising from the
following measures: (1) absolute limits and discretionary Bank Transactions Approval Committee (BTAC) approval
of the availability of foreign exchange for certain payments and transfers for (a) current international transactions
related to normal business activities and (b) invisible transactions and remittances (such as travel, except for tuition
fee and medical expenses); (2) discretionary BTAC approval of transfers abroad of moderate amounts for the
amortization of loans and of income from investments including dividends and interest payments of non-financial
entities to nonresidents; and (3) absolute limits on withdrawal of cash from bank accounts in Greece in the absence
of an unrestricted channel for payments due to discretionary BTAC approval and absolute limits. (Country Report
No. 18/248)

Table 8 (continued)
Guinea The IMF staff report for the First Review of the Arrangement under the Three-Year Extended Credit Facility,
Financing Assurances Review, and Request for Modification and for Waivers of Nonobservance of Performance
Criteria states that, as of June 8, 2018, the foreign exchange system gives rise to an MCP because the reference rate
can potentially deviate by more than 2 percent from the commercial banks’ purchase and sales rates on a given day.
(Country Report No. 18/234)
Honduras The IMF staff report for the 2018 Article IV Consultation with Honduras states that, as of May 15, 2018,
Honduras maintained two MCPs subject to IMF approval under Article VIII, Section 3. The two MCPs arise from
the absence of a mechanism to prevent the potential deviation of more than 2 percent at any given time among
effective exchange rates for spot exchange transactions: (1) between successful bids within the foreign exchange
auction; and (2) between the official exchange rate (TCR) of the day and the exchange rates at which foreign
exchange is sold at the auction on that day. (Country Report No. 18/206)
India The IMF staff report for the 2018 Article IV Consultation with India states that, as of July 2, 2018, India
maintained the following restrictions on the making of payments and transfers for current international transactions,
which are subject to IMF approval under Article VIII, Section 2(a): (1) restrictions related to the nontransferability
of balances under the India-Russia debt agreement; (2) restrictions arising from unsettled balances under inoperative
bilateral payments arrangements with two Eastern European countries; and (3) a restriction on the transfer of
amortization payments on loans by nonresident relatives. (Country Report No. 18/254)
Iran The IMF staff report for the 2018 Article IV Consultation with Islamic Republic of Iran states that, as of March 7,
2018, Iran maintained MCPs and an exchange restriction subject to IMF jurisdiction under Article VIII, Sections
2(a) and 3: (1) An MCP and an exchange restriction arise from the establishment of an official exchange rate for
use in some exchange transactions, which in practice differs by more than 2 percent from the rate used by foreign
exchange bureaus. (2) An MCP arises from the differences of more than 2 percent between the current official and
exchange bureaus rates and the preferential rates for certain imports for which foreign exchange commitments were
made through LCs opened prior to March 21, 2002, under the previous multiple exchange rate system. (3) An
MCP arises from the differences of more than 2 percent between the current official and exchange bureaus rates and
the preferential rates for certain imports for which foreign exchange payment commitments were made through LCs
or bank drafts prior to July 24, 2012. (Country Report No. 18/93)
Iraq The IMF staff report for the 2017 Article IV Consultation, Second Review under the Three-Year Stand-By
Arrangement, and Requests for Waivers of Nonobservance and Applicability of Performance Criteria, and
Modification of Performance Criteria with Iraq states that, as of July 25, 2017, Iraq continues to avail itself of the
transitional arrangements under Article XIV, Section 2 but no longer maintains any exchange restrictions or MCPs
subject to Article XIV, Section 2, and currently maintains one exchange restriction and one MCP subject to IMF
approval under Article VIII, Sections 2(a) and 3. The exchange restriction arises from an Iraqi balance owed to
Jordan under an inoperative bilateral payments agreement. The MCP arises from the official action to limit the
purchase of foreign exchange, with no mechanism to ensure that exchange rates in the official and parallel markets
do not deviate from each other by more than 2 percent. (Country Report No. 17/251)
Jamaica The IMF staff report for the 2018 Article IV Consultation, Third Review under the Stand-By Arrangement and
Request for Modification of Performance Criteria states that, as of March 27, 2018, Jamaica maintained an MCP,
subject to IMF approval under Article VIII, Section 3, because of the absence of a mechanism in the multiple
price foreign currency auction to prevent exchange rates of accepted bids from deviating by more than 2 percent.
Kyrgyz The IMF staff report for the Fourth and Fifth Reviews under the Three-Year Arrangement under the Extended Credit
Republic Facility and Request for Modification of Performance Criteria with the Kyrgyz Republic states that as of December 6,
2017, the Kyrgyz Republic maintained an MCP, which predates the arrangement, arising from the use of the official
exchange rate for government transactions. The official rate may differ by more than 2 percent from market rates
because it is based on the average transaction-weighted rate of the preceding day. (Country Report No. 18/53)
Lesotho The IMF staff report for the 2017 Article IV Consultation with Lesotho states that, as of January 31, 2018, Lesotho
maintained one exchange restriction arising from single discretionary allowances of M 1 million an individual a calendar
year, for residents over 18, and of M 200,000 on the same basis for residents under 18. The availability of foreign
exchange beyond these limits is subject to a discretionary approval on a case-by-case basis. (Country Report No. 18/54)
Maldives The IMF staff report for the 2017 Article IV consultation with Maldives states that as of October 6, 2017, Maldives
maintained an exchange restriction subject to the IMF approval under Article VIII, Section 2(a) of the IMF Articles
of Agreement arising from a shortage of foreign exchange at the official rate which leads to the Maldives Monetary
Authority (MMA) rationing its supply of foreign exchange to commercial banks. This results in a channeling of foreign
exchange transactions for current international transactions to the parallel market where transactions take place at
an exchange rate that deviates by more than 2 percent from the prevailing market exchange rate. The greater than 2
percent spread gives rise to MCP subject to the IMF approval under Article VIII, Section 3, and also to an exchange
restriction, given the additional cost involved for obtaining foreign exchange. The extent of rationing has been eased
over the past two years by increasing the amounts provided to commercial banks and adjusting amounts in line with
seasonal patterns. The official exchange rate used by the MMA for government transactions is calculated based on
the midpoint of the weighted average of the buying and selling rates of foreign exchange transactions conducted by
commercial banks one day earlier. The lack of a mechanism to prevent the spread between this official exchange rate
used by the MMA for government transactions and the prevailing market exchange rate from deviating by more than 2
percent gives rise to an MCP subject to the IMF approval under Article VIII, Section 3. (Country Report No. 17/357)

Table 8 (continued)
Mauritania The IMF staff report for the 2017 Article IV Consultation with Mauritania states that, as of July 13, 2017,
Mauritania maintained one exchange restriction subject to IMF approval under Article VIII of the IMF’s Articles of
Agreement. The exchange restriction arises from the insufficient foreign exchange availability at the fixing sessions
(auctions) organized by the Central Bank of Mauritania (BCM) for those transactions which are required to be
submitted to the auctions. (Country Report No. 17/324)
Mauritius The IMF staff report for the 2017 Article IV Consultation with Mauritius states that as of November 7, 2017,
Mauritius maintained an MCP. On September 11, 2017, the authorities introduced the Exchange Rate Support
Scheme (ERSS), which aims to provide a temporary subsidy to exporters in light of the depreciation of the US
dollar. The amount of the subsidy will be determined by the difference between a reference rate (US$1 = MUR
34.50) and the rate at which the exporter has exchanged its export proceeds at its commercial bank, subject to a
maximum of MUR 2.50 per dollar. The scheme will run over a period of six months and will be administered by
the Ministry of Industry, Commerce and Consumer Protection. The ERSS gives rise to an MCP under Article VIII,
Section 3. (Country Report No. 17/362)
Mongolia The IMF staff report for the 2017 Article IV Consultation and Request for an Extended Arrangement under the
Extended Fund Facility with Mongolia states that, as of April 14, 2017, Mongolia maintained two MCPs subject
to IMF jurisdiction. First, the modalities of the multi-price auction system give rise to an MCP because there is no
mechanism in place which ensures that exchange rates of accepted bids at the multi-price auction do not deviate by
more than 2 percent. In addition, Mongolia has an official exchange rate (reference rate) that is mandatorily used
for government transactions (as opposed to the commercial market rate). Therefore, by way of official action, the
authorities have created market segmentation. While Order #699 of the Bank of Mongolia (BOM) issued December
3, 2010, sets forth that the reference rate is determined based on the weighted average of market rates used from
4:00 p.m. of the previous day to 4:00 p.m. of the current day, the IMF staff is of the view that this Order does not
eliminate the market segmentation and multiplicity of effective rates arising from it. Accordingly, in the absence of
a mechanism to ensure that the commercial rates and the reference rate do not deviate by more than 2 percent, the
way the reference rate is used in government transaction gives rise to an MCP subject to IMF approval. (Country
Report No. 17/140)
Montenegro The IMF staff report for the 2018 Article IV Consultation with Montenegro states that, as of May 4, 2018,
Montenegro maintained an exchange system free of restrictions on the making of payments and transfers for
current international transactions, except with respect to pre-1992 blocked foreign currency savings accounts
and restrictions maintained for security purposes that have not been notified to the IMF. (Country Report No.
18/121)
Myanmar The IMF staff report for the 2017 Article IV Consultation with Myanmar states that, as of February 9, 2018,
Myanmar continues to avail itself of transitional arrangements under Article XIV, although it has eliminated all
Article XIV restrictions. However, Myanmar still maintained an exchange restriction and an MCP subject to IMF
approval under Article VIII. The exchange restriction subject to IMF jurisdiction arises from the requirement of tax
certification for authorizing transfers of net investment income abroad. The MCP arises from the two-way, multi-
price foreign currency auction in the absence of a mechanism for maintaining winning bids within 2 percent of each
other. (Country Report No. 18/90)
Nepal The IMF staff report for the 2017 Article IV Consultation with Nepal states that as of March 13, 2017, the
Industrial Enterprises Act places a 75 percent limit on the conversion and transfer to foreign currency of salaries
of nonresidents from countries where convertible currency is in circulation. Since the limit applies to amounts
that may be less than net salaries, it gives rise to an exchange restriction under Article VIII. (Country Report
No. 17/74)
Nigeria The IMF staff report for the 2018 Article IV Consultation with Nigeria states that, as of February 15, 2018, Nigeria
maintained the following exchange restrictions subject to IMF approval under Article VIII, Section 2(a), of the
IMF’s Articles of Agreement: (1) an exchange restriction arising from the prohibition to access foreign exchange
at the Nigerian foreign exchange markets for the payment of imports of 40 categories of items; (2) an exchange
restriction arising from the rationing of foreign exchange in the Central Bank of Nigeria’s (CBN’s) IFEM and
Secondary Market Intervention Sale (SMIS) windows, and its allocation based on the CBN’s determination of
priority categories of transactions; and (3) an exchange restriction arising from existing limits on the amounts
of foreign exchange available when traveling abroad (business travel allowance (BTA)/personal travel allowances
(PTAs)), which cannot be exceeded even on verification of the bona fide nature of the transaction. In addition,
Nigeria maintains the following MCPs subject to IMF approval under Article VIII, Sections 2(a) and 3, of the
IMF’s Articles of Agreement: (1) an MCP arising from the intervention practice of the CBN that results in the
establishment of an official exchange rate for use in all official transactions, which in practice differs by more than
2 percent from the rate used by commercial banks in the CBN foreign exchange windows (SMIS, SME, IFEX, and
Invisibles) and by money transfer operators; (2) an MCP arising from the large spread between the official exchange
rate and the rates in the parallel market, caused by the CBN’s limitation on the availability of foreign exchange
which channels current international transactions to such market; and (3) an MCP arising from the potential spread
of more than 2 percent in the exchange rates at which the CBN sells foreign exchange to successful auction bidders
in the SMIS window. (Country Report No. 18/63)
Pakistan The IMF staff report for the First Post-Program Monitoring Discussions with Pakistan states that, as of February 16,
2018, the cash margin requirements on import payments constitute an exchange restriction and multiple currency
practice subject to IMF jurisdiction under Article VIII, 2(a) and 3. (Country Report No. 18/78)

Table 8 (continued)
Papua New The IMF Staff Report for the 2018 Article IV Consultation with Papua New Guinea states that, as of
Guinea November 9, 2018, Papua New Guinea maintained the following exchange restrictions subject to IMF
approval under Article VIII, Section 2(a) of the IMF’s Articles of Agreement arising from: (1) the requirement
to obtain a tax clearance certificate evidencing the payment of all taxes prior to making payments or transfers
for certain current international transactions; and (2) the rationing of foreign exchange and its allocation
by the Bank of Papua New Guinea (BPNG) to certain priority items, which results in undue delays and
arrears in current international payments. Papua New Guinea also maintains the following MCPs subject
to IMF approval under Article VIII, Section 3: (1) an MCP arising from the spread of more than 2 percent
between the rates set by the BPNG for its foreign exchange allocations to authorized foreign exchange dealers
(AFEDs) and the rates used by AFEDs in transactions with their clients; and (2) an MCP arising from the
potential spread deviation of more than 2 percent between the rates set by the BPNG for its foreign exchange
transactions with the government and embassies and the rates used by AFEDs in transactions with their
clients. (Country Report No. 18/352)
São Tomé The IMF staff report for the 2018 Article IV Consultation, Fifth Review under the Extended Credit
and Príncipe Facility, Request for Waivers for Nonobservance of Performance Criteria, and Financing Assurances Review
with São Tomé and Príncipe states that, as of July 9, 2018, São Tomé and Príncipe did not maintain
restrictions under Article XIV. However, it maintained one previously identified and one newly identified
restriction subject to IMF approval under Article VIII. The previously identified exchange restriction
regarding limitations on the transferability of net income from investment arises from Article 3(g) and
Article 18 of the Investment Code (Law No. 19/2016). The restriction results from the requirement that
taxes and other obligations to the government have to be paid/fulfilled as a condition for transfer, to the
extent the requirement includes the payment of taxes and the fulfillment of obligations unrelated to the net
income to be transferred. In the context of the 2018 Article IV Consultation, staff found that São Tomé and
Príncipe maintained an additional exchange restriction that is subject to IMF approval under Article VIII.
This exchange restriction arises from limitations on the availability of foreign exchange through rationing of
foreign exchange by the Bank of São Tomé and Príncipe (BCSTP). This exchange restriction also gives rise
to an MCP as the rationing has channeled bona fide current transactions to the parallel market where the
exchange rate is at a spread of more than 2 percent from the exchange rate in the formal market. (Country
Report No. 18/251)
Serbia The IMF staff report on the 2017 Article IV Consultation and Seventh Review under the Stand-by Arrangement
with Serbia states that, as of August 11, 2017, Serbia maintained a system free of restrictions on payments and
transfers for current international transactions, except with respect to blocked pre-1991 foreign currency savings
deposits. (Country Report No. 17/263)
South Sudan The IMF staff report on the 2016 Article IV Consultation with South Sudan states that, as of March 1, 2017,
South Sudan maintained exchange restrictions and an MCP under the transitional arrangements of Article XIV.
The exchange restrictions arise from: imposing absolute ceilings on the availability of foreign exchange for certain
invisible transactions (travel, remittances for living expenses of students and families residing abroad, transfers of
salaries by foreign workers). The MCP, which also gives rise to an exchange restriction because of extra burden,
arises from the spread of more than 2 percent between the parallel market exchange rate and the formal commercial
exchange market rate. (Country Report No. 17/73)
Sudan The IMF staff report for the 2017 Article IV Consultation with Sudan states that, as of November 15,
2017, Sudan maintained the following measures subject to IMF jurisdiction under Article VIII, Sections
2 (a) and 3: (1) an exchange restriction arising from the government’s limitations on the availability of
foreign exchange and the allocation of foreign exchange to certain priority items; (2) an MCP and exchange
restriction arising from the establishment by the government of a system of multiple exchange rates used
for official and commercial transactions (that is, the Central Bank of Sudan (CBOS) rate, the wheat rate,
and the commercial bank incentive rate), which gives rise to effective exchange rates that deviate by more
than 2 percent; (3) an MCP and exchange restriction arising from large spreads between the CBOS rate and
the parallel market exchange rate because of the CBOS’ limitation on the availability of foreign exchange
which channels current international transactions to the parallel market; and (4) an exchange restriction and
an MCP arising from the imposition by the government of a cash margin requirement for most imports.
Syria The IMF staff report for the 2009 Article IV Consultation with Syria states that, as of February 12, 2010, Syria
maintained under Article XIV restrictions on payments and transfers for current international transactions,
including administrative allocation of foreign exchange. Syria also maintained exchange measures that are subject to
IMF approval under Article VIII: (1) prohibition against purchases by private parties of foreign exchange from the
banking system for some current international transactions; (2) an MCP resulting from divergences of more than
2 percent between the official exchange rate and officially recognized market exchange rates; (3) a non-interest-
bearing advance import deposit requirement of 75 percent–100 percent for public sector imports; and (4) an
exchange restriction arising from the net debt under inoperative bilateral payments arrangements with the Islamic
Republic of Iran and Sri Lanka. (Country Report No. 10/86)

Table 8 (concluded)
Trinidad and The IMF staff report for the 2018 Article IV Consultation with Trinidad and Tobago states that, as of August
Tobago 6, 2018, Trinidad and Tobago maintained an exchange restriction and two MCPs subject to IMF approval
under Article VIII, Section 2(a) and Section 3. The exchange restriction arises from the authorities’ restriction
of the exchange rate (that is, by restricting the maximum market buying and selling rates, and prohibiting
foreign exchange transactions beyond the maximum rates), while not providing enough foreign exchange (that
is, through the Central Bank of Trinidad and Tobago (CBTT’s) foreign exchange interventions) to meet all
demand for current transactions at that rate. The CBTT also limits sales of its foreign exchange intervention
funds to meeting only “trade-related” demand, which do not include non-trade transactions that are, however,
current international transactions as defined under Article XXX(d) of the IMF’s Articles of Agreement, and
encourages ADs to similarly prioritize sales of foreign exchange obtained from other sources. Further, the
authorities prioritize provision of foreign exchange to certain manufacturers through a special foreign exchange
facility using the Export-Import Bank of Trinidad and Tobago (EximBank). These actions result in undue delays
in access to foreign exchange to make payments or transfers for current international transactions and external
payment arrears. The two MCPs arise from the absence of a mechanism to prevent the potential deviation of
more than 2 percent at any given time among several effective exchange rates regulated by the authorities, for
spot exchange transactions; namely: (1) The potential 2 percent deviation between: (a) on the one hand, the
CBTT`s intervention rate and the ADs’ selling rates (the maximum of which is anchored on the intervention
rate plus fixed margins), and (b) on the other hand, the ADs’ buying rates (the maximum of which is limited
at the previous day’s mid-rate). (2) The potential 2 percent deviation between: (a) on the one hand, the buying
and selling rates for foreign exchange transactions between the CBTT and the government, and (b) on the other
hand, the ADs’ selling rates. (Country Report No. 18/285)
Tunisia The IMF staff report for the 2017 Article IV Consultation, Second Review under the Extended Fund Facility, and
Request for Waivers of Nonobservance of Performance Criteria, and Rephasing of Access with Tunisia states that, as
of March 14, 2018, Tunisia maintained the following measures subject to IMF approval under Article VIII, Sections
2(a) and 3: (1) an exchange restriction arising from the measures that restricts access to short-term financing for
current international transactions that was customarily available; and (2) an MCP resulting from honoring exchange
rate guarantees extended prior to August 1988 to development banks, which will automatically expire after maturity
of existing commitments (total loans covered by these guarantees amount to about US$20 million). (Country Report
No. 18/120)
Ukraine The IMF staff report for the Request for Stand-By Arrangement and Cancellation of Arrangement under
the Extended Fund Facility with Ukraine states that as of December 7, 2018, Ukraine maintained exchange
restrictions and MCPs, but a road map is in place to gradually phase them out. The exchange restrictions arise
from: (1) absolute limits on the availability of foreign exchange for certain non-trade current international
transactions; and (2) a partial ban on the transfer abroad of dividends received by nonresident investors from
foreign investments in Ukraine. The MCPs arise from: (1) the use of multiple price foreign exchange auctions
conducted by the National Bank of Ukraine (NBU) without a mechanism to prevent a spread deviation of
more than 2 percent between the auction and market exchange rates; (2) the use of the official exchange
rate for exchange transactions with the government without a mechanism to prevent a spread deviation of
more than 2 percent between the official exchange rate and market exchange rates; and (3) the requirement
to transfer any gains from the purchase of foreign exchange to the state budget if it is unused and resold.
Zambia The IMF staff report for the 2017 Article IV Consultation with Zambia states that as of September 25, 2017,
Zambia maintained an exchange restriction, which is subject to IMF approval under Article VIII, arising from
limitations imposed by the government on access to foreign exchange for the making of payments and transfers for
current international transactions, which is evidenced by the existence of external payments arrears accumulated
prior to October 4, 1985. (Country Report No. 17/327)
Zimbabwe The IMF staff report for the 2017 Article IV Consultation with Zimbabwe states that, as of June 19, 2017, the
Reserve Bank of Zimbabwe (RBZ) released a foreign exchange priority list to direct the allocation of foreign
exchange by commercial banks to certain domestic import substitution industries, exporters, and strategic imports.
This measure gives rise to an exchange restriction subject to IMF approval under Article VIII, Section 2(a). Staff
is also monitoring the authorities’ imposition of other measures to assess whether they give rise to any exchange
restriction or MCP subject to Article VIII, Section 2(a) and Section 3. Zimbabwe has also a long-standing exchange
restriction subject to IMF jurisdiction arising from unsettled balances under an inoperative bilateral payments
agreement with Malaysia. (Country Report No. 17/196)
Source: IMF staff reports.

1 Includes 189 members and three territories: Aruba, Curaçao and Sint Maarten, and Hong Kong SAR.
2 The measures described in this table are quoted from IMF staff reports issued as of December 31, 2018, and may have changed subsequent to
the date they were reported. The table does not include countries maintaining exchange restrictions or multiple currency practices whose IMF
staff reports are unpublished, unless the authorities have consented to publication.

Regulatory Framework for Foreign Exchange Transactions

This section surveys the measures reported by members with respect to the regulatory framework for foreign
exchange transactions from January 2018 through August 2019. The measures are divided into five major
categories: trade-related measures, current invisible transactions and transfers, account transactions, capital
controls, and provisions specific to commercial banks and institutional investors.
Trade-Related Measures
From January 2018 through August 2019, members reported significantly more easing measures related to
trade than restrictive ones. The total number of changes in exchange and trade controls related to imports
and exports amounted to 198, of which 95 were easing, 84 tightening, and 19 neutral measures. Trade-related
measures were implemented by 55 countries, of which 27 liberalized measures regarding imports and 15
regarding exports. Further, 27 countries tightened trade-related measures.
Imports and import payments

Forty-one member countries reported 136 measures related to imports and import payments, of which the
number of easing measures (66) was marginally higher than that of tightening measures (62),30 along with 8
neutral measures.
Twenty-seven countries across different regions of the world relaxed measures on imports and import pay-
ments. On the other hand, 10 countries implemented tightening measures on imports and import payments.
A large number of liberalization measures in this category (but slightly fewer than in the previous reporting
period) were implemented by Greece (8) as it gradually eased remaining controls on purchases of foreign cur-
rency for imports and on import payments implemented earlier to fend off a crisis. Australia and Sri Lanka
each also undertook the same number of measures.
Liberalization measures in Greece affected both cash withdrawals and import payments. These measures,
among others, increased and eventually eliminated the monthly cash withdrawal limit per depositor (which
could be used for payments of imports) as of October 2018. At the same time, the daily limits and conditions
on transfers abroad by individuals and businesses were relaxed throughout 2018. The easing measures under-
taken by Australia related to elimination of tariffs as various bilateral and regional trade agreements became
effective. Sri Lanka took steps to relax certain cash margin requirements, reduced tariffs on selected products,
and eliminated the advance payment requirement for imports of nonessential consumer goods.
In other countries, several rules were relaxed for import payments, often reflecting macroeconomic
stabilization or exchange rate reform. These measures relaxed rules on advance payments for imports
(Fiji, Lesotho, Morocco) and minimum cash margin requirements (Egypt, Libya, Sudan), extended the
timeline for completion of import transactions in the case of advance payments for imports (Azerbaijan,
Ukraine), eased documentation requirements for releasing foreign exchange for imports (Bangladesh,
Moldova, Russia), eliminated domiciliation requirements (Cabo Verde, Morocco), eliminated manda-
tory preshipment inspection (Uzbekistan), and increased the limit for non-oil import payments without
central bank approval (The Bahamas). A few countries also reduced import tariffs (Bolivia, Kazakhstan,
New Zealand).
Members’ tightening measures comprised tightening of advance payment requirements (Nigeria, Pakistan;
the latter subsequently partly relaxed the requirement) and a licensing requirement for certain imports from
designated countries (Bulgaria, Sweden; both in line with EU regulations). Some countries imposed or raised
import taxes and duty on certain goods or on a certain group of countries (Ecuador, Kosovo, Malaysia,
Mexico, South Africa, Zambia) or prohibited imports of certain goods or from certain countries (Australia,
China, Grenada, Uzbekistan), including as a temporary measure (Kuwait).
30 Of the 62 tightening measures, 27 were reported by Kuwait, temporarily prohibiting imports of meat, live birds, and several
other food products from certain countries.

Exports and export proceeds

Thirty-two countries reported 62 measures: easing measures (29) were moderately more than the number of
tightening measures (22); the remainder were neutral.
Easing measures on exports and export proceeds were implemented in 15 countries. Among the liberaliza-
tion efforts, 9 countries implemented measures aimed at relaxing repatriation and surrender requirements.
For instance, Cabo Verde eliminated the repatriation requirement for export proceeds, Ukraine extended the
timeline for repatriation and Russia eased repatriation requirements under certain conditions. In addition,
Honduras, Jamaica, and Malaysia relaxed surrender requirements by reducing the proportion of export pro-
ceeds that must be surrendered. Barbados and Cabo Verde, and—following a gradual relaxation—Belarus and
Ukraine terminated surrender requirements.
Other easing measures relaxed documentation requirements (Bangladesh), removed export taxes for certain
products (Brazil), expanded quotas for certain exports (Bolivia, China), and eliminated licenses (Maldives).
On the other hand, 12 countries tightened restrictions on exports and export proceeds. Some of them
(Democratic Republic of the Congo, Iran, Morocco, Tonga, Turkey) raised the repatriation and surrender
requirements (Sudan, Tonga, Zimbabwe) or tightened the conditions for receiving export payments in foreign
currency cash (Serbia). Others imposed a levy on some items (Argentina, Kyrgyz Republic, Zambia), while
Mexico enhanced licensing requirements for certain goods. As a security measure, Australia requires a permit
for exports of nonsanctioned products to the Democratic People’s Republic of Korea.
Current Invisible Transactions and Current Transfers

This section discusses exchange controls on invisible transactions and transfers that are included in the current
account of the balance of payments. This category includes income from investment (for example, profits,
dividends, and interest); payments for travel, education, medical expenses, and subscription and membership
fees; unrequited transfers (for example, remittance of nonresidents’ salaries and wages); and payments related
to services. The section also covers the repatriation and surrender requirements for proceeds from current
invisibles and current transfers.
From January 2018 through August 2019, changes (123) reported by members in this category were predomi-
nantly easing measures (106); restrictive (15) and neutral (2) measures were only a very small fraction. These
changes were introduced by 30 countries.
Payments for current invisibles and current transfers

Members continued to implement predominantly easing measures on payments for invisible transactions and
current transfers. Of the 107 measures related to payments for current invisibles and current transfers reported
by 24 countries, 92 were easing, 14 tightening, and 1 neutral. Among the 17 countries that implemented
easing measures, Greece led the liberalization trend by contributing 21 measures, followed by Cabo Verde
and Moldova (10 each).
Greece, following a gradual relaxation of limits imposed in 2015 to fend off a crisis, further increased quan-
titative limits on virtually all types of transfers both by individuals and business (trade, travel, personal,
credit card use) and eventually eliminated limits related to cash withdrawals as of October 2018. It also
increased the limits, including for profits and dividends on investment undertaken after October 1, 2018, for
transfers allowable without prior approval. Other countries also increased quantitative limits, including for
travel expenses (The Bahamas, Cabo Verde, Morocco), investment-related expenses (Fiji), personal payments
(Samoa, South Africa), use of credit cards (Libya), and transfers of foreign workers’ wages (The Bahamas). In
addition, for transfers abroad, Moldova eased the documentation requirement and exemptions for approval
below a certain threshold, and Papua New Guinea raised the threshold amount for remittances abroad, above
which require a tax clearance certificate.
The tightening measures initiated by members involve, for example, enhancing documentation requirements
and lowering quantitative limits on payments and transfers. Measures taken to tighten transfers abroad
include stricter documentation requirements (Kazakhstan) and limits on transfers through individuals’ and

legal entities’ bank accounts (Tajikistan). Quantitative limits were tightened for investment-related payments
(Honduras), travel expenses (Bhutan), and the use of credit cards abroad (Nigeria). China also tightened the
overall annual limit on overseas cash withdrawal for foreign and domestic currency credit cards but at the
same time eased the daily limit on overseas cash withdrawal for foreign currency credit cards. Azerbaijan now
subjects the transfer of wages abroad by nonresidents to documentary requirements, such as work contracts
and bank statements.
Proceeds from current invisibles and current transfers

Ten countries—Barbados, Belarus, Cabo Verde, Jamaica, Morocco, Russia, Serbia, Ukraine, Venezuela, and
Zimbabwe—reported 16 changes under this category. The overwhelming majority of these were easing
measures; only one was a tightening measure, and one was neutral. Similarly to measures on repatriation of
export proceeds, repatriation requirements on invisibles and transfers were eased by extending the number of
days (Morocco), allowing for extensions (Serbia, Ukraine), removing them for certain transactions (Russia),
and fully eliminating them (Cabo Verde). Surrender requirements to the central bank were eased (Jamaica,
Venezuela), and surrender to authorized dealers was eliminated (Barbados, Belarus, Cabo Verde, Ukraine). On
the tightening side, Zimbabwe introduced a surrender requirement for a portion of export proceeds related
to certain industries.
Account Transactions
From January 2018 through August 2019, changes in resident and nonresident account regulations were
introduced by 28 countries; the majority were easing regulations. Eighteen countries liberalized measures for
resident accounts and 12 for nonresident accounts; 6 countries imposed restrictions on resident accounts,
and 2 on nonresident accounts. Among the 104 changes reported under this category, about 77 percent were
liberalization efforts (80); the remaining measures were either tightening (9) or neutral (15).
Resident accounts
Twenty-six members reported 60 measures, of which liberalization actions (49) largely dominated tightening
(7) and neutral (4) actions. As part of ongoing gradual relaxation of restrictions introduced earlier, Greece
took the lead in relaxing restrictions by implementing 10 easing measures during 2018, including, among
others, permission to open new accounts and the addition of coholders to an existing account with a credit
institution; gradually raised the monthly cash withdrawal limit and eventually eliminated all restrictions on
domestic cash withdrawals; and raised daily limits for individuals for transfers without approval and for busi-
nesses other than goods importers, with approval of the bank’s subcommittee.
Other countries that took several easing measures include Belarus, Cabo Verde, and Morocco. Belarus per-
mitted resident individuals and banks to open accounts abroad in foreign exchange and domestic currency
without approval from the central bank. Previously, they were required to obtain approval in certain cases.
In addition, Belarus removed controls related to accounts that can be converted to foreign currency. As a
result, foreign exchange purchased and credited to a resident foreign exchange current account at a local bank
may be maintained indefinitely. Residents may use the purchased foreign exchange for purposes other than
those initially indicated in the request submitted to the bank. Cabo Verde, as part of the liberalization of its
foreign exchange regime, eliminated all restrictions on residents’ accounts in foreign currency, both at home
and abroad, and allowed residents to hold accounts in domestic currency abroad. Morocco permitted certain
residents to open foreign currency accounts and domestic currency accounts convertible to foreign currency
at domestic banks to facilitate obtaining and transferring funds for business travel. Legal entities were also
allowed to open, without the need for approval, foreign currency accounts to hedge against the risk of com-
modity price fluctuations. Morocco further permitted companies with contracts abroad to open accounts
abroad without approval and allowed capital investment organizations to place funds collected domestically
in foreign exchange accounts abroad, up to a limit.
Among other reported easing measures, rules were liberalized regarding foreign exchange accounts held
domestically: requirements to open accounts were relaxed, including by eliminating approval requirements in
some cases (The Bahamas, Barbados), permitting these accounts for certain industries (Fiji, India), increasing

the maximum thresholds (The Bahamas, Fiji, Namibia ), and easing restrictions on withdrawals from such
accounts (Mozambique). Restrictions were eased on foreign exchange accounts abroad by allowing accounts
abroad without any limits or for certain transactions (North Macedonia), increasing limits on balances
(Namibia), expanding the types of accounts permitted (Austria, Russia, Thailand), and eliminating the
approval requirement for the transfer of balances abroad within established limits (Ukraine). Constraints on
accounts in domestic currency convertible to foreign currency were eased as follows: the requirement to sell
unused foreign exchange was eliminated in Ukraine, and Uzbekistan permitted the sale of foreign exchange
cash to individuals from their convertible accounts (previously it had to be credited to their bank cards).
Five countries took steps on the tightening side. Among them, Brazil increased the tax applied on foreign
exchange transactions for the transfer of funds by residents to their foreign bank accounts. Kazakhstan
changed the ex post notification requirement: residents must register their accounts abroad with the National
Bank of Kazakhstan before making transactions from such accounts. Libya introduced a limit on the amount
residents could keep and transfer abroad each year. Pakistan no longer allows residents who are not tax filers to
credit their foreign exchange accounts with cash in foreign currencies. Tonga introduced an approval require-
ment for transfers abroad from a foreign currency account above a certain limit.
Nonresident accounts
Sixteen members reported 44 changes, which are predominantly easing measures, with the exception of
2 tightening and 11 neutral measures. Greece alone contributed 9 liberalization measures, followed by
Uzbekistan and Ukraine.
Greece’s easing measures on resident accounts were also reflected in nonresident accounts: limits on monthly
cash withdrawals by depositors were gradually relaxed in 2018, as were daily transfers abroad by individuals
and businesses. Uzbekistan allowed nonresident legal entities involved in trading securities to open foreign
exchange, domestic currency, and convertible accounts in the country. Ukraine, as part of its liberalization
program, gradually increased and then eliminated limits on transfers of dividends and the monthly limit on
the repatriation of funds received from liquidation of equity.
Among the other countries that followed the liberalization trend, Cabo Verde removed all restrictions on
nonresidents’ foreign exchange accounts; other countries eased restrictions by removing the ceiling on bal-
ances that can be deposited (Ethiopia), increasing the threshold on transfers without the need for approval
(Samoa), and increasing the limits for transactions without mandatory registration (Russia). Measures to ease
conditions on the use of domestic currency accounts by nonresidents include the removal of restrictions on
the types of accounts and approval requirement (Belarus, Cabo Verde), broadening the scope of nonresidents
permitted to use such accounts and the purposes, respectively (Morocco, Fiji), and allowing nonresidents
to open two types of accounts (repatriable and nonrepatriable) without approval from the central bank
(Pakistan). Namibia increased the amount emigrants may transfer abroad from blocked accounts.
Tonga was the only country that tightened. It introduced a limit above which central bank approval is
required for outward transfers, and transfers from one foreign currency account to another must be converted
to local currency before reconverting to foreign currency.
Capital Controls
Global growth started softening in 2018 amid policy uncertainty in major economies, a decline in business
confidence, and tighter financial conditions, as well as country-specific factors that reduced growth momen-
tum. These factors continued to weigh on global economic activity in 2019—especially manufacturing and
trade—with tentative signs of stabilization toward the end of the year.31 Net capital inflows to emerging
market and developing economies slowed during 2018–19, with a significant sell-off in the second half of
2018, against the backdrop of tighter monetary policy by the US Federal Reserve and escalating trade tensions
(Figure 4, panel 1). This decline in net capital inflows reflected a sharp decline in net portfolio inflows and
31 IMF World Economic Outlook, January 2020 update, October 2019, and October 2018.

Figure 4. Net Capital Inflows

1. Trend in Net Capital Inflows 2. Composition of Net Capital Inflows
(Percent of GDP) (Percent of GDP)
Net capital inflows slowed during 2018–19. EMDEs saw a decline in net portfolio inflows and an increase in
net other investment outflows during 2018–19.
2.0 2.0
1.5 1.5
Advanced
Emerging and developing
1.0 1.0
0.5 0.5
0.0 0.0
2016 2017 2018 2019 2016 2017 2018 2019
-0.5 -0.5
Net other investment inflows

-1.0 -1.0
Net portfolio inflows
Net FDI inflows
-1.5 -1.5
Source: IMF, World Economic Outlook (WEO) database, October 2018 (2016 data) and October 2019 (data for 2017–19).
Note: Data for 2019 are WEO projections. EMDEs = emerging market and developing economies; FDI = foreign direct investment.
an increase in net other investment outflows, while foreign direct investment inflows remained stable (Figure 4,
panel 2). Against this backdrop liberalization of controls on capital transactions continued, but at a slower
pace than before and with important differences among economies.
The measures included in this section are also considered to be capital flow management measures (CFMs) as
defined by the IMF’s institutional view on the liberalization and management of capital flows.32 In addition
to the capital controls included in this section, prudential-type measures discussed in the next section may also
be CFMs if they were designed to limit capital flows. However, the AREAER does not use this terminology,
because classifying a measure as a CFM requires substantial background information and considerable judg-
ment, which is beyond the scope of the analysis conducted in compiling the AREAER database.
There were fewer actions in 2018 than during each of the previous two years, but by a larger set of economies
than in 2017, and the trend looks set to continue in 2019 (Figure 5, panel 1). There were 257 changes in
regulation of capital transactions in 2018, compared with 384 in 2017 and 268 in 2016.33 There was large-
scale liberalization in a few economies in 2017, with Argentina and Iceland each implementing more than 70
liberalizing changes. In contrast, policy action in 2018 was more widespread—more economies introduced
changes, but none introduced a large number of changes.34 More advanced economies and emerging market
and developing economies reported at least one action, but each economy took fewer actions on average
32 CFMs encompass a broad spectrum of measures. For the purposes of the IMF’s institutional view, the term “capital flow
management measures” refers to measures designed to limit capital flows. CFMs comprise residency-based CFMs, which encom-
pass a variety of measures (including taxes and regulations) affecting cross-border financial activity that discriminate on the basis
of residency—also generally referred to as capital controls—and other CFMs, which do not discriminate on the basis of residency
but are nonetheless designed to limit capital flows. These other CFMs typically include measures, such as some prudential mea-
sures, that differentiate transactions on the basis of currency, as well as other measures that typically apply to the nonfinancial
sector. The concept of capital controls in the AREAER is residency-based: it includes various measures that regulate the conclu-
sion or execution of transactions and transfers and the holding of assets at home by nonresidents and abroad by residents. See
IMF, “The Liberalization and Management of Capital Flows: An Institutional View,” Washington, DC, 2012.
33 There were an additional 83 changes during 2018–19 that cannot be classified as easing or tightening of restrictions. The
latter changes either did not discriminate by residence or currency, were extensions of existing regulations previously set to expire,
or involved changes in regulations that were not clearly either easing or tightening.
34 This holds true even if we exclude Argentina, Greece, and Ukraine from all years.

(Figure 5, panels 2 and 3).35 Of the 38 economies that took action in 2018, advanced economies accounted
for 8 (up from 6 in 2017), 28 were emerging market and developing economies (up from 20 in 2017), and 2
were low-income countries (down from 9 in 2017). The largest number of actions by any country was India’s
31, followed by Cabo Verde (23), Greece (23), and China (20) (Figure 5, panel 4). Among the key changes,
India further liberalized restrictions on commercial and financial credit to residents from nonresidents and
removed the minimum maturity requirements for foreign portfolio investment in the domestic bond market;
Figure 5. Controls on Capital Transactions

(Number of changes)
1. In 2018, fewer changes to controls on capital trans- 4. Most economies had fewer than five changes in
actions were reported than in the previous two years. 2018. Sixteen economies had five or more changes,
500 of which four were advanced economies.
India
400 384 Greece
Cabo Verde
300 268 257 China
Saudi Arabia
200 Ukraine
150
Colombia
100 Serbia
Namibia
0 Bahamas, The
2016 2017 2018 2019* Ecuador
Tonga
2. In 2018, more AEs and EMDEs changed controls on capital New Zealand
transactions...
Australia
35
North Macedonia
Advanced
30 Emerging and developing 28 Iceland
Low-income developing Thailand
25
20 South Africa
20
17 Slovenia
15
15 Paraguay
12
9 Indonesia
10 8
6 6 7 Canada
5
2 1
Belarus
0 Montenegro
2016 2017 2018 2019* Costa Rica
Turkey
3. ...but the average economy had fewer changes than in 2017.
Mongolia
Germany
20 18.8 Advanced Uzbekistan
Emerging and developing
Low-income developing Sri Lanka
16
All countries Singapore
12.0
12 Samoa
Philippines
8.3 8.4
8 6.8 7.2 7.0 6.7 Nigeria
4.2 Morocco
3.6
4 Mexico
1.0 1.0
Malaysia
0
Jamaica
2016 2017 2018 2019*
0 10 20 30 40

Note: AEs = advanced economies; EMDEs = emerging market and developing economies.
*The position date for 2019 varies by country and is less than the full year.
35 The World Economic Outlook classifications of advanced, emerging market and developing economies, and low-income
developing economies are used in this summary. Of the 192 economies in the AREAER, 36 are advanced economies, 97 are
emerging market and development economies, and 59 are low-income developing economies.

China eliminated the lockup period for invested principal for foreign institutional investors and raised
the quotas for outward investment by qualified domestic investors; Cabo Verde introduced a new foreign
exchange law that fully liberalized capital transactions; and Greece liberalized capital outflow controls, raising
the limits on transfers of funds abroad without documentation that affected all categories of transactions. The
only low-income economies reporting changes in 2018 were Uzbekistan and Nigeria. Uzbekistan liberalized
restrictions on foreign direct investment inflows; Nigeria reduced the amount for cash gifts by residents to
nonresidents without approval. The year 2019 looks set to continue the 2018 pace of change: of the 88 econo-
mies whose reporting dates were in 2019, 23 reported 150 changes to restrictions on capital transactions, or
an average of about 6.5 actions a country, about the same as 6.8 actions a country in 2018 and lower than
7.7 actions a country in 2016 (Figure 5, panel 3).36 The only low-income country to report a change in 2019
was the Kyrgyz Republic, which liberalized controls on foreign investment by investment funds.
Reflecting the slowdown in growth and capital flows, a larger share of changes to restrictions on capital trans-
actions during 2018–19 liberalized inflows (Figure 6, panel 1).37 Of the 257 changes to controls on capital
transactions reported in 2018, 105, or 41 percent, eased inflows, compared with 33 percent in 2017 and
19 percent in 2016. Of the changes reported in the partial 2019 reporting period, 50 percent eased inflows.
On the other hand, the share of measures relaxing outflow controls declined during 2018–19: 43 percent of
changes in 2018 and 41 percent in 2019 eased outflows, compared with 48 percent in 2017 and 62 percent in
2016. When all types of liberalization are taken together, the share of liberalizations in all actions rose slightly
during 2018–19, increasing to about 90 percent in each of these years, compared with about 88 percent dur-
ing 2016–17. Nevertheless, because the total number of changes was smaller, fewer liberalizations took place
in 2018 than in the previous two years (Figure 6, panel 2).
Figure 6. Controls on Capital Transactions, by Direction of Change

(Number of changes)
1. In 2018, a larger share of changes liberalized inflow 2. Fewer liberalizations took place in 2018 than in 2017.
controls (percent of total changes).
100 400
90
80
300
70
60
50 200
40
30
100
20
10
0 0
2016 2017 2018 2019* 2016 2017 2018 2019*
Inflow easing Outflow easing Easing Tightening

Inflow tightening Outflow tightening
Other easing

*The position date for 2019 varies by country and is less than the full year.
36 The 2019 numbers should, however, be interpreted with caution. Only 88 economies’ reporting periods ended in 2019, of
which 29 economies’ reporting period ended during the first quarter, 31 during the second quarter, 23 during the third quarter,
and 5 during the fourth quarter.
37 In this section, restrictions on nonresidents’ acquisition of domestic assets (including restrictions on repatriation of these
assets) are referred to as “inflow controls”; restrictions on residents’ acquisition of assets abroad (including repatriation restrictions
on these assets) are referred to as “outflow controls.”

Among economies that changed controls, the average advanced economy took more tightening actions than
the average emerging market and developing economy in 2018 (Figure 7). Eight advanced economies reported
a total of 12 tightening actions, all of which were on inflow controls. The same number of tightening actions
was reported by 28 emerging market and developing economies, 7 of which were on inflows and the remaining
on outflows. Nevertheless, both groups of economies took more liberalizing than tightening actions: of the 6.8
actions in the average advanced economy, only 1.5 were tightening measures, and of the 7.2 actions taken by
the average emerging market and developing economy that changed any controls, 0.5 were tightening measures.
Figure 7. Controls on Capital Transactions, by Direction of Change and Country Group

(Number of changes)
Among economies that changed any controls, the average advanced economy did more tightening than the average
emerging market and developing economy in 2018.
8.0
7.0
6.0
5.0
4.0
3.0
2.0
1.0
0.0
Advanced Emerging and Low-income
developing developing countries
Inflow tightening Outflow tightening

Inflow easing Outflow easing
Inflows/outflows unspecific easing
The largest share of changes in 2018 in both advanced and emerging market and developing economies
involved controls on capital and money market instruments (Figure 8). These amounted to 36 percent of
all changes in 2018, compared with about 50 percent in the previous two years. Among advanced econo-
mies, Australia, Greece, Iceland, and Slovenia liberalized controls on capital and money market instruments.
Australia increased the threshold for approval of foreign investment in Australian banks, Slovenia removed
additional authorization requirements for sales or issuance of securities by residents in foreign markets (over
domestic issuances), and Greece increased the limits for transfers without documentation of funds abroad
by residents. These changes by Greece to transfers abroad also applied to personal capital transactions and
were the only changes among advanced economies in that section. Among emerging market and developing
economies, controls on capital and money market operations, derivatives, and other instruments, as well as
on credit operations were the three major categories of changes.
The only categories in which advanced economies tightened controls were direct investment and real estate
investment (Figure 9). A handful of advanced economies tightened controls on inflows to direct investment
and real estate investment in 2018. Germany and New Zealand strengthened controls on direct investment
inflows, while Australia, New Zealand, and Singapore tightened controls on nonresidents’ investment in real
estate, reflecting continued concerns about vulnerabilities in housing markets in these economies.
The liberalization of controls on capital and money market instruments, derivatives, and other instruments and
credit operations was broad-based among emerging market and developing economies. Twenty-three economies
liberalized controls on one of these categories in 2018. Other than Cabo Verde, China, and India, economies
with 10 or more liberalization measures in these categories in 2018 included The Bahamas, Colombia, Namibia,

Figure 8. Controls on Capital Transactions, by AREAER Categories

(Percent of total changes)
In 2018, the largest share of actions in both advanced and emerging market and developed economies related to portfolio
flows.
100
7.96
22.22 6.47
80 5.97
18.52 20.40
60
20.37 15.92
40
5.56
37.81
20
29.63
0
Advanced Emerging and developing
Personal capital transactions Real estate

Liquidation of direct investment Direct investment
Credit operations Derivatives
Capital money market instruments Repatriation requirements
Uncategorized*
*“Uncategorized” refers to the parent category, XI.A.
Figure 9. Advanced Economies: Controls on Capital Transactions, by AREAER Categories and Direction
(Number of changes)
In 2018, advanced economies tightened controls only on foreign direct investment and real estate investment.
18
16 Inflow
14 Outflow
12
10
8
6
4
2
0
Easing
Tightening
Easing
Tightening
Easing
Tightening
Easing
Tightening
Easing
Tightening
Easing
Tightening
Easing
Tightening
Capital and Derivatives Direct Liquidation of Real estate Personal Uncategorized

money market and other investment direct investment capital
instruments instruments investment transactions

Note: Categories in which there were no reported changes in controls are not shown.

Saudi Arabia, Serbia, and Ukraine. In Saudi Arabia there was a series of relaxations to rules for qualified foreign
investors in the domestic securities market; Colombia implemented a liberalization in May 2018 that allowed
exchange market intermediaries and residents to carry out financial derivatives transactions on any type of under-
lying asset with foreign agents. Colombia also allowed residents and nonresidents to grant credit to one another
in domestic currency. Namibia increased limits on residents’ investment abroad and eased the interest cap (over
the London interbank offered rate [LIBOR]) on foreign-currency-denominated loans. The Bahamas reduced the
premium for residents to obtain foreign currency for investment in foreign currency securities and residential real
estate abroad and increased the limit for their funding at the official exchange rate. There were few tightening
changes in 2018 in emerging market and developing economies; notable among them were China’s tightening
of controls on overseas direct investment by residents through foreign companies or Hong Kong SAR, Macao
SAR, and Taiwan Province of China companies under their control and Turkey’s attempts to curb balance sheet
mismatches by prohibiting foreign currency borrowing by residents that do not have foreign currency income.
Although the final numbers for 2019 will be reported only in the next issue of the AREAER, countries already
reported 13 tightening actions in 2019 for this issue. These were introduced by Australia, Bolivia, Lebanon, the
Philippines, and Sri Lanka. Among these, Bolivia introduced the most tightening actions—which reduced the
limits for foreign investment by insurance companies, banks, and new investment funds—followed by Sri Lanka,
which reduced the share of rupee-denominated government securities nonresidents may hold. In Australia, the
state of Western Australia increased the additional stamp duty imposed on foreign buyers of domestic property.
Provisions Specific to Commercial Banks and Institutional Investors

This section reviews developments in provisions specific to commercial banks and institutional investors, with
a focus on prudential measures that are in the nature of capital controls.38 This category covers some mon-
etary and prudential measures in addition to capital controls.39 It includes, among other categories of finan-
cial institution transactions, borrowing abroad, lending to nonresidents, purchasing locally issued securities
denominated in foreign exchange, and establishing regulations pertaining to banks’ and institutional investors’
investments. These provisions may be similar or identical to the measures described in the respective categories
of controls on accounts, capital and money market instruments, credit operations, and direct investment if
the same regulations apply to commercial banks and institutional investors as to other residents. In such cases,
the measure also appears in the relevant category in the sections on capital controls and nonresident accounts.
Reported measures in the financial sector indicate member countries’ efforts to continue to strengthen the
regulatory framework of commercial banks, other credit institutions, and institutional investors. The number
of reported measures (305) introduced from January 2018 through August 2019 increased by 10 percent
over the previous reporting period. This reflects a marked increase in measures related to institutional inves-
tors (more than 20 percent) and a moderate increase regarding commercial banks (close to 6 percent). The
tendency toward more easing than tightening measures gained additional momentum compared with the
previous reporting period, which marked the first period this happened since the global financial crisis. This
reflects that a significant share of the financial sector reforms following the global financial crisis has already
been implemented and that there has been some scaling back of regulatory requirements.
As in the previous reporting period, the majority of the reported measures were prudential measures (165).
Their share declined by 5 percentage points, to 54 percent, compared with the previous reporting period. The
number of reported capital control measures was 140, compared with 113 in the previous reporting period.
A majority of the capital controls affect institutional investors (63 percent), a somewhat higher share than in
the previous reporting period.
Changes in capital controls overwhelmingly eased regulatory constraints (of the 140 reported, 113 were easing
measures), as in the previous reporting period. A majority of reported changes in capital controls are aimed
at easing outflows (90), 8 measures are aimed at both inflows and outflows, and 15 measures eased inflows. A
38
Capital controls and prudential measures are highly intertwined because of their overlapping application. For example, some
prudential measures (for example, different reserve requirements for deposit accounts held by residents and nonresidents) could
also be regarded as capital controls because they distinguish between transactions with residents and nonresidents and hence
influence capital flows.
39 Inclusion of an entry in this category does not necessarily indicate that the aim of the measure is to control the flow of capital.

majority of the 22 tightening measures (more than double the 9 tightening measures in the previous report-
ing period) were aimed at outflows (16), while 6 were aimed at both inflows and outflows. For the second
reporting period in a row, there are no measures aimed at tightening inflows.
Easing prudential measures outweigh tightening measures, as with capital controls, which marks a shift
compared with the past few reporting periods, when there was more balance between easing and tightening
measures: 76 had an easing effect, 61 a tightening effect, and 28 a neutral effect. A summary of the changes
in this category is presented in Figure 10.
Figure 10. Provisions Specific to the Financial Sector, January 1, 2018–August 31, 2019
1. Commercial Banks and Other Credit Institutions
(203 measures)
Inner circle: Outer circle:

Capital Prudential
controls; measures;
52 measures 151 measures
60 11
1 68
40
23
Easing Neutral Tightening
2. Institutional Investors
(102 measures)
Inner circle: 1 Outer circle:

Capital Prudential
controls; measures;
88 measures 14 measures
11
4
8
73
Easing Neutral Tightening

Commercial banks and other credit institutions

Close to 43 percent of measures easing capital controls eased capital outflows (17), while 15 measures eased
inflows, and 8 measures eased both types of flows.
• Controls on capital inflows—Most of the measures easing inflows relaxed restrictions on borrowing from abroad.
In many instances these were the same countries that had eased such restrictions in the previous reporting
period (Cabo Verde, India, Kazakhstan, Pakistan, Ukraine). China eliminated restrictions on foreign investors’
(and their related parties) ownership in Chinese-funded commercial banks and aligned rules on equity invest-
ment ratios with regard to owners’ residence. Russia eased reserve requirements on liabilities to nonresident legal
entities, and Australia and Saudi Arabia eased ownership caps in local banks for foreign investors.
• Controls on capital outflows—Iceland eased restrictions on so-called offshore króna assets, which were the
last remaining controls introduced in relation to the country’s financial crisis in 2008. Cabo Verde removed
the approval requirement for opening and operating accounts abroad and for lending to nonresidents as
part of a large-scale liberalization of the financial account. Colombia, India, Pakistan, and Tonga also eased
restrictions on lending to nonresidents, while Jamaica reduced specific surrender requirements. Oman
continued relaxing restrictions on banks’ external assets, and Belarus removed the requirement that banks
obtain approval to have accounts abroad for the maintenance of representative offices and branches.
• Controls on both inflows and outflows—Fiji and Morocco eased restrictions on local lending in foreign cur-
rency, Ukraine—as part of its ongoing liberalization of controls—relaxed open foreign currency position
limits, and Paraguay eased residency-based open position limits.
There were 11 measures that tightened capital controls, compared with only 2 in the previous reporting
period. Five measures on outflows were intensified: Moldova and Mongolia tightened restrictions on banks’
establishment of subsidiary companies and minority interests in companies abroad, while Bolivia tightened
banks’ foreign investment limits. Sri Lanka introduced an asymmetric open position limit, and Bolivia tight-
ened the long position of such a limit; to fend off exchange market pressure Argentina tightened its net open
position limit considerably.40 The remaining measure was aimed at both inflows and outflows, with Paraguay
tightening restrictions on banks’ forward transactions in US dollars.
The 151 reported prudential measures indicate an easing of the prudential framework of banks’ operations.
This is reflected in the shift in the balance between tightening and easing measures, with the number of easing
measures increasing (to 68 from 63) while the number of tightening measures remained similar (60 compared
with 61). As in the previous reporting period, there were a number of neutral measures (23).
Some of the measures that eased banks’ prudential frameworks are as follows:
• Several measures affected reserve requirements, which remain important tools used to attain monetary
policy and financial stability objectives, and in some cases to respond to capital flow volatility. Reserve
requirements were eased in Albania, Angola, Brazil, Costa Rica, Georgia, Indonesia, Jamaica, Mongolia,
Russia, and Sri Lanka (domestic currency liabilities only); Armenia, Bolivia, and Peru (foreign currency
liabilities only); and Bangladesh, El Salvador, Indonesia, the Kyrgyz Republic, the Philippines, Tanzania,
Trinidad and Tobago, and Turkey.
• Belarus and Cyprus eased liquid asset requirements (the former on total deposits and the latter on foreign
currency deposits) but replaced them with the introduction of the Basel III liquidity coverage ratio (LCR)
(see below). The Philippines removed the liquidity requirement on certain foreign currency liabilities.
Sri Lanka eased previously introduced asymmetric daily net open position limits on banks, and Ukraine
removed daily limits on banks’ net foreign exchange purchases. Fiji, Georgia, Morocco, and Lao P.D.R.
eased restrictions on local banks’ foreign currency lending. Kazakhstan increased the limit on banks’ foreign
exchange derivatives positions, and Colombia on gross leverage positions; Belarus removed the requirement
that banks receive approval to open accounts abroad. Pakistan eased restrictions on nonbank financial insti-
tutions’ aggregate and contingent liabilities.
40 Asymmetric open foreign exchange position limits are often considered capital controls since they have the effect of influ-
encing capital flows. Net open position limits may also be considered capital controls if their calibration is changed swiftly and
made very tight against the backdrop of capital outflow pressures and rapid exchange rate depreciation.

Sixty measures tightened prudential frameworks. The measures were aimed mainly at enhancing banks’ resilience
against liquidity and exchange rate shocks and at adapting domestic regulations to international standards.
• Several countries introduced or continued to phase in the LCR, including Belarus, Cyprus, Korea, Latvia,
Lebanon, Peru, Rwanda, Singapore, Turkey, and Uzbekistan. The LCR is part of the Basel III regulatory
framework for banks and aims to address banks’ liquidity vulnerabilities.
• Several countries introduced or tightened measures to address foreign-exchange-related risks. Russia
increased risk weights on foreign currency exposures, Turkey introduced restrictions on unhedged foreign
exchange lending both locally and from abroad, and Vietnam introduced specific restrictions on short-term
and medium- to long-term foreign currency lending, respectively. Romania introduced more tightly cali-
brated caps on debt service to income compared with those for domestic currency lending. Myanmar and
Uzbekistan tightened open foreign exchange position limits.
• Hungary introduced a limit on interbank funding, and Pakistan tightened limits on nonbank finance companies’
liabilities and made them contingent on their creditors’ credit ratings. Angola tightened interest rate controls.
Neutral measures were related mostly to the implementation of new regulatory frameworks on banks’ opera-
tions and to changes in the institutional framework of bank supervision. Egypt issued rules on interest rate
risk in the banking book. Italy introduced regulations on consumers’ access to a payment account with basic
features, while Latvia made changes to its customer due diligence framework. The new Financial Sector
Conduct Authority replaced the Financial Services Board in South Africa, and Moldova set quantitative and
qualitative requirements for audit firms.
Institutional investors
The number of measures regarding institutional investors (102) increased (18 more than the previous period),
signaling a return to the trend of increasing measures in recent reporting periods, which had reversed in the
previous reporting period. This reflects a marked increase in regulatory changes affecting capital controls but
a drop in changes in prudential measures (88 and 14 compared with 61 and 23, respectively, in the previous
period). Changes easing constraints on the operations of institutional investors (81) significantly exceeded
those tightening constraints (12). This was also true in the previous reporting period and, as was the case then,
reflects mainly the relatively large number of measures easing capital flows, particularly outflows.
Regarding capital controls, 73 of the 88 reported changes relaxed constraints. All easing measures relaxed
constraints on capital outflows.
Among countries easing capital controls on purchases of foreign securities were Austria, Croatia, and Peru (for
pension funds); Belarus, Eswatini, Guyana, Lesotho, Morocco, the Philippines, South Africa, and Vanuatu eased
restrictions on investments abroad by investment firms and collective investment funds. Ukraine no longer requires
a license for purchases of foreign currency for outward investment for transactions below established limits.
Eleven measures strengthened capital controls on institutional investors. Costa Rica and Botswana (as well as
Bolivia, Lebanon, and Namibia) tightened limits on purchases of foreign securities for insurance companies
and investment funds.
Eight measures eased the prudential framework for operations by institutional investors. Costa Rica allowed
funds to invest in securities denominated in any currency (previously, only a few currencies were permitted).
Kazakhstan and the Kyrgyz Republic increased limits on insurance companies’ and investment funds’ invest-
ments in financial instruments of a single issuer.
Only one measure tightened the prudential rules for institutional investors’ operations to safeguard financial
stability: Lebanon tightened requirements on local portfolios for investment companies and collective invest-
ment funds.
Among reported prudential measures specific to institutional investors, 5 of the 14 recorded were neutral. These
measures reflect mainly institutional or procedural changes and cannot be linked directly to easing or tightening
constraints on institutional investors’ operations. As an example, Belarus set up a framework for two types of
investment funds: joint-stock investment funds and mutual funds. Bulgaria enhanced the legal framework gov-
erning the requirements applicable to investment firms, regulated markets, and data reporting services providers.

2019 AREAER: Compilation Guide1
Status Under IMF Articles of Agreement

Article VIII The member country has accepted the obligations of Article VIII, Sections 2, 3, and
4, of the IMF’s Articles of Agreement.
Article XIV The member country continues to avail itself of the transitional arrangements of
Article XIV, Section 2.
Exchange Measures
Restrictions Exchange restrictions and multiple currency practices (MCPs) maintained by a member
and/or multiple country under Article VIII, Sections 2, 3, and 4, or under Article XIV, Section 2, of
currency practices the IMF’s Articles of Agreement, as specified in the latest IMF staff reports issued as
of December 31, 2018. Information on exchange restrictions and MCPs or on the
nonexistence of exchange restrictions and MCPs for countries with unpublished IMF
staff reports are published only with the consent of the authorities. If no consent has
been received, the AREAER indicates that “Information is not publicly available.”
Hence, “Information is not publicly available” does not necessarily imply that the
country maintains exchange restrictions or MCPs. It indicates only that the country’s
relevant IMF staff report has not been published and that the authorities have not
consented to the publication of the information on the existence of exchange restrictions
and MCPs. Because the relevant IMF staff report may refer to years before the reporting
period for this volume of the AREAER; therefore, more recent changes in the exchange
system may not be included here. Changes in the category “Restrictions and/or multiple
currency practices” are reflected in the edition of the AREAER that covers the calendar
year during which the IMF staff report including information on such changes is issued.
Changes in these measures which give rise to exchange restrictions or MCPs and that
affect other categories of the country tables are reported under the relevant categories in
the AREAER, in accordance with the normal reporting periods.
Exchange measures Exchange measures on payments and transfers in connection with international
imposed for transactions imposed by member countries for reasons of national or international
security reasons security.
In accordance with Security restrictions on current international payments and transfers on the basis of
IMF Executive IMF Executive Board Decision No. 144-(52/51), which establishes the obligation of
Board Decision members to notify the IMF before imposing such restrictions, or, if circumstances
No. 144-(52/51) preclude advance notification, as promptly as possible.
Other security Other restrictions imposed for security reasons (e.g., in accordance with UN or EU
restrictions regulations) but not notified to the IMF under Board Decision 144-(52/51).
Exchange Arrangement
Currency The official legal tender of the country.
Other legal tender The existence of another currency that is officially allowed to be used in the country.
Exchange rate If there is one exchange rate, the system is called unitary. If there is more than
structure one exchange rate that may be used simultaneously for different purposes and/
or by different entities, and if these exchange rates give rise to MCPs or differing
rates for current and capital transactions, the system is called dual or multiple.
Different effective exchange rates resulting from exchange taxes or subsidies,
excessive exchange rate spreads between buying and selling rates, bilateral payments
agreements, and broken cross rates are not included in this category. Changes in
¹ Specific references to the underlying legal materials and hyperlinks to the legal texts are included in a separate column
(References to legal instruments and hyperlinks) at each category level in each section of the country chapters.

measures within this category are reported in accordance with the normal reporting
periods. Reclassification in cases related to changes in MCPs occurs in the edition of
the AREAER, that covers the calendar year during which the IMF staff report that
includes information on such changes is issued.
Classification Describes and classifies the de jure and the de facto exchange rate arrangements.
De jure
The description and effective dates of the de jure exchange rate arrangements
are provided by the authorities. By Article IV, Section 2(a) of the Fund’s Articles
of Agreement and Paragraph 16 of the 2007 Surveillance Decision No. 13919-
(07/51), each member is required to notify the Fund of the exchange arrangements
it intends to apply and to notify the Fund promptly of any changes in its exchange
arrangements. Country authorities are also requested to identify, whenever possible,
which of the existing categories of exchange rate arrangements below most closely
corresponds to the de jure arrangement in effect. Country authorities may also
wish to briefly describe their official exchange rate policy. The description includes
officially announced or estimated parameters of the exchange arrangement (e.g.,
parity, bands, weights, rate of crawl, and other indicators used to manage the
exchange rate). It also provides information on the computation of the exchange rate.
De facto
IMF staff classifies the de facto exchange rate arrangements according to the categories
below. The name and the definition of the categories describing the de facto exchange
rate arrangements have been modified in accordance with the revised classification
methodology, as of February 1, 2009. Where the description of the de jure arrangement
can be empirically confirmed by the IMF staff over at least the previous six months, the
exchange rate arrangement will be classified in the same way on a de facto basis.
Because the de facto methodology for classification of exchange rate regimes is
based on a backward-looking approach that relies on past exchange rate movement
and historical data, some countries are reclassified retroactively to a date when the
behavior of the exchange rates changed and matched the criteria for reclassification
to the appropriate category. For these countries, if the retroactive date of
reclassification is prior to the period covered in this report, then the effective date of
change to be entered in the country chapter and the changes section is deemed to be
the first day of the year in which the decision of reclassification took place.
No separate legal Classification as an exchange rate arrangement with no separate legal tender involves
tender the confirmation of the country authorities’ de jure exchange rate arrangement. The
currency of another country circulates as the sole legal tender (formal dollarization).
Adopting such an arrangement implies the complete surrender by the monetary
authorities of control over domestic monetary policy.
Exchange arrangements of countries that belong to a monetary or currency union
in which the same legal tender is shared by the members of the union are classified
under the arrangement governing the joint currency. This classification is based on
the behavior of the common currency, whereas the previous classification was based
on the lack of a separate legal tender. The classification thus reflects only a definitional
change and is not based on a judgment that there has been a substantive change in the
exchange arrangement or in other policies of the currency union or its members.
Currency board Classification as a currency board involves the confirmation of the country
authorities’ de jure exchange rate arrangement. A currency board arrangement is
a monetary arrangement based on an explicit legislative commitment to exchange
domestic currency for a specified foreign currency at a fixed exchange rate,
combined with restrictions on the issuing authority to ensure the fulfillment of its
legal obligation. This implies that domestic currency is usually fully backed

by foreign assets, eliminating traditional central bank functions such as monetary

control and lender-of-last-resort and leaving little scope for discretionary monetary
policy. Some flexibility may still be afforded, depending on the strictness of the
banking rules of the currency board arrangement.
Conventional peg Classification as a conventional peg involves the confirmation of the country authorities’
de jure exchange rate arrangement. For this category the country formally (de jure)
pegs its currency at a fixed rate to another currency or basket of currencies, where the
basket is formed, for example, from the currencies of major trading or financial partners
and weights reflect the geographic distribution of trade, services, or capital flows. The
anchor currency or basket weights are public or notified to the IMF. The country
authorities stand ready to maintain the fixed parity through direct intervention (i.e.,
via sale or purchase of foreign exchange in the market) or indirect intervention (e.g.,
via exchange rate related use of interest rate policy, imposition of foreign exchange
regulations, exercise of moral suasion that constrains foreign exchange activity, or
intervention by other public institutions). There is no commitment to irrevocably keep
the parity, but the formal arrangement must be confirmed empirically: the exchange
rate may fluctuate within narrow margins of less than ±1% around a central rate or the
maximum and minimum value of the spot market exchange rate must remain within a
narrow margin of 2% for at least six months.
Stabilized Classification as a stabilized arrangement entails a spot market exchange rate that
arrangement remains within a margin of 2% for six months or more (with the exception of a
specified number of outliers or step adjustments) and is not floating. The required
margin of stability can be met either with respect to a single currency or a basket
of currencies, where the anchor currency or the basket is ascertained or confirmed
using statistical techniques. Classification as a stabilized arrangement requires that
the statistical criteria are met and that the exchange rate remains stable as a result
of official action (including structural market rigidities). The classification does not
imply a policy commitment on the part of the country authorities.
Crawling peg Classification as a crawling peg involves the confirmation of the country authorities’
de jure exchange rate arrangement. The currency is adjusted in small amounts at a
fixed rate or in response to changes in selected quantitative indicators, such as past
inflation differentials vis-à-vis major trading partners or differentials between the
inflation target and expected inflation in major trading partners. The rate of crawl
can be set to generate inflation-adjusted changes in the exchange rate (backward
looking) or set at a predetermined fixed rate and/or below the projected inflation
differentials (forward looking). The rules and parameters of the arrangement are
public or notified to the IMF.
Crawl-like For classification as a crawl-like arrangement, the exchange rate must remain within
arrangement a narrow margin of 2% relative to a statistically identified trend for six months or
more (with the exception of a specified number of outliers) and the exchange rate
arrangement cannot be considered as floating. Normally, a minimum rate of change
greater than allowed under a stabilized (peg-like) arrangement is required. However,
an arrangement will be considered crawl-like with an annualized rate of change of at
least 1%, provided that the exchange rate appreciates or depreciates in a sufficiently
monotonic and continuous manner.
Pegged exchange Classification as a pegged exchange rate within horizontal bands involves the
rate within confirmation of the country authorities’ de jure exchange rate arrangement. The value
horizontal bands of the currency is maintained within certain margins of fluctuation of at least ±1%
around a fixed central rate, or the margin between the maximum and minimum
value of the exchange rate exceeds 2%. It includes arrangements of countries in the
ERM of the European Monetary System (EMS), which was replaced with the ERM
II on January 1, 1999, for those countries with margins of fluctuation wider than
±1%. The central rate and width of the band are public or notified to the IMF.

Other managed This category is a residual and is used when the exchange rate arrangement does
arrangement not meet the criteria for any of the other categories. Arrangements characterized by
frequent shifts in policies may fall into this category.
Floating A floating exchange rate is largely market determined, without an ascertainable
or predictable path for the rate. In particular, an exchange rate that satisfies the
statistical criteria for a stabilized or a crawl-like arrangement will be classified as
such unless it is clear that the stability of the exchange rate is not the result of
official actions. Foreign exchange market intervention may be either direct or
indirect, and such intervention serves to moderate the rate of change and prevent
undue fluctuations in the exchange rate, but policies targeting a specific level of
the exchange rate are incompatible with floating. Indicators for managing the rate
are broadly judgmental (e.g., balance of payments position, international reserves,
parallel market developments). Floating arrangements may exhibit more or less
exchange rate volatility, depending on the size of the shocks affecting the economy.
Free floating A floating exchange rate can be classified as free floating if intervention occurs only
exceptionally and aims to address disorderly market conditions and if the authorities
have provided information or data confirming that intervention has been limited
to at most three instances in the previous six months, each lasting no more than
three business days. If the information or data required are not available to the IMF
staff, the arrangement will be classified as floating. Detailed data on intervention or
official foreign exchange transactions will not be requested routinely from member
countries, but only when other information available to IMF staff is insufficient to
resolve uncertainties about the appropriate classification.
Official exchange Provides information on the computation of the exchange rate and the use of the
rate official exchange rate (accounting, customs valuation purposes, foreign exchange
transactions with the government).
Monetary policy The category includes a brief description of the monetary policy framework in effect
framework according to the following subcategories:
Exchange rate The monetary authority buys or sell foreign exchange to maintain the exchange rate
anchor at its predetermined level or within a range. The exchange rate thus serves as the
nominal anchor or intermediate target of monetary policy. These frameworks are
associated with exchange rate arrangements with no separate legal tender, currency
board arrangements, pegs (or stabilized arrangements) with or without bands,
crawling pegs (or crawl-like arrangements), and other managed arrangements.
US dollar The US dollar is the nominal anchor or the only legal tender.
Euro The euro is the nominal anchor or the only legal tender.
Composite A currency composite consisting of two or more currencies is the nominal anchor.
Other A currency other than the US dollar and the euro is the nominal anchor or the only
legal tender.
Monetary The intermediate target of monetary policy is a monetary aggregate such as M0,
aggregate target M1, or M2, although the country may also set targets for inflation. The central
bank may use a quantity (central bank reserves or base money) or price variable
(policy rate) as operational target.
Inflation-targeting This involves the public announcement of numerical targets for inflation, with an
framework institutional commitment by the monetary authority to achieve these targets, typically
over a medium-term horizon. Additional key features normally include increased
communication with the public and the markets about the plans and objectives of
monetary policymakers and increased accountability of the central bank for achieving
its inflation objectives. Monetary policy decisions are often guided by the deviation
of forecasts of future inflation from the announced inflation target, with the inflation
forecast acting (implicitly or explicitly) as the intermediate target of monetary policy.

Target setting body The official body or organizational unit responsible for setting and/or adjusting the
inflation targets.
Inflation target The numerical targets for inflation which have been publicly announced by the
Central Bank. Inflation targets are generally expressed as i) a point target, ii) targets
with plus minus a certain numerical limit, and iii) as a band or range. The target
measure is defined in terms of end-year inflation or as average annual inflation.
CPI and core CPI are based on national definitions, which may vary from country
to country. Target horizon is the term in years of inflation targets as publicly
announced by the Central Bank.
Operating target Policy rate is used as the operating target of the monetary policy to achieve the inflation
(policy rate) target. Short-term policy interest rate target (for example, overnight, one week, two
weeks, etc.) is generally expressed as i) a point target, ii) target with a certain numerical
limit above and below the target, and iii) as a band or range (upper and lower limits).
Accountability Accountability framework that requires the central bank to explain its conduct
of monetary policy in the pursuit of achieving its inflation target. For example,
the governor or representatives of the central bank are required to appear before
Parliament or one of its committees to explain actions and views on monetary policy
and economic developments. It may also require reporting inflation targets through
Open letters on monetary policy. Usually written by the Governor on behalf of the
Monetary Policy Committee to the government in the event that inflation misses the
inflation target by a pre-specified amount.
Transparency The manner and level of detail how monetary policy decisions are communicated
to the public. Institutional transparency is gauged by the communication vehicles
employed by the central bank, including the release of inflation reports and the
frequency and detail of these reports, the announcement of changes in the stance
of monetary policy via press release, reviews of inflation performance and changes
in monetary policy, the publication of inflation forecasting models, and the use of
media and other public presentations.
Other monetary The country has no explicitly stated nominal anchor, but rather monitors various
framework indicators in conducting monetary policy. This category is also used when no
relevant information on the country is available.
Exchange tax Foreign exchange transactions are subject to a special tax. Bank commissions charged
on foreign exchange transactions are not included in this category; rather, they are
listed under the exchange arrangement classification.
Exchange subsidy Foreign exchange transactions are subsidized by using separate, nonmarket exchange rates.
Foreign exchange The existence of a foreign exchange market.
market
Spot exchange Institutional setting of the foreign exchange market for spot transactions and market
market participants. Existence and significance of the parallel market.
Operated by the The role of the central bank in providing access to foreign exchange to market
central bank participants through a foreign exchange standing facility, allocation of foreign
exchange to authorized dealers, or other legal and private persons, and the
management of buy or sell auctions or fixing sessions. Price determination and
frequency of central bank operations.
A foreign exchange standing facility allows market participants to buy foreign
exchange from or sell it to the central bank at predetermined exchange rates at
their own initiative and is usually instrumental in maintaining a hard or soft
peg arrangement. The credibility of the facility depends to a large extent on the
availability of foreign exchange reserves to back the facility.

Allocation involves redistribution of foreign exchange inflows by the central bank

to market participants for specific international transactions or in specific amounts
(rationing). Foreign exchange allocation is often used to provide foreign exchange
for strategic imports such as oil or food when foreign exchange reserves are scarce.
In an allocation system, companies and individuals often transact directly with the
central bank, and commercial banks may buy foreign exchange only for their clients’
underlying international transactions. Purchases of foreign exchange for the banks’
own books typically are not permitted.
Auctions are organized by the central bank, usually for market participants to
buy and /or sell foreign exchange. They can take the form of multiple-price
auctions (all successful bidders pay the price they offer) or single-price auctions
(all successful bidders pay the same price, which is the market-clearing/cut-off
price). The authorities may exercise discretion in accepting or rejecting offers,
and sometimes a floor price is determined in advance, below which offers are not
accepted. The frequency of auctions depends mainly on the amount or availability
of foreign exchange to be auctioned and on the role the auction plays in the
foreign exchange market.
Fixing sessions are often organized by the central bank at the early stage of
market development to establish a market-clearing exchange rate. The central
bank monitors the market closely and often actively participates in price
formation by selling or buying during the session to achieve a certain exchange
rate target. The price determined at the fixing session is often used for foreign
exchange transactions outside the session and/or for accounting and valuation
purposes.
Interbank market The organization and operation of the interbank market or interventions. Existence
of brokerage, over the counter, and market-making arrangements.
Forward exchange The existence of a forward exchange market and the institutional arrangement and
market market participants.
Official cover of An official entity (the central bank or the government) assumes the exchange risk of
forward operations certain foreign exchange transactions.
Arrangements for Payments and Receipts
Prescription of The official requirements affecting the selection of currency and the method of
currency settlement for transactions with other countries. When a country has payments
requirements agreements with other countries, the terms of these agreements often lead to a
prescription of currency for specified categories of payments to, and receipts from,
the countries concerned. This category includes information on the use of domestic
currency in transactions between residents and nonresidents, both domestically
and abroad; it also indicates any restrictions on the use of foreign currency among
residents.
Payments
arrangements
Bilateral payments Two countries have an agreement to prescribe specific rules for payments to
arrangements each other, including cases in which private parties are also obligated to use specific
currencies. These agreements can be either operative or inoperative.
Regional More than two parties participate in a payments agreement.
arrangements
Clearing The official bodies of two or more countries agree to offset with some regularity the
agreements balances that arise from payments to each other as a result of the exchange of goods,
services, or—less often—capital.

Barter agreements The official bodies of two or more countries agree to offset exports of goods and
and open accounts services to one country with imports of goods and services from the same country,
without payment.
Administration of The authorities’ division of responsibility for monitoring policy, administering
control exchange controls, and determining the extent of delegation of powers to
outside agencies (banks are often authorized to effect foreign exchange
transactions).
Payments arrears Official or private residents of a member country default on their payments or
transfers in foreign exchange to nonresidents. This category includes only the
situation in which domestic currency is available for residents to settle their debts
but they are unable to obtain foreign exchange—for example, because of the
presence of an officially announced or unofficial queuing system; it does not cover
nonpayment by private parties owing to bankruptcy.
Controls on trade Separate rules for trading in gold domestically and with foreign countries.
in gold (coins
and/or bullion)
Controls on Regulations governing the physical movement of means of payment between
exports and countries. Where information is available, the category distinguishes between
imports of separate limits for the (1) export and import of banknotes by travelers and
banknotes (2) export and import of banknotes by banks and other authorized financial
institutions.
Resident Accounts
Indicates whether resident accounts that are maintained in the national currency
or in foreign currency, locally or abroad, are allowed and describes how they are
treated and the facilities and limitations attached to such accounts. When there is
more than one type of resident account, the nature and operation of the various
types of accounts are also described; for example, whether residents are allowed to
open foreign exchange accounts with or without approval from the exchange control
authority, whether these accounts may be held domestically or abroad, and whether
the balances on accounts held by residents in domestic currency may be converted
into foreign currency.
Nonresident Accounts
Indicates whether local nonresident accounts maintained in the national currency or
in foreign currency are allowed and describes how they are treated and the facilities
and limitations attached to such accounts. When there is more than one type of
nonresident account, the nature and operation of the various types of accounts are
described.
Blocked accounts Accounts of nonresidents, usually in domestic currency. Regulations prohibit or
limit the conversion and/or transfer of the balances of such accounts.
Imports and Import Payments
Describes the nature and extent of exchange and trade restrictions on imports.
Foreign exchange Information on the existence of a foreign exchange plan, i.e., prior allocation of a
budget certain amount of foreign exchange, usually on an annual basis, for the importation
of specific types of goods and/or services. In some cases, also covers differentiations
among individual importers.
Financing Information on specific import-financing regulations limiting the rights of residents
requirements for to enter into private contracts in which the financing options differ from those in
imports the official regulations.

Documentation
requirements for
release of foreign
exchange for
imports
Domiciliation The obligation to domicile the transactions with a specified (usually domestic)
requirements financial institution.
Preshipment Most often a compulsory government measure aimed at establishing the veracity of
inspection the import contract in terms of volume, quality, and price.
Letters of credit Parties are obligated to use letters of credit (LCs) as a form of payment for their imports.
Import licenses Import licenses are used not for trade purposes but instead to restrict the availability
used as exchange of foreign exchange for legitimate trade.
licenses
Import licenses
and other
nontariff measures
Positive list A list of goods that may be imported.
Negative list A list of goods that may not be imported.
Open general Indicates arrangements whereby certain imports or other international transactions
licenses are exempt from the restrictive application of licensing requirements.
Licenses with Refers to situations in which a license for the importation of a certain good is
quotas granted, but a specific limit is imposed on the amount to be imported.
Other nontariff May include prohibitions on imports of certain goods from all countries or of all
measures goods from a certain country. Several other nontariff measures are used by countries
(e.g., phytosanitary examinations, setting of standards), but these are not covered
fully in the report.
Import taxes and/ A brief description of the import tax and tariff system, including taxes levied on the
or tariffs foreign exchange made available for imports.
Taxes collected Indicates if any taxes apply to the exchange side of an import transaction.
through the
exchange system
State import Private parties are not allowed to engage in the importation of certain products, or
monopoly they are limited in their activity.
Exports and Export Proceeds
Describes restrictions on the use of export proceeds, as well as regulations on exports.
Repatriation The obligation of exporters to repatriate export proceeds.
requirements
Surrender
requirements
Surrender to the Regulations requiring the recipient of repatriated export proceeds to sell, sometimes
central bank at a specified exchange rate, any foreign exchange proceeds in return for local
currency to the central bank.
Surrender to Regulations requiring the recipient of repatriated export proceeds to sell, sometimes
authorized dealers at a specified exchange rate, any foreign exchange proceeds in return for local
currency to commercial banks or exchange dealers authorized for this purpose or on
a foreign exchange market.

Financing Information on specific export-financing regulations limiting the rights of residents

requirements to enter into private contracts in which the financing options differ from those in
the official regulations.
Documentation The same categories as in the case of imports are used.
requirements
Export licenses Restrictions on the right of residents to export goods. These restrictions may take
the form of quotas (where a certain quantity of shipment abroad is allowed) or the
absence of quotas (where the licenses are issued at the discretion of the foreign trade
control authority).
Export taxes A brief description of the export tax system, including any taxes that are levied on
foreign exchange earned by exporters.
Payments for Invisible Transactions and Current Transfers
Describes the procedures for effecting payments abroad in connection with
current transactions in invisibles, with reference to prior approval requirements,
the existence of quantitative and indicative limits, and/or bona fide tests. Detailed
information on the most common categories of transactions is provided only when
regulations differ for the various categories. Indicative limits establish maximum
amounts up to which the purchase of foreign exchange is allowed upon declaration
of the nature of the transaction, mainly for statistical purposes. Amounts above
those limits are granted if the bona fide nature of the transaction is established by
the presentation of appropriate documentation. Bona fide tests also may be applied
to transactions for which quantitative limits have not been established.
Trade-related Includes freight and insurance (including possible regulations on non-trade-related
payments insurance payments and transfers), unloading and storage costs, administrative
expenses, commissions, and customs duties and fees.
Investment-related Includes profits and dividends, interest payments (including interest on debentures,
payments mortgages, etc.), amortization of loans or depreciation of foreign direct investments,
and payments and transfers of rent.
Payments for Includes international travel for business, tourism, etc.
travel
Personal payments Includes medical expenditures abroad, study expenses abroad, pensions (including
regulations on payments and transfers of pensions by both state and private pension
providers on behalf of nonresidents, as well as the transfer of pensions due to
residents living abroad), and family maintenance and alimony (including regulations
on payments and transfers abroad of family maintenance and alimony by residents).
Foreign workers’ Transfer abroad of earnings by nonresidents working in the country.
wages
Credit card use Use of credit and debit cards to pay for invisible transactions.
abroad
Other payments Includes subscription and membership fees, authors’ royalties, consulting and legal fees, etc.
Proceeds from Invisible Transactions and Current Transfers
Describes regulations governing exchange receipts derived from transactions in
invisibles—including descriptions of any limitations on their conversion into
domestic currency—and the use of those receipts.
Repatriation The definitions of repatriation and surrender requirements are similar to those
requirements applied to export proceeds.
Surrender
requirements

Surrender to the
central bank
Surrender to
authorized dealers
Restrictions on Refers mainly to the limitations imposed on the use of receipts previously deposited
use of funds in certain types of bank accounts.
Capital Transactions
Describes regulations influencing both inward and outward capital flows.
The concept of controls on capital transactions is interpreted broadly. Thus,
controls on capital transactions include prohibitions; need for prior approval,
authorization, and notification; dual and multiple exchange rates; discriminatory
taxes; and reserve requirements or interest penalties imposed by the authorities
that regulate the conclusion or execution of transactions or transfers; or
the holding of assets at home by nonresidents and abroad by residents. The
coverage of the regulations applies to receipts as well as to payments and to
actions initiated by nonresidents and residents. In addition, because of the
close association with capital transactions, information is also provided on local
financial operations conducted in foreign currency, describing specific regulations
in force that limit residents’ and nonresidents’ issuing of securities denominated
in foreign currency or, generally, limitations on contract agreements expressed in
foreign exchange.
Repatriation The definitions of repatriation and surrender requirements are similar to those
requirements applied to export proceeds.
Surrender
requirements
Surrender to the
central bank
Surrender to
authorized dealers
Controls on capital Refers to public offerings or private placements on primary markets or their listing
and money market on secondary markets.
instruments
On capital market Refers to shares and other securities of a participating nature and to bonds and other
securities securities with an original maturity of more than one year.
Shares or other Includes transactions involving shares and other securities of a participating
securities of a nature if they are not effected for the purpose of acquiring a lasting economic
participating nature interest in the management of the enterprise concerned. Investments for the
purpose of acquiring a lasting economic interest are addressed under foreign
direct investments.
Bonds or other debt Refers to bonds and other securities with an original maturity of more than one
securities year. The term “other securities” includes notes and debentures.
On money market Refers to securities with an original maturity of one year or less and includes
instruments short-term instruments such as certificates of deposit and bills of exchange. The
category also includes treasury bills and other short-term government paper,
bankers’ acceptances, commercial papers, interbank deposits, and repurchase
agreements.
On collective Includes share certificates and registry entries or other evidence of investor interest
investment in an institution for collective investment such as mutual funds, and unit and
securities investment trusts.

Controls on Refers to operations in other negotiable instruments and nonsecured claims not
derivatives and covered under the above subsections. These may include operations in rights;
other instruments warrants; financial options and futures; secondary market operations in other
financial claims (including sovereign loans, mortgage loans, commercial credits,
negotiable instruments originating as loans, receivables, and discounted bills of
trade); forward operations (including those in foreign exchange); swaps of bonds
and other debt securities; credits and loans; and other swaps (e.g., interest rate, debt/
equity, equity/debt, foreign currency, as well as swaps of any of the instruments
listed above). Also included are controls on operations in foreign exchange without
any other underlying transaction (e.g., spot or forward trading on the foreign
exchange markets, forward cover operations, etc.).
Controls on
credit operations
Commercial Covers operations directly linked with international trade transactions or with the
credits rendering of international services.
Financial credits Includes credits other than commercial credits granted by all residents, including
banks, to nonresidents or vice versa.
Guarantees, Includes guarantees, sureties, and financial backup facilities provided by residents
sureties, and to nonresidents and vice versa. Also includes securities pledged for payment or
financial backup performance of a contract—such as warrants, performance bonds, and standby
facilities letters of credit—and financial backup facilities that are credit facilities used as a
guarantee for independent financial operations.
Controls on Refers to investments for the purpose of establishing lasting economic relations
direct investment both abroad by residents and domestically by nonresidents. These investments are
essentially for the purpose of producing goods and services, in particular, investments
that allow investor participation in the management of the enterprise. The category
includes the creation or extension of a wholly owned enterprise, subsidiary, or branch
and the acquisition of full or partial ownership of a new or existing enterprise that
results in effective influence over the operations of the enterprise.
Controls on Refers to the transfer of principal, including the initial capital and capital gains, of
liquidation of a foreign direct investment as defined above.
direct investment
Controls on Refers to the acquisition of real estate not associated with direct investment,
real estate including, for example, investments of a purely financial nature in real estate or the
transactions acquisition of real estate for personal use.
Controls on Covers transfers initiated on behalf of private persons and intended to benefit other
personal capital private persons. Includes transactions involving property to which the promise of a
transactions return to the owner with payments of interest is attached (e.g., loans or settlements
of debt in their country of origin by immigrants), and transfers effected free of
charge to the beneficiary (e.g., gifts and endowments, loans, inheritances and
legacies, or emigrants’ assets).
Provisions Specific to the Financial Sector
Provisions Describes regulations specific to these institutions, such as monetary, prudential,
specific to and foreign exchange controls. Inclusion of an entry in this category does not
commercial banks necessarily signify that the aim of the measure is to control the flow of capital. Some
and other credit of these items (e.g., borrowing abroad, lending to nonresidents, purchase of locally
institutions issued securities denominated in foreign exchange, investment regulations) may
be repetitions of the entries under respective categories of controls on capital and
money market instruments, credit operations, or direct investments when the same
regulations apply to commercial banks as well as to other residents.

Open foreign Describes regulations on certain commercial bank balance sheet items (including
exchange position capital) and on limits covering commercial banks’ positions in foreign currencies
limits (including gold).
Provisions Describes controls specific to institutions, such as insurance companies, pension
specific to funds, investment firms (including brokers, dealers, or advisory firms), and other
institutional securities firms (including collective investment funds). Incorporates measures
investors that impose limitations on the composition of the institutional investors’ foreign
or foreign currency assets (reserves, accounts) and liabilities (e.g., investments in
equity capital of institutional investors or borrowing from nonresidents) and/or
that differentiate between residents and nonresidents. Examples of such controls are
restrictions on investments because of rules regarding the technical, mathematical,
security, or mandatory reserves; solvency margins; premium reserve stocks; or
guarantee funds of nonbank financial institutions. Inclusion of an entry in this
category does not necessarily signify that the aim of the measure is to control the
flow of capital.
Insurance
companies
Pension funds
Investment firms
and collective
investment funds.
Listing conventions used in the report are as follows:

• When it is unclear whether a particular category or measure exists—because pertinent information is not
available at the time of publication—the category is displayed with the notation “n.a.”
• If a measure is known to exist but specific information on it is not available, the category is displayed with
the notation “yes.”
• If no measure exists on any item within a category, the category is displayed with the notation “no.”
• If members have provided the IMF staff with information indicating that a category or an item is not
regulated, these are marked by “n.r.”
• When relevant documents have not been published and the authorities have not consented to the publica-
tion of the information as included in the IMF staff report, the text reads “Information is not publicly
available.”

Summary Features
ANNUAL of Exchange
REPORT Arrangements
ON EXCHANGE and Regulatory
ARR ANGEMENTS ANDFrameworks for Current
EXCHANGE RESTRIC and2019
TIONS Capital Transactions in Member Countries
(As of date shown on first page of country chapter; symbol key at end of table)
International Financial Statistics (IFS) code: 512 914 612 614 311 213 911 193 122 912 313 419 513 316
Countries with these features¹

Total number of Member
Azerbaijan, Republic of
Antigua and Barbuda
Bahrain, Kingdom of
Afghanistan, I.R. of
The Bahamas
Bangladesh
Argentina
Barbados
Australia
Armenia
Albania
Austria
Angola
Algeria
Article VIII 172 ● ● ● ● ● ● ● ● ● ● ● ●
Article XIV 17 ● ●
Exchange Rate Arrangements
No separate legal tender 13
Currency board 10 ◊
Conventional peg 40 ◊ ◊ ◊
Stabilized arrangement 25 ◊ ◊
Crawling peg 3
Crawl-like arrangement 18 * ◊
Pegged exchange rate within horizontal bands 1
Other managed arrangement 13 ● ●
Floating 35 ● ●
Free floating 31 ● ⊕
Exchange rate structure
Dual exchange rates 12 ● ●
Multiple exchange rates 11 ●
Bilateral payments arrangements 58 ● ● ● ● ● ● ● ● ●
Payments arrears 21 ● ●
Controls on payments for invisible transactions
94 ● ● ● ● ● ● ●
and current transfers
Proceeds from exports and/or invisible transactions
Repatriation requirements 85 ● ● ● – ● ● ● ●
Surrender requirements 59 ● ● ● ● ●
On capital market securities 153 ● ● ● ● ● ● ● ● ● ● ● ●
On money market instruments 123 ● ● ● ● ● ● ● ●
On collective investment securities 126 ● ● ● ● ● ● ● ● ● ● ●
Controls on derivatives and other instruments 99 ● ● ■ ● ● ● ● ● ●
Commercial credits 84 ● ● ● ● ●
Financial credits 114 ● ● ● ● ● ● ●
Guarantees, sureties, and financial backup facilities 74 ● ● ● ● ●
Controls on direct investment 151 ● ● ● ● ● ● ● ● ● ●
Controls on liquidation of direct investment 35 ● ●
Controls on real estate transactions 147 ● ● ● ■ ● ● ● ● ● ● ● ● ●
Controls on personal capital transactions 97 ● ● – ● ● ● ● ●
Provisions specific to:
Commercial banks and other credit institutions 174 ● ● ● ● ● ● ● ● ● ● ● ● ● ●
Institutional investors 154 ● ● ● – ● ● ● ● ● ● ● ●
1 Totals excludes information on three territories: Aruba, Curaçao and Sint Maarten, and Hong Kong SAR; their information is located at the end of the table.
Summary Features of Exchange Arrangements and Regulatory Frameworks for Current and Capital Transactions in Member Countries
913 124 339 638 514 218 963 616 223 516 918 748 618 624 522 622 156
Bosnia and Herzegovina
Brunei Darussalam
Burkina Faso
Cabo Verde
Cameroon
Cambodia
Botswana
Burundi
Belgium
Bulgaria
Canada
Bhutan
Belarus
Bolivia
Benin
Belize
Brazil
Article VIII ● ● ● ● ● ● ● ● ● ● ● ● ● ●
Article XIV ● ● ●
Currency board ▲  ▲
Conventional peg ◊ ▲  ▲ ▲ ▲
Stabilized arrangement ◊
Crawling peg *
Crawl-like arrangement ◊
Pegged exchange rate within horizontal bands
Other managed arrangement ●
Floating ● ●
Free floating ⊕ ●
Dual exchange rates ●
Multiple exchange rates
Bilateral payments arrangements ● ● ● ● ● ● ● ●
Payments arrears ●
● ● ● ● ● ● ● ● ● ● ● ●
Repatriation requirements ● ● ● ● ● ● ● ●
Surrender requirements ● ● ● ● ● ●
On capital market securities ● ● ● ● ● ● ● ● ● ● ● ● ● ● ●
On money market instruments ● ● ● ● ● ● ● ● ● ● ● ●
On collective investment securities ● ● ● ● ● ● ● ● ● ● ● ●
Controls on derivatives and other instruments ● ● ● ● ● ● ● ●
Commercial credits ● ● ● ● ● ● ● ● ● ●
Financial credits ● ● ● ● ● ● ● ● ● ● ● ●
Guarantees, sureties, and financial backup facilities ● ● ● ●
Controls on direct investment ● ● ● ● ● ● ● ● ● ● ● ● ●
Controls on liquidation of direct investment ● ● ●
Controls on real estate transactions ● ● ● ● ● ● ● ● ● ● ● ● ●
Controls on personal capital transactions ● ● ● ● ● ● ● ● ●
Commercial banks and other credit institutions ● ● ● ● ● ● ● ● ● ● ● ● ● ● ●
Institutional investors ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ●

626 628 228 924 233 632 636 634 238 662 960 423 935 128 611 321 243
Central African Republic
China, People’s Rep. of
Congo, Dem. Rep. of
Dominican Republic
Congo, Republic of
Czech Republic
Côte d’Ivoire
Costa Rica
Dominica
Colombia
Denmark
Comoros
Djibouti
Croatia
Cyprus
Chad
Chile
Article VIII ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ●
Article XIV
Currency board ◊ ◊
Conventional peg ▲ ▲ ▲ ● ▲ v
Stabilized arrangement ◊ ▲
Crawling peg
Floating ● ● ●
Free floating ● ⊕
Dual exchange rates
Bilateral payments arrangements ● ● ●
Payments arrears ● ● ● ●
● ● ● ● ● ● ●
Repatriation requirements ● ● ● ● ● ● ● ● ●
On collective investment securities ● ● ● ● ● ● ● ● ● ● ● ● ●
Controls on derivatives and other instruments ■ ■ ● ● ● ■ ● ■ ● ● ● –
Commercial credits ● ● ● ● ● ● ● ● ● ●
Financial credits ● ● ● ● ● ● ● ● ● ● ● ● ●
Guarantees, sureties, and financial backup facilities ■ ■ ● ● ● ● ■ ● ● ● ●
Controls on direct investment ● ● ● ● ● ● ● ● ● ● ● ● ● ● ●
Controls on liquidation of direct investment ● ● ● ● ● ● ●
Controls on real estate transactions ● ● ● ● ● ● ● ● ● ● ● ●
Controls on personal capital transactions ● ● ● ● ● ● ● ● ● ●
Commercial banks and other credit institutions ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ●
Institutional investors ● ● ● ● ● – ● ● ● ● ● ● ● ● ● ●

248 469 253 642 643 939 734 644 819 172 132 646 648 915 134 652 174
Equatorial Guinea
Gambia, The
El Salvador
Germany
Eswatini
Ethiopia
Ecuador
Georgia
Finland
Estonia
Gabon
Greece
Eritrea
Ghana
France
Egypt
Fiji
Article VIII ● ● ● ● ● ● ● ● ● ● ● ● ● ● ●
Article XIV ● ●
No separate legal tender ◊ ◊
Currency board
Conventional peg ▲ ◊  * ▲
Stabilized arrangement ◊
Crawling peg
Floating ● ●
Free floating ⊕ ⊕ ⊕ ⊕ ⊕
Dual exchange rates ● ●
Bilateral payments arrangements ● ● ●
Payments arrears ● ●
● ● ● ● ● ● ● ● ●
Surrender requirements ● ● ● ● ● ● ●
On capital market securities ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ●
On money market instruments ● ● ● ● ● ● ● ● ● ● ● ● ● ●
On collective investment securities ● ● ● ● – ● ● ● ● ● ● ● ● ●
Controls on derivatives and other instruments ● ● ● ■ – ● ● ● ● ■ ● ● ●
Commercial credits ● ● ● ● ● ● ●
Financial credits ● ● ● ● ● ● ● ● ● ● ● ●
Guarantees, sureties, and financial backup facilities ● ■ – ● ● ● ■ ●
Controls on direct investment ● ● ● ● ● ● ● ● ● ● ● ● ● ●
Controls on liquidation of direct investment ● ● ● ● ●
Controls on personal capital transactions ● ● ● ● ● ● ● ● ●
Institutional investors ● ● ● ● – ● ● ● ● ● ● ● ● ● ● ● ●

328 N/A 656 654 336 263 268 944 176 534 536 429 433 178 436 136 343
Guinea-Bissau
Iran, I.R. of
Guatemala
Honduras
Indonesia
Hungary
Grenada
Guyana
Jamaica
Guinea
Iceland
Ireland
Haiti
India
Israel
Italy
Iraq
Article VIII ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ●
Article XIV ●
Currency board ◊
Conventional peg ▲ ◊
Stabilized arrangement ◊ ◊ ◊ ◊
Crawling peg ◊
Floating ● ● ● ● ● ●
Free floating ⊕ ⊕
Dual exchange rates ● ●
Multiple exchange rates ●
Bilateral payments arrangements ● ● ● ● ● ●
Payments arrears ● ● ●
● ● ● ● ● ● ●
On collective investment securities ● ● ● ● ● ● ● ● ● ● ● ● ●
Controls on derivatives and other instruments ● ● ● ● ● ● ● ● ● ●
Commercial credits ● ● ● ● ● ● ● ● ●
Financial credits ● ● ● ● ● ● ● ● ● ● ●
Guarantees, sureties, and financial backup facilities ● ● ● ● ● ● ● ●
Controls on liquidation of direct investment ● ● ● ●
Controls on personal capital transactions ● ● ● ● ● ● ● ●
Institutional investors ● – ● ● ● ● ● ● ● – ● ● ●

158 439 916 664 826 542 967 443 917 544 941 446 666 668 672 946 137
Lao People’s Dem. Rep.
Libyan Arab Jamahiriya

Korea, Republic of
Kyrgyz Republic
Luxembourg
Kazakhstan
Lithuania
Lebanon
Lesotho
Kiribati
Kosovo
Kuwait
Liberia
Jordan
Kenya
Latvia
Japan
Article VIII ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ●
Article XIV ●
No separate legal tender  ▲
Currency board
Conventional peg ◊ *  ○
Stabilized arrangement ◊ ◊
Crawling peg
Crawl-like arrangement ◊ ◊
Floating ● ●
Free floating ● ⊕ ⊕ ⊕
Bilateral payments arrangements ● ● ● ●
Payments arrears ● –
● ● ● ● ● ●
Repatriation requirements ● ■ ● ● ●
Surrender requirements ● ● ● ●
On capital market securities ● ● ● ● ● ● ● ● ● ● ● ● ●
On money market instruments ● ● ● ● ● ● ● ● ● ●
On collective investment securities ● ● ● ● ● ● ● ● ●
Controls on derivatives and other instruments ● ● ● ● ● ● ● ● ● ■ ●
Commercial credits ● ● ● ● ● ● ●
Financial credits ● ● ● ● ● ● ● ● ●
Guarantees, sureties, and financial backup facilities ● ● ● ●
Controls on liquidation of direct investment ■ ●
Controls on personal capital transactions ● ■ ● ● ●
Commercial banks and other credit institutions ● ● ● ■ ● ● ● ● ● ● ● ● ● ● ● ●
Institutional investors ● ● ● – ● ● ● ● ● ● ● ● ● ●

674 676 548 556 678 181 867 682 684 273 868 921 948 943 686 688
Marshall Islands, Rep. of the
Micronesia, Fed. States of
Montenegro, Rep. of
Mozambique
Madagascar
Mauritania
Mauritius
Mongolia
Morocco
Maldives
Moldova
Malaysia
Malawi
Mexico
Malta
Mali
Article VIII ● ● ● ● ● ● ● ● ● ● ● ● ● ● ●
Article XIV ●
No separate legal tender ◊ ◊ ▲
Currency board
Conventional peg ▲
Stabilized arrangement ◊ ◊ *
Crawling peg
Floating ● ● ● ● ●
Bilateral payments arrangements ● ● ● ●
Payments arrears
● ● ● ● ● ● ● ●
Surrender requirements ● ● ● ● ●
On capital market securities ● ● ● ● ● ● – ● ● ● ● ● ● ● ● ●
On money market instruments ● ● ● ● – ● ● ● ■ ● ● ● ●
On collective investment securities ● ● ● ● – ■ ● ● ● ● ● ●
Controls on derivatives and other instruments ● ● ● ● – ■ ● ● ● ●
Commercial credits ● ● ● ● – ■ ● ● ●
Financial credits ● ● ● ● – ● ● ■ ● ● ●
Guarantees, sureties, and financial backup facilities ● ● ● ● – ● ● ■ ● ● ●
Controls on direct investment ● ● ● ● ● ● ● ● ● ● ● ● ● ●
Controls on liquidation of direct investment – ●
Controls on real estate transactions ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ●
Controls on personal capital transactions ● ● ● ● ● – ● ■ ● ● ● ●
Commercial banks and other credit institutions ● ● ● ● ● ● – ● ● ● ● ● ● ● ●
Institutional investors ● ● ● ● ● – ● ● – ● ● ● ●

518 728 836 558 138 196 278 692 694 962 142 449 564 565 283 853
North Macedonia, Rep. of
Papua New Guinea

New Zealand
Netherlands
Nicaragua
Myanmar
Namibia
Pakistan
Norway
Panama
Nigeria
Nauru
Oman
Nepal
Niger
Palau
Article VIII ● ● ● ● ● ● ● ● ● ● ● ● ● ●
Article XIV ● ●
No separate legal tender  ◊ ◊
Currency board
Conventional peg   ▲ ◊
Stabilized arrangement ● ▲
Crawling peg ◊
Other managed arrangement ● ●
Floating ●
Dual exchange rates
Multiple exchange rates ● ● ●
Bilateral payments arrangements – ● ● ●
Payments arrears ● – ●
● ● ● ● ● ● ● ● ●
Repatriation requirements ● ● – ● ● ● ● ●
Surrender requirements ● – ● ● ●
On capital market securities ● ● – ● ● ● ● ● ● ● ●
On money market instruments ● ● – ● ● ● ● ●
On collective investment securities ● ● – ● ● ● ●
Controls on derivatives and other instruments ● – ● ● ● ● ● ●
Commercial credits ● ● – ● ● ● ● ●
Financial credits ● ● – ● ● ● ●
Guarantees, sureties, and financial backup facilities ● ● – ● ● ● ●
Controls on direct investment ● ● ● ● ● ● ● ● ● ● ● ● ●
Controls on liquidation of direct investment ● – ●
Controls on real estate transactions ● ● ● ● ● ● ● ● ● ● ●
Controls on personal capital transactions ● ● – ● ● ● ● ● ● ●
Commercial banks and other credit institutions ● ● – ● ● ● ● ● ● ● ● ● ●
Institutional investors ● ● – ● ● ● ● ● ● ● ● ● ● ●

288 293 566 964 182 453 968 922 714 862 135 716 456 722 942 718
São Tomé and Príncipe

Russian Federation
Serbia, Rep. of
Saudi Arabia
San Marino
Philippines
Seychelles
Romania
Paraguay
Portugal
Rwanda
Senegal
Poland
Samoa
Qatar
Peru
Article VIII ● ● ● ● ● ● ● ● ● ● ● ● ● ● ●
Article XIV ●
No separate legal tender ▲
Currency board
Conventional peg ◊ * ▲ ◊ ▲
Stabilized arrangement ▲ ▲
Crawling peg
Crawl-like arrangement ◊ ◊
Free floating ● ⊕ ●
Bilateral payments arrangements ● ● ● ● ● ●
Payments arrears ● ●
● ● ● ● ● ● ●
Repatriation requirements ● ● ● ●
Surrender requirements ● ●
On capital market securities ● ● ● ● ● ● ● ● ● ●
On money market instruments ● ● ● ● ● ● ● ● ●
On collective investment securities ● ● ● ● ● ● ● ● ●
Controls on derivatives and other instruments ● ● ● ● ● – ● ● ●
Commercial credits ● ● ● – ● ●
Financial credits ● ● ● ● ● ● – ● ● ●
Guarantees, sureties, and financial backup facilities ● ● ● – ● ● ●
Controls on direct investment ● ● ● ● ● ● ● ● ● ● ●
Controls on liquidation of direct investment ●
Controls on personal capital transactions ● ● ● ● ● ● ● ● ● ●
Commercial banks and other credit institutions ● ● ● ● ● ● ● ● ● ● ● ● ● ● ● ●
Institutional investors ● ● ● ● ● ● ● ● ● ● ● ■ ● ● ●

724 576 936 961 813 726 199 733 184 524 361 362 364 732 366 144 146
St. Vincent and the Grenadines

St. Kitts and Nevis
Solomon Islands
Slovak Republic
South Sudan
South Africa
Sierra Leone
Switzerland
Singapore
Sri Lanka
Suriname
St. Lucia
Slovenia
Somalia
Sweden
Sudan
Spain
Article VIII ● ● ● ● ● ● ● ● ● ● ● ● ● ● ●
Article XIV ● ●
Currency board ◊ ◊ ◊
Conventional peg *
Crawling peg
Crawl-like arrangement * ◊ ◊
Floating ● ●
Free floating ⊕ ⊕ ● ⊕ ●
Bilateral payments arrangements ● – ●
Payments arrears –
● ● ● ● ● ● ● ● ● ●
Repatriation requirements ● ● ● – ● ● ● ● ●
Surrender requirements ● ● – ● ● ●
On capital market securities ● ● ● ● ● – ● ● ● ● ● ● ● ● ●
On money market instruments ● ● ● ● – ● ● ● ● ● ● ● ●
On collective investment securities ● ● ● ● ● – ● ● ● ● ● ■ ● ● ●
Controls on derivatives and other instruments ● ● ● ● – ● ● ● ■ ● ● ●
Commercial credits ● ● – ● ● ● ● ●
Financial credits ● ● ● ● ● – ● ● ● ● ● ● ● ●
Guarantees, sureties, and financial backup facilities ● ● ● – ● ● ● ●
Controls on direct investment ● ● ● ● ● – ● ● ● ● ● ● ● ●
Controls on liquidation of direct investment ● ● – ● – ●
Controls on real estate transactions ● ● ● ● ● ● – ● ● ● ● ● ● ● ●
Controls on personal capital transactions ● ● ● – ● ● ● ● ●
Commercial banks and other credit institutions ● ● ● ● ● ● – ● ● ● ● ● ● ● ●
Institutional investors ● ● ● ● ● ● – ● ● ● ● ● ● ● ● ●

463 923 738 578 537 742 866 369 744 186 925 869 746 926 466 112 111
Timor-Leste, Dem. Rep. of
United Arab Emirates

Syrian Arab Republic
Trinidad and Tobago
United Kingdom
Turkmenistan
United States
Tajikistan
Tanzania
Thailand
Ukraine
Uganda
Tunisia
Turkey
Tuvalu
Tonga
Togo
Article VIII ● ● ● ● ● ● ● ● ● ● ● ● ● ● ●
Article XIV ● ●
No separate legal tender ◊ 
Currency board
Conventional peg ▲ ◊ ◊
Crawling peg
Crawl-like arrangement ◊ ▲
Pegged exchange rate within horizontal bands *
Floating ● ● ● ●
Free floating ● ●
Multiple exchange rates ● ●
Bilateral payments arrangements ● ● ● ● ● ● ●
Payments arrears ● – ●
● ● ● ● ● ● ● ● ● – ●
Repatriation requirements ● ● ● ● ● ● ● ● ● – ●
Surrender requirements ● ● ● ● ● ● ● –
On capital market securities ● ● ● ● ● ● ● ● ● ● – ● ● ● ●
On money market instruments ● ● ● ● ● ● ● ● ● – ● ● ●
On collective investment securities ● ● ● ● ● ● ● ● ● – ● ● ● ●
Controls on derivatives and other instruments ● ● ● ● ● ● ● – ● ●
Commercial credits ● ● ● ● ● – ●
Financial credits ● ● ● ● ● ● ● – ●
Guarantees, sureties, and financial backup facilities ● ● ● ● ● ● – ● ●
Controls on direct investment ● ● ● ● ● ● ● ● ● – ● ● ● ●
Controls on liquidation of direct investment ● ● – ●
Controls on real estate transactions ● ● ● ● ● ● ● ● ● ● – ● ● ● ● ●
Controls on personal capital transactions ● ● ● ● ● ● ● ● – ●
Commercial banks and other credit institutions ● ● ● ● ● ● ● ● ● ● ● – ● ● ● ●
Institutional investors – ● ● ● ● ● ● ● – ● ● ● ●

298 927 846 299 582 474 754 698 314 532 354
Venezuela, Rep. Bolivariana de
Curaçao and Sint Maarten

Yemen, Republic of
Hong Kong SAR

Uzbekistan
Zimbabwe
Uruguay
Vietnam
Vanuatu
Zambia
Aruba
Article VIII ● ● ● ● ● ● ● ● ● ● ●
Article XIV
Currency board ◊
Conventional peg ◊ ◊
Crawling peg
Other managed arrangement ● ●
Free floating
Dual exchange rates
Key
Bilateral payments arrangements ● ■ ● ●
Indicates that the specified
Payments arrears ■ ● ● ● practice is a feature of the
Controls on payments for invisible transactions exchange system.
● ● ● ●
and current transfers Indicates that data were
Proceeds from exports and/or invisible transactions ● ● ● – not available at the time of
publication.
Repatriation requirements ● ■ ● ● ● ●
Indicates that the specified
Surrender requirements ■ ● ● ● ■
practice is not regulated.
Capital Transactions Indicates that the country
⊕
On capital market securities ● ■ ● ● ● ● ● participates in the euro area.
On money market instruments ● ■ ● ● ● ● ● Indicates that the country

participates in the
On collective investment securities ● ■ ● ● ● ● ● v
European Exchange Rate
Controls on derivatives and other instruments ● ■ ● ● ● ● ● Mechanism (ERM II).
Commercial credits ● ■ ● ● ● ● ● Indicates that flexibility

◊ is limited vis-à-vis the US
Financial credits ● ■ ● ● ● ● ● ● dollar.
Guarantees, sureties, and financial backup facilities ● ■ ● ● ● ● ● Indicates that flexibility is
▲
Controls on direct investment ● ■ ● ● ● ● ● ● limited vis-à-vis the euro.
Controls on liquidation of direct investment ■ ● ● ● ● Indicates that flexibility is

 limited vis-à-vis another
Controls on real estate transactions ● ■ ● ● ● ● ● single currency.
Controls on personal capital transactions ● ● ● ● ● ● Indicates that flexibility is
○
limited vis-à-vis the SDR.
Indicates that flexibility is
Commercial banks and other credit institutions ● ● ● ● ● ● ● ● ● ● ●
* limited vis-à-vis another
Institutional investors ● ● ● ● ● ● ● ● ● ● basket of currencies.

Country Table Matrix

(Position as of “DATE")
I. Status under IMF Articles of Agreement

A. Date of membership
1. Article VIII
2. Article XIV
II. Exchange Measures

A. Restrictions and/or multiple currency practices
B. Exchange measures imposed for security reasons
1. In accordance with IMF Executive Board Decision No. 144-(52/51)
2. Other security restrictions
III. Exchange Arrangement

A. Currency
1. Other legal tender
B. Exchange rate structure
1. Unitary
2. Dual
3. Multiple
C. Classification
1. No separate legal tender
2. Currency board
3. Conventional peg
4. Stabilized arrangement
5. Crawling peg
6. Crawl-like arrangement
7. Pegged exchange rate within horizontal bands
8. Other managed arrangement
9. Floating
10. Free floating
D. Official exchange rate
E. Monetary policy framework
1. Exchange rate anchor
a. US dollar
b. Euro
c. Composite
d. Other
2. Monetary aggregate target

3. Inflation-targeting framework
a. Target setting body
1. Government
2. Central Bank
i. Monetary Policy Committee
ii. Central Bank Board
iii. Other
3. Government and Central Bank
b. Inflation target
1. Target number
i. Point target
ii. Target with tolerance band
iii. Band/Range
2. Target measure
i. CPI
ii. Core inflation
3. Target horizon
c. Operating target (policy rate)
1. Policy rate
2. Target corridor band
3. Other
d. Accountability
1. Open letter
2. Parliamentary hearings
3. Other
e. Transparency
1. Publication of votes
2. Publication of minutes
3. Publication of inflation forecasts
4. Other monetary framework
F. Exchange tax
G. Exchange subsidy
H. Foreign exchange market
1. Spot exchange market
a. Operated by the central bank
1. Foreign exchange standing facility
2. Allocation
3. Auction
4. Fixing
b. Interbank market
1. Over the counter
2. Brokerage
3. Market making

2. Forward exchange market

a. Official cover of forward operations
IV. Arrangements for Payments and Receipts

A. Prescription of currency requirements
1. Controls on the use of domestic currency
a. For current transactions and payments
b. For capital transactions
1. Transactions in capital and money market instruments
2. Transactions in derivatives and other instruments
3. Credit operations
2. Use of foreign exchange among residents
B. Payments arrangements
1. Bilateral payments arrangements
a. Operative
b. Inoperative
2. Regional arrangements
3. Clearing agreements
4. Barter agreements and open accounts
C. Administration of control
D. Payments arrears
1. Official
2. Private
E. Controls on trade in gold (coins and/or bullion)
1. On domestic ownership and/or trade
2. On external trade
F. Controls on exports and imports of banknotes
1. On exports
a. Domestic currency
b. Foreign currency
2. On imports
a. Domestic currency
b. Foreign currency
V. Resident Accounts
A. Foreign exchange accounts permitted
1. Held domestically
a. Approval required
2. Held abroad
a. Approval required
B. Accounts in domestic currency held abroad
C. Accounts in domestic currency convertible into foreign currency

VI. Nonresident Accounts

A. Foreign exchange accounts permitted
1. Approval required
B. Domestic currency accounts
1. Convertible into foreign currency
2. Approval required
C. Blocked accounts
VII. Imports and Import Payments

A. Foreign exchange budget
B. Financing requirements for imports
1. Minimum financing requirements
2. Advance payment requirements
3. Advance import deposits
C. Documentation requirements for release of foreign exchange for imports
1. Domiciliation requirements
2 Preshipment inspection
3. Letters of credit
4. Import licenses used as exchange licenses
5. Other
D. Import licenses and other nontariff measures
1. Positive list
2. Negative list
3. Open general licenses
4. Licenses with quotas
5. Other nontariff measures
E. Import taxes and/or tariffs
1. Taxes collected through the exchange system
F. State import monopoly
VIII. Exports and Export Proceeds

A. Repatriation requirements
1. Surrender requirements
a. Surrender to the central bank
b. Surrender to authorized dealers
B. Financing requirements
C. Documentation requirements
1. Letters of credit
2. Guarantees
3. Domiciliation

4. Preshipment inspection
5. Other
D. Export licenses
1. Without quotas
2. With quotas
E. Export taxes
1. Collected through the exchange system
2. Other export taxes
IX. Payments for Invisible Transactions

and Current Transfers
A. Controls on these transfers
1. Trade-related payments
a. Prior approval
b. Quantitative limits
c. Indicative limits/bona fide test
2. Investment-related payments
a. Prior approval
3. Payments for travel
a. Prior approval
4. Personal payments
a. Prior approval
5. Foreign workers' wages
a. Prior approval
6. Credit card use abroad
a. Prior approval
7. Other payments
a. Prior approval

X. Proceeds from Invisible Transactions

and Current Transfers
A. Repatriation requirements
1. Surrender requirements
a. Surrender to the central bank
b. Surrender to authorized dealers
B. Restrictions on use of funds
XI. Capital Transactions

A. Controls on capital transactions
1. Repatriation requirements
a. Surrender requirements
1. Surrender to the central bank
2. Surrender to authorized dealers
2. Controls on capital and money market instruments
a. On capital market securities
1. Shares or other securities of a participating nature
i. Purchase locally by nonresidents
ii. Sale or issue locally by nonresidents
iii. Purchase abroad by residents
iv. Sale or issue abroad by residents
2. Bonds or other debt securities
i. Purchase locally by nonresidents
ii. Sale or issue locally by nonresidents
iii. Purchase abroad by residents
iv. Sale or issue abroad by residents
b. On money market instruments
1. Purchase locally by nonresidents
2. Sale or issue locally by nonresidents
3. Purchase abroad by residents
4. Sale or issue abroad by residents
c. On collective investment securities
1. Purchase locally by nonresidents
2. Sale or issue locally by nonresidents
3. Purchase abroad by residents
4. Sale or issue abroad by residents
3. Controls on derivatives and other instruments
a. Purchase locally by nonresidents
b. Sale or issue locally by nonresidents
c. Purchase abroad by residents
d. Sale or issue abroad by residents

4. Controls on credit operations

a. Commercial credits
1. By residents to nonresidents
2. To residents from nonresidents
b. Financial credits
c. Guarantees, sureties, and financial backup facilities
5. Controls on direct investment
a. Outward direct investment
b. Inward direct investment
6. Controls on liquidation of direct investment
7. Controls on real estate transactions
a. Purchase abroad by residents
b. Purchase locally by nonresidents
c. Sale locally by nonresidents
8. Controls on personal capital transactions
a. Loans
b. Gifts, endowments, inheritances, and legacies
c. Settlement of debts abroad by immigrants
d. Transfer of assets
1. Transfer abroad by emigrants
2. Transfer into the country by immigrants
e. Transfer of gambling and prize earnings
XII. Provisions Specific to the Financial Sector

A. Provisions specific to commercial banks and other credit institutions
1. Borrowing abroad
2. Maintenance of accounts abroad
3. Lending to nonresidents (financial or commercial credits)
4. Lending locally in foreign exchange
5. Purchase of locally issued securities denominated in foreign exchange
6. Differential treatment of deposit accounts in foreign exchange
a. Reserve requirements
b. Liquid asset requirements
c. Interest rate controls
d. Credit controls

7. Differential treatment of deposit accounts held by nonresidents

a. Reserve requirements
b. Liquid asset requirements
c. Interest rate controls
d. Credit controls
8. Investment regulations
a. Abroad by banks
b. In banks by nonresidents
9. Open foreign exchange position limits
a. On resident assets and liabilities
b. On nonresident assets and liabilities
B. Provisions specific to institutional investors
1. Insurance companies
a. Limits (max.) on securities issued by nonresidents
b. Limits (max.) on investment portfolio held abroad
c. Limits (min.) on investment portfolio held locally
d. Currency-matching regulations on assets/liabilities composition
2. Pension funds
3. Investment firms and collective investment funds

Annual Report on
and Exchange Restrictions 2019
Monetary Policy Basics
Monetary Policy: An Overview
• Monetary policy refers to the policy of the central bank
with regard to the use of monetary instruments under
its control to achieve the goals of price stability and
economic growth.
• It adjusts the supply of money in the economy to

achieve some combination of inflation and output
stabilization. (IMF Back to Basics)
• Price stability is a necessary precondition to

sustainable growth.
• Growth-Inflation trade-off
https://www.imf.org/external/pubs/ft/fandd/basics/16_monetarism.htm
The Inflation Targeting Framework in India
• In May 2016 the RBI Act (1934) was amended for implementation of the
flexible inflation targeting framework on a statutory basis.
• The inflation target is to be set by the govt. of India in consultation with RBI
once in every 5 years.
• For the period August 5, 2016 to March 31, 2021, Consumer Price Index
(CPI) inflation of 4% has been set as the target.
• The upper tolerance limit for inflation is 6% and the lower tolerance limit is
set at 2%.
The Monetary Policy Process
• The Central Government constituted the first Monetary Policy Committee
(MPC) in September 2016 comprising of the following members:
1. Governor of the Reserve Bank of India – Chairperson, ex officio;
2. Deputy Governor of the Reserve Bank of India, in charge of Monetary
Policy – Member, ex officio;
3. One officer of the Reserve Bank of India to be nominated by the Central
Board – Member, ex officio;
4. Shri Chetan Ghate, Professor, Indian Statistical Institute (ISI) – Member;
5. Professor Pami Dua, Director, Delhi School of Economics – Member; and
6. Dr. Ravindra H. Dholakia, Professor, Indian Institute of Management,
Ahmedabad – Member.
(Members referred to at 4 to 6 above, will hold office for a period of four
years or until further orders, whichever is earlier.)
• The present MPC as notified by the central govt since October 2020 are:
Prof. Ashima Goyal, Professor, Indira Gandhi Institute of Development
Research —Member, Prof. Jayanth R. Varma, Professor, Indian Institute of
Management, Ahmedabad—Member, and Dr. Shashanka Bhide, Senior
Advisor, National Council of Applied Economic Research, Delhi— Member.
…The Monetary Policy Process
• The MPC determines the policy interest rate required to achieve the inflation
target.
• Before the constitution of the MPC, a Technical Advisory Committee (TAC)
with experts from monetary economics, central banking, financial markets
and public finance advised RBI on monetary policy (advisory role only).
• With the formation of MPC, the TAC on Monetary Policy ceased to exist.
The Liquidity Adjustment Facility (LAF) of the RBI
• The Liquidity Adjustment Facility (LAF) is an arrangement/facility used by
RBI to manage liquidity and provide stability in the financial markets.
• It facilitates borrowing by banks through repurchase agreements (repos)

from RBI or lending by banks to the RBI (reverse repos).
• LAF is used to manage liquidity in the short-run and resolve short-term cash
shortages of banks.
• LAF was introduced by RBI as a result of the Narasimham Committee on

Banking Sector Reforms (1998).
Components of Money Supply
M1 = Currency Held outside Banks +
Demand Deposits + Other deposits with RBI
M2 = M1 + Post Office Savings
M3 = M1 + Time Deposits with Banks
M4 = M3 + All Deposits with Post Office Savings Banks
*Other deposits with RBI- deposits from foreign central banks, multilateral institutions, financial institutions and sundry deposits net of
IMF Account No. 1
Instruments of Monetary Policy
Repo & Reverse Repo Rate
• Repo Rate (Policy rate): The interest rate at which the Reserve Bank
provides overnight liquidity to banks against the collateral of government and
other approved securities under the liquidity adjustment facility (LAF).
• Reverse Repo Rate: The interest rate at which the Reserve Bank absorbs
liquidity, on an overnight basis, from banks against the collateral of eligible
government securities under the LAF.
Cash Reserve Ratio (CRR)
• CRR is the percentage of total deposits (net demand and time liabilities)
which banks are required to maintain in the form of cash reserves with the
central bank.
• These are non interest bearing funds taken as a precaution to prevent any
kind of eventuality of financial crisis.
• It can have a direct & considerable impact on supply of money.
• An increase in the CRR reduces money supply, while a decrease in the CRR
increases money supply
Statutory Liquidity Ratio (SLR)
• Proportion of total deposits (net demand & time liabilities) which banks are
statutorily required to maintain in the form of government bonds/securities
and approved, safe and liquid assets such as cash and gold.
• The purpose is to be able to meet any unexpected demand from depositors

at short notice by selling the bonds
Open Market Operations (OMOs)
• Sale & Purchase of Govt securities & bonds.
• OMOs are the market operations conducted by the RBI
by way of sale/ purchase of Government securities to/
from the market with an objective to adjust the rupee
liquidity conditions in the market.
• When the RBI feels there is excess liquidity in the
market, it resorts to sale of securities thereby sucking
out the rupee liquidity.
• Similarly, when the liquidity conditions are tight (liquidity
crunch), the RBI will buy securities from the market,
thereby releasing liquidity into the market.
Marginal Standing Facility (MSF)
• MSF is a window for banks to borrow from RBI in the event of a severe cash
shortage when inter-bank liquidity dries up severely.
• Banks can borrow additional amount of overnight money from the Reserve
Bank by dipping into their SLR portfolio up to a limit at a penal rate of interest
(higher than the repo rate under the LAF).
• Basic difference with LAF lies in the fact that in MSF banks can use the
securities under Statutory Liquidity Ratio or SLR to get loans from RBI.
Market Stabilization Scheme (MSS)
• MSS was introduced in 2004 to tackle surplus liquidity
arising from large capital inflows.
• This liquidity is absorbed through sale of short-dated

government securities and treasury bills. Cash
mobilized is held in a separate government account
with RBI.
• The amount kept in the MSS account is only used for

redemption of securities issued under the MSS and
not for the Government to meet its expenditure
requirement. It is not a part of Government borrowing.
Monetary Policy
Transmission
The Monetary Transmission Mechanism
• The monetary
transmission
mechanism descri
bes how policy-
induced changes in
the nominal money
stock(money
supply) or the
short-term nominal
interest rate impact
real variables such
as aggregate
output and
employment.
Monetary Policy Transmission
Mechanism Step 1
Interest
Rate
Channel
Credit
Change in Channel
Money
Supply Asset Price
Channel
Exchange
Rate
Channel
Mechanism Step 2
Change in
Consumption
Changes in Spending (C)
Interest Rate,
Volume of Credit,
Asset Prices &
Exchange Rates Change in Business
Spending (I)
Mechanism Step 3
Changes in Change in Output

Consumption
Spending &
Business
Spending Change in Prices
Interest Rate Channel
• Changes to the short-term nominal policy interest rate lead to changes in the
short-term real interest rate
• Real interest rates in turn influence the decisions of economic agents
• This change in real interest rate and cost of capital start affecting consumer
and business decision(spending and investment).
• Interest rate channel emphasizes on the cost of credit available to firms and
households in the economy.
Interest Rate Channel
Expansionary Monetary Policy
Decrease in Real Interest Rate
Increase in Spending by Households

& Increase in Investment by Firms
Increase in Aggregate Demand
Increase in Output, Income&

Employment
Credit Channel
• The credit channel of monetary policy impacts the
amount of credit that banks issue to firms and
consumers for purchases, which in turn affects the real
economy.
• Credit Channel operates through;
1. Bank lending channel
2. Balance sheet channel
• Bank Lending Channel- Tight monetary policy lowers
the supply of bank loans available, especially to small
firms, hampering investment activity
• Balance Sheet Channel- Tight money reduces cash-
flows, has a negative effect on the prices of financial
assets, resulting in lower net worth of firms. This leads
to lower investment spending
Exchange Rate Channel
• Contractionary MP(Rising domestic interest rates) provide an incentive to
invest in the domestic currency rather than in foreign currencies. The inflow
of funds into the domestic currency area causes the domestic currency to
appreciate.
• As a result, domestic goods become more expensive than imported goods.
As demand for domestically produced goods drops, aggregate domestic
output contracts as well.
• The impact of monetary policy transmission through the exchange rate
channel increases with the openness of an economy.
• In addition, the transmission via the exchange rate channel directly affects
inflation. If the domestic currency appreciates, imported goods and services
become more affordable, which keeps a lid on inflation.
Asset Price Channel
• There are two main categories of asset prices that are
regarded as critical channels through which monetary policy
affects the economy.
1. Stock Price Channel
2. Real Estate Channel
• Stock Price Channel works through 3 effects.
1. Stock market effects on investment
2. Firm balance sheet effects
3. Household liquidity and wealth effects
↑ M → ↑ stock price → ↑ I → ↑ Y---Investment Effect
↑ M → ↑ stock price → ↑ NW → ↑ L → ↑ I → ↑ Y---Balance
Sheet Effect
↑ M → ↑ stock price → ↑ W → ↑ C → ↑ Y---Wealth Effect
Asset Price Channel
• Interest rate changes directly affect the financing cost of consumer durables
like houses & cars, which suggests a negative relationship between
consumption of durable goods and interest rates.
• A monetary expansion policy that goes with a decrease of the interest rate,
lowers the costs of financing houses (debt financing becomes cheaper).
• Changes in property prices can also impact household consumption through
the wealth effect
Evolution of RBI’s Monetary Policy Framework
Time Period Framework Focus
1947 to 1984-85 Pre-monetary targeting Ensure the flow credit to agri sector
Increase money supply to finance govt
expenditure. Monetization of fiscal
deficit led to inflationary pressures.
1985-86 to 1997-98 Monetary Targeting(MT) Maintain the money supply growth
within the targeted range for
stabilizing inflation and achieving a
desired output growth
1998-99 to 2015 Multiple Indicator Info on multiple indicators like money,
approach(MI) output, credit, trade, capital flows, fiscal
position, inflation rate, exchange rate etc
were analyzed for a broad-based
monetary policy formulation
2016 Onwards Inflation Targeting (IT) Keeping CPI inflation within 2-6% target
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No part of this material may be reproduced, transmitted or downloaded in any

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Symbiosis Institute of Business Management, Bengaluru aR lRM

National Income Accounting
Symbiosis Institute of Business Management, Bengaluru

Session Outline
~ Importance of National Income
History of National Income Accounting (NIA)
National Income Concepts
Difficulties in Measuring NI
Limitations of NIA
: International Comparison of National Income
Alternatives for measuring Welfare of People
3 Symbiosis Institute of Business Management, Bengaluru

IMPORTANCE OF NATIONAL INCOME
CALCULATION
Symbiosis Institute of Business Management, Bengaluru Si IBM

NGALURU
Importance of National Income Calculation
¢ National income data are used to measure economic welfare of the community.
Other things being equal, economic welfare is greater if national income is greater.
¢ National income figures give us an idea as to the standard of living of a community.
¢ The national income figures are further useful in helping us to assess the pace of
economic development of a country. If they do not measure progress precisely, at
least they will show us the trends.
¢ The study of national income statistics is also useful in diagnosing the economic
ills of a country and suggesting remedies.
¢ The national income data are used for planned economic development of the
country. In their absence all planning will be a leap in the dark. -

¢ The national income data are used to assess the saving and investment potential of
the community. The rate of saving and investment is ultimately dependent on the
national income.
¢ National income data also enable us to assess inter-sectoral growth of an
economy. This information is useful in planning development of the various sectors.
¢ We can make inter-temporal comparisons, i.e., comparisons between two periods
of time in the country in order to form an idea of the economic conditions prevalent
in the respective periods.
¢ We can also make inter-country comparisons by taking the national income data of
two countries. This will help us to know where we stand among the world
economies.

HISTORY OF NATIONAL INCOME
ACCOUNTING & NATIONAL INCOME
DATA DISSEMINATION
Symbiosis Institute of Business Management , Bengaluru aR lRM

History of National Income Accounting in India
¢In India, a systematic measurement of national income was first attempted in 1949.
¢In 1949, a National Income Committee (NIC) was appointed with P.C. Mahalnobis
as its Chairman, and Dr. D.R. Gadgil and V.K.R.V. Rao as members.
¢ To assist the Committee a ‘National Income Unit (NIU) was set up.
¢ The estimates of national income and the details of methodology adopted by the
committee were published in the first and final reports of the National Income
Committee brought out in April 1951 and February 1954.

¢ The Committee recommended preparation of national income estimates on a
regular (annual) basis.
¢ Accepting this recommendation, the Government of India transferred the entire
establishment of NIU, then working for the National Income Committee, to the
Ministry of Finance to take charge of the work on a regular basis.
¢ The work of estimation was later transferred to the Central Statistical Organisation
(CSO) and a full-fledged National Income Division was created which is now
designated as National Accounts Division (NAD) in conformity with the expansion in
its activity.
¢ CSO was established in 1951.But till 1967, the CSO had followed the methodology
laid down by the NIC. Thereafter, the CSO adopted a relatively improved
methodology and procedure which had become possible due to increased
availability of data.

National Income Data In India
The Central Statistics Office under the Ministry of Statistics and Programme
Implementation(MOSPI) has been bringing out annual estimates of Gross
Domestic Product and other macro-economic aggregates since 1956.
CSO introduced the advance estimates of national income in the year 1993 and
quarterly estimates of GDP in 1999.

Data Release Nomenclature Annual GDP
Nomenclature Release Date

Advance Estimate 7th Feb (in advance before the completion of
financial year)
Provisional Estimate 31st May (two months after completion of a
financial year)
First Revised Estimate 31st January (10 months after completion of a
year)
Second Revised Estimate 31st January of succeeding year (one year 10
months after completion of a financial year)
Third Revised Estimate 31st January after two succeeding years (2 years
and 10 months after completion of a financial
year)

Quarterly GDP Estimates
¢ GDP estimates for a quarter (QGDP) are released two months after the end of a
quarter.
¢ QGDP estimates of Q1, Q2, Q3 and Q4 are brought out in the public domain by
Press Release. The Press release includes quarterly data for the current year and
previous two years for purpose of comparison.
¢ After the release of Q4 estimates in May, when data for all the four quarters of a
year becomes available, complete series of quarterly data is uploaded on the
website.

National Income Data Release Calendar
ARC for Annual releases
Latest Release Future Releases
May 2021 — February 2022
Data ategory FRE SAE PE FAE FRE SRE

(and, 2019-20 | 2020-21 | 3920-21 2021-22 2020-21 2021-22
different,
national January | February May January January February
descriptor) 2021 2021 2021 2022 2022 2022
National Date of
Accounts release 23 26 31 7 31 28
ARC for quarterly releases

Future Releases
May 2021 — February 2022
Data C Latest "y "y
a ategory
(and, if different, Release May August November February
national descriptor) 2071 20271 2071 2022
National Accounts Date of

release
February
26
31 31 30 28
Ref (Oct/20- (Jan/21— | (April/21— | (July/21— (Oct/21—
Period Dec/20) Mar/21) June/21) Sep/21) Dec/21)
hitp://www.mospi.gov.in/release-calendar
NATIONAL INCOME CONCEPTS

NGALURU
NI Concepts
|
|
GVA GDP GNI | NNP | NDP Personal Disposable Per capita

ncome Income Income
15 Symbiosis Institute of Business Management, Bengaluru S 5 LBM

Gross Domestic Product (GDP)
GDP refers to the market value of final goods and services produced within the
geographical area of a country in a given period of time.
GDP Classification
¢ Nominal GDP(GDP at Current Prices)
«Real GDP(GDP at Constant Prices)
Symbiosis Institute of Business Management, Bengaluru S

Understanding GDP Concept
Market Value :
«We use market value because the number of goods and services produced in an
economy are both large and diverse. They cannot be reduced into a common unit
of measurement.
¢ Assume in an economy Apples & Aeroplanes are produced.
¢ Market value of Apples = Total quantity of Apples x Price of Apples
¢ Market value of Aeroplanes = Total quantity of Aeroplanes x Price of Aeroplanes.
¢In an economy, each good and service is valued at its market price and then
aggregated to arrive at the total market value.

¢ Produced Goods and Services
¢ GDP always refers to what is produced and not necessarily, what is sold. Also
what is actually produced is equal to what is demanded.
Example
¢ Assume that the proametan capacity in the cement industry is 100 tons per annum.
But the actual sales turned out to be only 80 tons.
¢ How does production equals demand then?
¢ Production equals the demand bcoz the unsold inventory of 20 tons is actually
considered as bought, demanded by the cement industry.
° pes total demand = market demand of 80 tons + inventory demand of 20
ons.
° Acaion to stock of inventories from current year production is treated as inventory
emand.

ag A
BENGALURU
¢ Since there is a gap between actual production and actual sales in the market, it is
considered as a slowdown.
¢ lf actual production is equal to demand(market dd +inventory dd), where is the
slowdown here?
¢ It signals a slowdown, because next year, if 80 tons is projected to be the actual
demand, the cement industry will cut production to 60 tons and meet 80 tons
demand from 60 tons of new production and 20 tons of unsold inventories from last
year’s production.
¢ Actual production will be below capacity output, which is the definition of a
slowdown.

¢ Final Goods and Services
¢ GDP considers only the final value of goods and services produced in an economy
in order to avoid the problem of double counting.
¢ Example of a Car
¢ Market value of the car is given by its price.
¢ Certain amount of steel along with various other intermediary goods, has gone into
the manufacturing of the car.
¢ Should we value this also?
«No, because the price of the final product i.e ,the car already includes the price of
intermediate products that have gone into the making of the car.
¢ lf we value them again, that will lead to double counting.

«Period of Time
¢ GDP is not a stock concept, but a measure of the total flow of goods and services
in the economy. Since it is a flow, it has to be over a specified period of time.
¢ Normally time period is a year (annual estimate) or quarter (quarterly estimate).

Nominal Vs Real GDP
Or
GDP at Current Prices and GDP at Constant Prices.

Nominal(Current Prices) Vs Real GDP(Constant Prices)
«From a managerial or policy making perspective, we are interested in knowing
whether an economy is;
Growing? Or Stagnating? Or Declining
¢ This information can be obtained by identifying the growth in Production or Output
in an economy during a specific period of time.
¢ GDP = P XQ aggregated over all goods and services in an economy.
The problem
¢ lt may be possible that the GDP may grow at impressive rate with no change in Q.
The entire increase can be due to increase in P.
Solution to the problem
¢ Keep P constant, so that any change in GDP will happen only due to change in Q.

ag A
BENGALURU
Nominal GDP or GDP at Current Prices
¢ When ‘P’ is not held constant at a certain level and we multiply each year’s P with
that year’s Q to arrive at the GDP, we will get nominal GDP or GDP at current
prices.
Example
Good or anal Year on Year
Service
(Items)
X1
x2 10 150
X3 90 110
x4 80 130
Symbiosis Institute of Business Management, Bengaluru al GALURU

¢ When ‘P’ is not held constant at a certain level and we multiply each year’s P with
prices.
Example
Good or aibaih Year ae Year Market Value
Service (PXQ)
(Items)
X1
X2 10 150 1500
X3 90 110 9900
xX4 80 130 10400
21,980
Symbiosis Institute of Business Management, Bengaluru al GALURU

«In the national income statement “at current price” signifies nominal GDP.
Statement 5; Quarterly Estimates of Expenditures on GDP in Q1,Q2 & Q3 of 2020-21 (at Current Prices)
(% Crore)

Real GDP or GDP at Constant Prices
¢ When P is held constant at a certain level and only change in Q is considered in
arriving at GDP, this is called Real GDP or GDP at Constant prices.
Statement 10: Estimates of Expenditures on GDP at Basic Prices in April-December of 2020-21 (at
12 Prices)
(% Crore)
National output is
expressed with respect
to a base year(constant
prices)
27 Symbiosis Institute of Business Management, Bengaluru Sy BENGALURU

Good Base 2 edcaae
or Year Year | Value
Service | P Q

Comparison of GDP Growth using Real & Nominal Concepts
Growth Rate in Nominal GDP compared to the Base Year
essa 1200) x 100 = 27.79%

17,200
¢ This growth is partly due to increase in Q and partly due to increase in P.
Growth Rate in real GDP compared to the Base Year
soz 200 x 100 =11.74%

17,200
- This reflects the increase in Q alone. By holding price constant at the base level,
we have eliminated the impact of any change in price during this period in the
estimation of real GDP.

GDP Deflator
¢ GDP Deflator helps in identifying the price change which we have eliminated while
calculating the Real GDP.
Nominal GDP
GDP Deflator = « 100
Real GDP
«ln our example

GDP Deflator = (21,980/19,220) x 100 = 114.36
¢ Inference: Increase in prices during this period, which we eliminated in real GDP
calculation was 14.36% compared to the base year
https:/Awww.thehindu.com/business/Economy/what-is-the-qdp-deflator/article24489279.ece
30 Symbiosis Institute of Business Management, Bengaluru aR lRM

Converting Nominal Values into Real Values
Nominal Value
= Real Value
Price Index (decimal form)
In the earlier example

Nominal GDP = Rs. 21,980
GDP Deflator = 114.36
Convert GDP Deflator index into decimal form by dividing it by
100 = 114.36/100 = 1.1436
Real GDP = 21980/1.1436 = 19,220

GDP Deflator as a measure of Inflation
¢ The GDP deflator is a measure of price inflation. It is calculated by
dividing nominal GDP by real GDP and then multiplying by 100.
¢ Nominal GDP is the market value of goods and services produced in an economy,
unadjusted for inflation.
¢ Real GDP is nominal GDP, adjusted for inflation to reflect changes in real output.
¢ Trends in the GDP deflator are similar to changes in the Consumer Price Index,
which is a different way of measuring inflation.

India GDP Deflator data 2011-12 Series
136.6
140
134.8
129.7
130
124.9
120.9
118.4 120
114.6
107.9 110
100
a 90-
2012 2014 2016 2018 2020
SOURCE: TRADINGECONOMICS.COM | MINISTRY OF STATISTICS AND PRIEGRAMME IMPLEMENTATION (MOSPI)

Calculating Inflation rate using GDP Deflator
138.6 140
134.8
129.7
130
124.9
120.9
118.4 120
114.6
1oF oS 410
=
100
=
LI oo-
2012 2014 2016 2016 2020
SURED TRE
Ne OS MHISTRY OF STATISTICS AHI PROGRAMME DME LEME
TAT oH (MaSSIPdb
(— How to find inflation rate using GDP deflator?

For example if you want to find out the inflation rate between 2018 and 2019 based on the data
in the above chart, you need to calculate the percentage change in GDP deflator between 2019
and 2020.
GDP Deflator 2019 : 134.8

% Change “8s - 134.8 100 = 2.96%
134.8
Inflation Rate between 2019 &2020 = 2.96% /
oF Symbiosis Institute of Business Management, Bengaluru
Understanding National Income Statement

System of National Accounts (SNA)
¢ The System of National Accounts, 2008 (2008 SNA) is a statistical framework that
provides a comprehensive, consistent and flexible set of macroeconomic accounts
for policymaking, analysis and research purposes. It has been produced and is
released under the auspices of
«the United Nations,
«the European Commission,
¢ the Organization for Economic Co-operation and Development(OECD)
¢ the International Monetary Fund
¢ the World Bank Group.

¢ The System of National Accounts (SNA) is the internationally agreed standard set
of recommendations on how to compile measures of economic activity in
accordance with strict accounting conventions based on economic principles.
The recommendations of consists of
¢concepts
¢ definitions
¢ classifications
¢ accounting rules that comprise the internationally agreed standard for measuring
such items as gross domestic product (GDP), the most frequently quoted indicator
of economic performance.
¢ The accounting framework of the SNA allows economic data to be compiled and
presented in a format that is designed for purposes of economic analysis, decision-
taking and policymaking.

Base Year for NIA
Base years are changed periodically to take into account the structural changes
which have been happening in the economy.
Estimates at the prevailing prices of the current year are termed as current
orices(Nominal),while estimates that are prepared at the base year prices are
termed as constant prices(Real).

Base Year for NIA
i. From 1948-49 to 1960-61 in August 1967;

i. From 1960-61 to 1970-71 in January 19/8;
li. From 1970-71 to 1980-81 in February 1988;
iv. From 1980-81 to 1993-94 in February 1999;
Vv. From 1993-94 to 1999-2000 in January 2006;
vi. From 1999-2000 to 2004-05 in January 2010; and
Vii. = =From 2004-05 to 2011-12 on January 30, 2015.
In the past, National Accounts Statistics were revised decennially changing the base to a
year, which ends with 1.
With the informal/unorganised sector playing a major role in the Indian economy, this was
primarily because in the base year estimates of national accounts aggregates, the work
force estimates especially that for the unorganized sector were obtained from the
Population Census conducted decennially in the years ending with 1. This practice
continued up to the series with base year 1980-81.

Base Year for NIA
¢ Since the 1993-94 series, the CSO started using the work force estimates from the
results of Quinquennial Employment and Unemployment Surveys of National
Sample Survey Organization (NSSO), which are conducted once in every five
years, and
¢consequently started revising the base years of national accounts statistics once in
every five years coinciding with the years for which the NSSO conducts the
Quinquennial Employment and Unemployment Surveys (EUS).
¢ The National Statistical Commission has also recommended that all economic
indices should be rebased at least once in every five years.

Base Year for NIA
¢ The NSS 61* Round Quinquennial EUS conducted in the year 2004-05, on which
the previous series of national accounts was based, was followed by a
quinquennial EUS in 2009-10.
¢ However, the year was not considered a “normal” year since it succeeded the
global slowdown of 2008.
¢ Therefore, a fresh EUS was conducted in 2011-12.
¢ The results of this survey have been used for the compilation of the estimates in the
new series with base year 2011-12, released on 30th January, 2015.

Terminologies used in NI Statement

GVA(Gross Value Added)
¢ Gross value added provides the money value for the amount of goods and
services that have been produced, less the cost of all inputs and raw materials that
are directly attributable to that production.
GVA= Gross Value of Output(GVO) — Cost of Inputs

How is GVA Calculated? Example
SI. No. 2004-05 | 2011-12 SI. No. 2004-05 | 2011-12] %
Description Series Series diff Description Series Series | diff.
(A). GVA- Crop Sector 2 INPUTS (Crop sector)
2.1 | Seed 26738| 29408| 10.0
1 _| GVO-Crop sector 2.2 | Organic manure 19883} 21083| 6.0
1.1 | Cereals 338014| 338478! 01 2.3 | Chemical fertilisers , 47191 47100| -0.2
2.4 | Current repairs, maintenance an
1.2 | Pulses 53813 53816) 0.0 operational costs 3497 70081 -6.9
1.3 | Oilseeds 107242| 107253) 0.0 2.5 | Feed of livestock 60705| 29117| -52.0
2.6 | Irrigation charges 4158 4158] 0.0
~ — a a ~ 2.7 | Market charges 38222| 38571| 0.9
.J | FIDFES : 2.8 | Electricity 8915 8915| 0.0
1.6 | Indigo and Tanning material 85 86; 1.0 2.9 rosters & insecticides 1567 1567 | _ 0.0
: 2.10 | Diesel oi 29598 | 24684| -16.6
1.7 | Drugs & narcotics 37933 38254; 0.8 311 | FISIM 142451315431 101.4
1.8 | Condiments & spices 48478 49200; 15 2.12 | Input of Govt .operation
1.9 | Fruits: & vegetables 288634 290246| 0.6 5-13 | Irrigation system
Total Input (Crop sector) 5407
Eee | 5411
45464 0.1
| ES
1.10 | Other crops 82580 | 82164| -0.5/” 3 | Gva-crop sector 960444 | 986603| 2.7
1.11 | By-products 65211 68819; 5.5
1.12 | Kitchen garden, mushroom 5464 5369) -1.7 For 2011-12 series
1.13 | GVO of Govt .operation GVO = Rs.1236067 cr
Irrigation system 38556 38219| -0.9 Cost of Inputs = eee cr
1.14] TOTAL GVO (Crop sector) 172550 | 1236067/ 0.9 |e ata Gl Sore struts
Rs.1236067 cr -Rs.249464 cr = Rs.986603 cr
44
ip
GVA & GDP
GDP = (GVA at Basic Price + Net Taxes on Products)

Product taxes/subsidies depend on quantity produced. Product taxes or subsidies
are paid or received on per unit of product (Eg: tax —excise tax, sales tax, service
tax and import and export duties; subsidies — food, petroleum and fertilizer
subsidies, interest subsidies given to farmers, households, etc)

GDP Gross Domestic Product
Net Tax on Products = Product Taxes — Product Subsidies
Percentage Change
2017-18 | 2018-19 | 2019-20 | Oo previous Year
5. No. Item Q™@ RE) | (IRE) | (PE) 2018-19 2019-20
Domestic Product
l GVA at Basic Prices 1,20,74,413 128,03 ,128 1,33,01,120 6.0 3.9
Net Taxes on Products 11,00,747 11,78,298 12.64.83 1 7.0 7.3
GDP (1+2) 1,31,75,160 139,81 ,426 145,65,951 6.1 42
htto://mospi.nic.in/sites/default/files/press release/PRESS%20NOTE%20PE%20and%2004%20estimates%200f%20GDP. pdf

GDP Growth Rates Quarterly
Quarterly Growth Rate
¢ Quarterly GDP growth rate is expressed by comparing the GDP of the current
quarter with similar quarter of the previous year.
8. GDP at Constant (2011-12) Prices in Q3 of 2020-21 1s estimated at ~ 36.22 lakh crore, as

against ¢ 36.08 lakh crore in Q3 of 2019-20, showing a growth of 0.4 percent.
Source: http://mospi.nic.in/sites/default/files/press release/PRESS%20NOTE%20SAE%2026-02-2021.pdf

GDP Growth Rates Annual
Annual Growth Rate

¢ Annual GDP growth rate is expressed by comparing the current GDP to previous
year GDP.
5. Real GDP or Gross Domestic Product (GDP) at Constant (2011-12) Prices in the year 2019-
20 is now estimated to attain a level of = 145.66 lakh crore, as against the First Revised Estimate
of GDP for the year 2018-19 of = 139.81 lakh crore, released on 31* January 2020. The growth in
GDP during 2019-20 is estimated at 4.2 percent as compared to 6.1 percent in 2018-19.
Source:http://mospi.nic.in/sites/default/files/press release/PRESS%20NOTE%20PE%20and%2004%20eSti
mates%200f%20GDP.pdf

Recession vs Slowdown
¢ An economic recession signifies a drop in the gross domestic product (GDP), while
a slowdown is merely a decline in the growth rate of the GDP.
-It is like the difference between a salary cut and a smaller increment. While one
reduces an individual's actual income, the other is merely a drop in the growth of
that income. A slowdown usually precedes recession, but does not
necessarily lead to one.
¢ The GDP must decline for two consecutive quarters for it to be called recession.

India Economic Growth
8.2 10
7
62 56 57 54 be
e
Bic z
on
=
dan 2018 Jul 2018 Jan 2019 Jul 2019 Jan 2020 dul 2020 Jan 2021
SOURCE: TRADINGECONOMICS.COM | MINISTRY OF STATISTICS AND PROGRAMME IMPLEMENTATION (MOSPI)

Types of Recessions
¢ \/-shaped recessions begin with a steep fall, but trough and recover quickly.
¢ W-shaped recessions begin like V-shaped recessions, but turn down again after
false signs of recovery are exhibited. Also known as double-dip recessions,
because the economy drops twice prior to full recovery.
«In a U-shaped recovery, the economy experiences a sharp decline without a clearly
defined trough but instead a period of stagnation followed by a relatively healthy
rise back to its previous peak. A U-shaped recovery Is similar to a V-shaped
recovery except that the economy spends a longer time slogging along the bottom
of the recession rather than immediately rebounding.
Source: https://economictimes.indiatimes.com/news/economy/policy/indias-economic-recovery-more-likely-to-be-u-or-w-shaped-and-
not-v-analysts/articleshow//6508711.cms?utm source=contentofinterest&utm medium=text&utm campaign=cppst

ag A
BENGALURU
The Demand & Supply of GDP

The Demand & Supply Side of GDP
Supply Side Demand Side
¢ The GDP is estimated from the - lt is also estimated from the

supply side by aggregating the demand side by aggregating
value added in different sectors private consumption (C),
such as agriculture (agri), government consumption (G), total
manufacturing (manf), electricity investment (1) and exports (X) and
(elec) and construction (const). subtracting imports (M).
¢ Supply side estimate of GDP = ¢ Demand Side estimate of GDP=
Gross Value Added (agri, manf, C+G + | +(X-M).
etc) + Product Taxes — Producer
Subsidies.

The Supply side — Quarterly Estimate
Statement 5: Quarterly Estimates of GVA at Basic Prices in Q1, Q2 & Q3 of 2020-21 (at 2011-12
(t Crore)
GVA at Basic Price
Industry 2018-19 2019-20 3070-271
Ql Q2 Q3 Ql Q2 Q3 QI Q2 Q3
1, Agriculture, Forestry & Fishing 4.34854 | 365,738 | 592.115 |4,49,390 | 3,78,602 | 612,460 | 4,64,048 | 3,89,819] 6.36444
2. Ming & Quarrying $4.02? 68 444 80277 82.914 | 64.905 | 77.437 | 67.983 | 49.996 | 72.831
3. Manufacturing 5.64.361 | 582,233 | 5.63,029 |5,67,516 | 5.64,742 | 5.46.580 | 3.63559 | 5,56,396 | 555,596
. Electricity, Gas, Water Supply& | _. . -- 135 a- = - a7 . - -
ther Utility Services 4511 76,137 72.792 79.654 | 77469 | 70,512 | 71,800 79 242 75.651
. Construction 2,50,892 | 2.38,729 | 2.60462 |2,60,099 | 241,188 |2,.57,.010) 131,565 | 2,.23.899 | 2.73,.026
. Trade, Hotels, Transport,
‘ommunication
& Services related | 625.513 | 5.97467 | 620.292 | 6,64,311 | 6.38,065 | 6.63.688 | 3.48.064 | $40,553 | 6,12,407
o Broadcasting
’ Financial, Real Estate &
;
rofessional ;
Services 7,37, 031 7.92.2
92.216 5,87,
87,989 02,2 | 8.62,867
|8,02,241 62,867 | 6,20,490
6,20, 7,58,540
8,540 | 7,81,228
7,81,228 | 6,61,701
6.61.7
hee a
umsnaten Defence&} 5 +7 994 | 4,07,830 | 419,392 }3,99,148 | 4,43,615 | 4,56,723 | 3,60,603 | 4,02,144 | 4,49,936
l 1S ; 5 ) . 4 = a
GVA at Basic Prices 31,49,109 | 31,28,794 | 31,96,347 )33,05,27332, 71,453.33 ,04,89025,66,16330,33,277)33,37,592

http: mospi.nic.in/sites/default/files/press_ release/PRESS%20NOTE%20SAE%2026-02-2021.pdf

The Supply side — Quarterly Estimate
«In the quarterly data on supply-side only GVA is shown and not GDP. This is
because of the lack of availability of data on product taxes and subsidies ona
quarterly basis.

The Supply Side of GDP Annual Estimate
STATEMENT 3: Provisional Estimates of GWA at Basic Price by Economic Activity (at 2011-12 prices)
(= crore)
Percentage Change
2017-18 2018-19 2019-20 Over Previous Year
Industry
. 2™ RE 1* RE (PE
C > ) ) 2018-19 2019-20
1. Agriculture, Forestry & Fishing 18.28,329 18.72,339 19.48.1100 24 4.0
2. Mining & Quarrying 366,496 345,069 355,680 -3.8 3.1
3. Manufacturing 21.90.791 23_16.643 23.17.280 5.7 0.03
4 Electricity, Gas, Water Supply & 2.74.104 2.96_,560 308.332 82 41
other Utility Services
5. Constnuction 062000 10,220,314 10,33 276 6.1 1.3
6. Trade, Hotels, Transport. 23,09 860 24.858,049 2577945 TF 3.0
Communication and Services
related to Broadcasting
7. Financial, Real Estate & 26,09.016 27.86.855 29,15.680 68 46
Professional Services
8. Public Administration. Defence 15.33.809 16.77.298 18.44.316 9.4 10.0
and Other Services
GVA at Basic Prices 1,20,74,413 1,28,03,125 1,33,01,1270 6.0 3.9
S. No Item 2017-18 2018-19 2019-20

—— (277 RE) (1* RE) (PE)
Domestic Product
1 GVA at Basic Prices 1,20,74,.413 1,28.03,128 1,33.01,120
2 Wet Taxes on Products 11,00,747 11, 78,298 12,64,831
3 GDP (1+2) 1,31,75,160 1,359,81,426 1,45,65,951
http://mospi.nic.in/sites/default/files/press release/PRESS%20NOTE%20PE%20and%2004%20estimates%2 00f%20GDP.pdf

Demand Side of GDP Quarterly Estimate
Statement 6: Quarterly Estimates of Expenditures on GDP in Q1, Q2 & Q3 of 2020-21 (at 2011-12
(= Crore)
Expenditures of Gross Domestic Product
Industry 2018-19 2019-20 2020-21 —
Ql Q2 Q3 Q1 Q2 Q3 Ql Q2 O3
1. Private Final Consumption
18,82,275 | 18.96,452 | 20.42.1355 [20.24,421/20,19.783)21.73.139)14.91.256]17.91.290)21.21.719
Expenditure (PFCE)
2. Government Final Consumption
3.853.751 | 3.96444 | 3.29.92 3.92,585 | 4.34.571 | 3.59,174 | 4.42,671 | 3.30.272 | 3.55,103
had
Expenditure (GFCE)
3. Gross Fixed Capital Formation
10,88,766 | 10.83,623 | 11,36.536 ]12,33,178)11,25,882)11,64_.138) 6,60,518 [10,49,685]11,93_993
(GFCF)
4. Change in Stocks (CIS) 63,723 | 65,741 | 63.572 | 39.608 | 39.414 | 38,146 | 26,719 | 40.891 | 40,832
5. Valuables 46.449 | 50462 | 44.383 | 43.887 | 44.242 | 37.119 | 12.625 | 24.084 | 31.146
6. Exports 6.86.676 | 7.19,.812 | 7,48,064 |7,06.991 | 7.10.581 | 7,07,760 | 5.51,555 | 695.863 | 6,75,319
7.Imports 8.02.316 | 8,54,525 }| 868,153 ] 8.77,506 | 8.39,990 | 8,03,132 | 5.16,885 | 6,87.521 | 7,66,583
8. Discrepancies 32.817 | 46.711 | -3.486 | 3,544 | 27.048 | -68.714| 28.586 | 55.323 | -29.254
GDP 33,84,141 | 34,04,720 | 34,92,973 [35,66,70835,61,530136,07,63026,97,045132,99,887136,22.275]1
DP (Percentage change over
5.4 4.6 3.3 -24.4 -7.3 0.4
previous year)
http://mospi.nic.in/sites/default/files/press_release/PRESS%20NOTE%20SAE%2026-02-2021.pdf

Demand Side of GDP Annual Estimate
STATEMENT 1: Provisional Estimates of National Income and Expenditures on GDP, 2019-20 (at 2011- 12 Prices)
(% crore)
Percentage Change
oe ‘en i eee
Final Expenditures
5 PFCE 73,79,819 79,08,057 83.25.907 72 53
6 GFCE 13,43,222 14,78,565 16,52,367 10.1 11.8
7 GFCF 40,61,195 44,60,967 43,34,091 98 28
8 cIs 2.15,795 264.415 269,489 22.5 19
9 Valuables 1,92,661 1,69.734 1,92,629 119 13.5
10 | Exports of Goods and Services 26.01,777 —-:29,22.543 28.17,660 123 3.6
11 | Imports of Goods and Services 30.78,132 33.42.77 31,15,388 8.6 68
12 | Discrepancies 458.823 1,19.923 89.196
13. | GDP 131,75.160 1,39,81426 —1,45,65.951 6.1 42
PFCE: Private Final Consumption Expenditure (C)

GFCE: Government Final Consumption Expenditure (G)
GFCF: Gross Fixed Capital Formation (1)
Exports (X)
Imports CM)
CIS: Change in Stock
Concept of Discrepancy
Or
Discrepancy = GDP calculated using Production Method -

GDP Calculated using Expenditure Method

¢ GDP can be calculated using three different approaches:
1) Production
2) Income
3) Expenditure.
¢ Due to difficulties in getting data on income, India only calculates GDP using
production and expenditure methods. The difference between the two, in
accordance with the SNA, is shown as ‘discrepancies’ .
¢ The data on the production approach is far more accurate than the data on the
expenditure approach in the Indian context.
¢ The convention is that discrepancies are shown under the approach for which the
data is less reliable. In India since the expenditure side data quality is poor,
discrepancy term is entered on the expenditure side.
Source: https://economictimes.indiatimes.com/blogs/et-commentary/getting-to-the-bottom-of-discrepancies-in-national-
accounts/

Let us find out how to get the discrepancy value?
STATEMENT 1: Provisional Estimates of National Income and Expenditures on GDP, 2019-20 (at 2011- 12 Prices)
(% crore)
S. No. Item 2017-18 201 8-19 2019-20 Over Previous Year

(2m RE) (1" RE) (PE) 2018-19 2019-20
Domestic Product
1 GVA at Basic Prices 1,20,74.413 —:1,28,03,128 1,33,01,120 6.0 3.9
a Net Taxes on Products 11,000,747 11,78,298 12,64,831 7.0 7.3
3 GDP (1+2) 1,31,75,160 1,39.81,426 1,45.65.951 6.1 4
4 NDP 1,16,86,409 1,93,73,051 1,398.93 977 5.9 47
Final Expenditures
5 PFCE 73,79,819 79,08 ,057 $3,235,907 72 3.3
6 GFCE 13,43,972 14,78,565 16,532,367 10.1 11.8
7 GFCF 40,61,195 44 60,967 43,34,091 0.8 -248
g cis. 2,135,795 2,64,415 2,69,499 22.5 1.9

9 Valuables 1,923,661 1,69. 734 1,923,679 -11.9 13.5
10 Exports of Goods and Services 26,01,777 29,27 543 28.17,660 12.3 -3.6
11 Imports of Goods and Services 30.78.132 33.42.7177 31.15.388 8.6 68
12 Discrepancies 4,58,823 119,923
13 GDP 1,31,75,160 1,39,81.426 1,45,65,.951 61 42
Symbiosis Institute of Business Management, Bengaluru ol BENGALUR U

ag A
on
Discrepancy Calculation for Annual Data 2019-20
SrNo |Item ‘Amount (in Rs Crore)

1 PFCE 83,25,907
2 GFCE 16,52,367
3 GFCF 43,34,091
4 CIS 2,69,489
5 Valuables 1,92,629
6 Exports 28,17,660
7 Total Expenditure = (1+2+3+4+5+6) 17592143

8 Import 231,15,388
9 Demand side GDP (7-8) 14476755
1,45,65,951
10 Supply-side GDP
11 Discrepancy (GDP supply-side — GDP demand side) 89196
12 Demand side GDP with discrepancy (9+11) 1,45,05,951

A Note on the Concept of Discrepancy
¢ The discrepancy number in the quarterly data does not match, because in the
quarterly data in the supply side only GVA is available and not GDP. This is
because of the lack of availability of data on product taxes and subsidies ona
quarterly basis.
¢ But in the annual estimate the discrepancy data matches because GDP data is
available both in the demand side and the supply side..

Net Domestic Product(NDP)

GDP & NDP
¢ The actual growth of GDP in real terms, is a mirror image of actual growth of
demand for goods and services in the economy.
¢ Increase in agg.demand, induces more production of goods and services,
assuming production potential exists.
¢ Given an increase in agg.demand,the growth of GDP depends on two sources;
1. New investments(depends on availability of savings).
2. The rate at which new investment translates into increased production(depends
on Incremental capital output ratio(ICOR)
¢ Incremental capital output ratio - additional capital required to generate
additional output.
¢ The higher the ICOR, the lower the productivity of capital and vice versa.

Relevance of NDP
¢ While estimating GDP,we use Gross Investment.

¢ Gross investment only considers the amount of capital added each year,it does not
consider the fact that each year some capital also get used up or depreciated.
¢ Suppose Rs.100 crore worth of investment goods)machines and tools) are added
up in the current year, but Rs25 crore of investment goods have been used up or
have depreciated in the production of current year’s output.
¢ The net addition to investment goods this year is not Rs.100 crore, but Rs.7/5 crore,
the difference being depreciation.
66 Symbiosis Institute of Business Management, Bengaluru al GALURU

Why should we look at NDP?
¢ The size of depreciation determines the size of Net investment and direction of
economic progress in the country.
¢ Depreciation > Gross investment Negative net investment (declining

economy)
¢ Depreciation < Gross investment Positive net investment (Growing
economy)
¢ Depreciation = Gross investment Zero net investment (Stagnant economy)
¢ Note: NDP data gets published only in the annual NI estimate(for a particular
financial year) and not in the Quarterly estimates.

S.No. Item 2017-18 2018-19 2019-20
(2"* RE) (1* RE) (PE)
Domestic Product
1 GV <A at Basic Prices 1,20.74.413 1,28,03,128 1.33,01,120
2 Net Taxes on Products 11,00,747 11,78,298 12,64,831
3 GDP (1+2) 1,31,75,160 1,39,81.426 1.45,65,951

4 NDP 1,16,86,409 1,23.72,051 1,28,93,977
The difference between GDP and NDP is depreciation or Consumption of

Fixed Capital

Per Capita Income
«Per capita GDP Per capita GDP = GDP/Population

Table 3: This year India’s per capita GDP will fall to levels last seen in 2016-17
Year Per Capita GDP in Rs (constant prices)
2015-16 88616
2016-17 94751
2017-18 100268
2018-19 105361
2019-20 108620
2020-21 99155
Source: MoSPI

GDP Omissions
1. Type |: Set of activities, which by definition, are not a part of GDP should be
excluded.
2. Type II : Items which should be included in GDP, but get left out because of
measurement problems.
Type Ill : Sets of considerations related to the welfare of the people, which are
not captured by the manner in which GDP is calculated.

Type 1 Omissions
1. Transfer payments — No goods or productive services are produced in exchange
by the recipients of these services
2. second hand transactions — It does not contribute to the current year production
of goods and services.

Type 2 Omissions
1. Non-marketable transactions
2. Apart of economic activities in the unorganized sector.
3. Economic transactions through illegal means like black money.

Type 3 Omissions
¢ GDP growth may not represent the growth of an economy. An impressive GDP
growth is perfectly compatible with a situation where a large segment of population
remains poor.
¢ lt does not take into consideration the negative effects of economic growth on
quality of life.pollution,congestion etc are after effects of increased economic
activity.
¢ Production process leads to depletion of certain irreplaceable resources. This
cannot be accounted for in GDP calculation.
¢ GDP does not account for inefficiency and quality improvement.

Difficulties in Measuring National Income
1. The first difficulty arises because of the prevalence of non-monetized
transactions in under-developed countries like India, so that a considerable part
of output does not come into the market at all. Agriculture still being in the nature
of subsistence farming in these countries, a major part of output is consumed at
the farm itself. The national income statistician, therefore, has to face the
problem of finding a suitable measure for this part of output.
In case of unorganised sectors, assessment of output is a guess work. This
makes the figure for national income unreliable.
The national income estimates do not cover illegal activities even though they
may be adding to national product. They include smuggling, production and
income generation concealed from the authorities for avoiding tax obligations
and prosecution etc.

4. Problem of Double Counting

Only final goods and services should be included in the national income
accounting. But, it is very difficult to distinguish between final goods and
intermediate goods and services.
5. Petty Production & Illiteracy
There are large numbers of petty producers and it is difficult to include their
production in national income because they do not maintain any account.
Because of illiteracy, most producers have no idea of the quantity and value of
their output. They do not follow the practice of Keeping regular accounts. This
makes the task of getting reliable information from a large number of petty
producers all the more difficult.
6. There is a general lack of adequate statistical data and this makes the task _ of
estimation all the more difficult.

Limitations of National Income Accounting
«NI estimates are only rough approximations with all the care taken and the expense
incurred in their preparation. We have, therefore, to be very careful in their use.
¢ The national income figures measure money incomes rather than real income. An
attempt at inflating or deflating money incomes in order to ascertain real income will
create a host of other uncertainties.
¢ Inter-temporal comparisons, i.e., comparisons between two different periods in the
country are difficult. This is due to the fact that a number of changes must have
occurred in the meantime to render the comparison meaningless.
¢ Inter-country comparisons too are also not very fruitful. This is due to the fact that
economic conditions of the two countries as well as the nature of foes and
services that have entered into calculation may be widely different.
¢ The national income estimates do not justify any forecasting owing to a large
measure of approximation in their calculation. On their basis we cannot say that a
certain policy will produce the desired results.

INTERNATIONAL COMPARISON OF
NATIONAL INCOME

NGALURU
Why is international Comparison required?
¢ How standard of living of people varies across countries?

¢ Which countries are growing faster?
¢ Which countries and regions contribute more towards global output?

Method 1-Conversion of GDP using market exchange rate.
Take the nominal GDP of each country and convert that into a common currency, say US
dollarsat the ongoing rate and then sée the relative position.Just convert at the “the rate
prevailing in the foreign exchange market (using either the rate at the end of the period or an
average over the period).
Example
India’s GDP in National Currency(Rupee) = Rs.140
Rupee-Dollar exchange rate $1= Rs.70
India’s GDP Nominal in $ = India’s GDP (in Rupees)/Exchange rate
=140/70
=2$
So India’s GDP (nominal) is 2$.

¢ Limitations of this method
¢ Exchange rates are highly volatile. Depending on the variations in the exchange rate, GDP
of a country may change even if there is no change in the level of economic activity.
elt are to capture the differences in prices for the same goods and services across
countries.
E.g :A haircut in India may cost Rs.200,but the same service in the US may cost $20.

egre ST
BENGALURU
GDP in Current prices (billion US dollars)
2020 2019 2018 2017 2016 2015 2014
United States EE 20.807.27 21,433.23 20,611.88 19,542.97 18,745.10 18,238.30 17,527.28
China 15,222.16 14,731.81 13,841.90 12,265.32 11,227.08 11,113.53 10,524.21
Japan 4,910.58 5,079.92 4,957.33 4,866.36 4,927.54 4,389.48 4,850.41
Germany 3,780.55 3,861.55 3,965.57 3,681.30 3,468.90 3,557.93 3,690.10
United Kingdom 7,658.30 27,850.76 2,864.34 7,668.45 2,704.28 2,929.24 5,065.40
India 7,597.58 2,868.93 2,715.17 2,052.76 2,294.12 2,105.59 2,059.13
France 2,951.45 2,715.82 2,789.13 2,594.24 2,472.28 2,439.44 2,856.70
ltaly 1,848.22 2,001.47 2,086.71 1,961.10 1,876.55 1,836.82 2,162.57
Canada 1,600.26 1,736.44 1,716.18 1,649.64 1,528.00 1,556.51 1,805.75
Korea 1,586.79 1,646.74 1,724.85 1,623.90 1,500.00 1,465.77 1,484.32
Russia 1,464.08 1,702.50 1,665.23 1,575.14 1,280.65 1,356.70 2,048.84
Brazil 1,364.77 1,859.08 1,885.47 2,062.84 1,796.62 1,600.05 2,456.05
Australia 1,554.69 1,587.09 1,421.06 1,586.51 1,266.65 1,234.82 1,457.38
Spain 1,247.46 1,394.27 1,420.38 1,312.09 1,232.57 1,195.72 1,371.58
Indonesia 1,088.77 1,120.14 1,042.68 1,015.49 932.07 860.74 691.05
Mexico 1,040.37 1,258.21 1,222.41 1,158.91 1,078.49 1,171.87 1,515.36
Netherlands 886.54 907.15 914.46 853.58 7835.84 765.65 892.40
Switzerland 7O7.87 704.83 705.52 680.04 671.49 679.75 709.47
Saudi Arabia 680.90 792.97 786.52 688.59 644.94 654.27 756.455
Turkey 649.44 760.94 779.60 858.93 869.28 864.07 938.51
Taiwan Province of Ch... 635.55 610.69 608.13 590.73 543.08 534.52 535.33
80 https://knoema.com/atlas/ranks£GDRis Institute of Business Management, Bengaluru ingest SA

5 LBM
GDP in Current prices Per Capita(billion US dollars)
2020 2019 2018 2017 2016 2015 2014 2013 2012
1 Luxembourg 109,602 115,839 117,860 108,622 105,364 102,625 170,450 114,997 108,050
2 Switzerland $1,867 82,484 83,158 80,765 80,628 82,514 87,158 85,673 $3,960
4 Ireland 79,669 80,504 79,133 69,870 62,710 61,851 55,515 51,446 48,851
4 Norway 67,989 75,294 81,550 75,307 7O,224 74,115 96,658 102,577 101,130
United States 63,051 65,254 63,056 60,106 58,017 56,849 55,025 53,072 51,563
La
Singapore 58,484 65,234 66,186 60,913 56,826 55,646 57,565 56,967 55,548
os
Denmark 58,439 59,7 70 61,525 57,502 54,863 53,478 62,7279 61,326 58,625
& Iceland 57,189 67,857 73,868 72,356 62,005 52,838 54,528 49,316 46,074
9 Qatar 52,751 62,919 66,422 59,127 57,965 66,347 93,054 99,180 101,933
10 Australia 51,885 54,348 56,453 55,968 51,934 51,484 61,648 65,175 68,445
11 Netherlands 51,290 52,646 53,225 48,300 46,165 45,303 53,0276 52,277 50,176
12 Sweden 50,339 51,404 54,296 53,459 51,590 51,274 59,705 60,845 57,816
13 Austria 48,634 50,380 51,293 47,440 45,240 44,2768 51,814 50,747 48,617
14 Finland 48,461 48,310 50,075 46,362 43,866 42,867 50,435 50,006 AV851
15 Germany 45,466 46,475 AF,832 44,537 42,124 41,107 48,036 46,799 43,885
16 Hong Kong SAR 45,176 48,627 48,414 46,032 43,491 42,325 40,185 38,235 36,624
Belgium 43,814 46,237 AF,631 44,364 42,091 41,147 AT,B97 46,849 44,824
8 Canada 42,080 46,272 46,491 45,705 42,383 43,626 51,021 52,709 52,744
9 San Marino 41,683 AF,622 ADATT 45,888 44,309 43,069 51,235 51,987 50,336
20 Israel 41,560 43,603 41.721 40,491 S7,294 35,828 37,755 36,332 32,524
1 France 39,257 41,3897 43,083 40,134 38,349 37,938 44,616 44,145 42,372
145 (ida 1,877 2,098 2,006 1,982 1,732 1,606 1,574 1,450 1444
https: //knoema.com/atlas/ranks/GDP-per-capita
Method 2 —Conversion of GDP using Purchasing Power
Parity(PPP) exchange rate
What is PPP?
¢ The Purchasing-power-parity (PPP) between two countries is the rate at which the
currency of one country needs to be converted into that of a second country to
ensure that a given amount of the first country's currency will purchase the same
volume of goods and services in the second country as it does in the first.
«In their simplest form, PPPs are price relatives, which show the ratio of the prices in
national currencies of the same good or service in different countries.

PPP Exchange rate and GDP(PPP) Calculation
Take a basket of commodities (like 1 kg sugar,wheat,veggies and cloths etc).

Now find out how much money do you need to buy everything from that basket?
For India suppose the bill is Rs. 1700
Go to America and buy same items from their local market, the bill is 100$
So $100=Rs.1700= $1=Rs 17.
So, PP exchange rate is Rs 17 per $ 1
To calculate GDP (PPP) - Example
¢ GDP at Current Prices (in Rupees) / PPP exchange rate for Rupees
=100/17
= $5.88
India’s GDP (PPP)= $ 5.88

Burgernomics, Big Mac index & PPP
’mlovin’ it®

Big Mac Index
¢ Big Mac index in 1986 as a light-hearted introduction to exchange-rate theory.

«The Economist's Big Mac index is based on one of the oldest concepts in
international economics: the theory of purchasing-power parity (PPP).

Big Mac Index
¢ The idea behind the Big Mac Index was to measure the percentage of
overvaluation and undervaluation between two currencies in each nation by
comparing prices of a Big Mac hamburger.
¢ This is effective because Big Macs are sold in almost 120 nations. Since the Big
Mac became the standard consumer good common to all nations, devising a
method for determining overvaluation and undervaluation of currency pairs would
be based on the formula of purchasing power parity.

Big Mac Index
Under/Over Valuation Against the $(%) =
Implied PPP of S— Actual Exchange Rate X 100

Actual Exchange Rate
Implied PPP of S = Big Mac Prices in Local Currency/Big Mac Price in US in $

Big Mac Index January 2021 Data
Based on the data in the excel sheet find out
1. Dollar PPP for India
2. Under or over valuation of Indian Rupee wrt to Dollar

Dollar PPP for India
«Implied PPP of $ = Big Mac Prices in Local Currency/Big Mac Price in US in $

«Implied PPP of $ = 190/5.66 = 33.57
¢ Under/Over Valuation of Rupee Against the $(%) =
Implied PPP of $ — Actual Exchange Rate X 100

33.9/ — 73.39 x 100 = -54.3% (Undervaluation of rupee due to the negative sign)
73.39
Source: https:/Awww.economist.com/big-mac-index

Limitations of Big Mac Index
1. Big Mac prices in different countries are distorted by differences in taxes.
Difference in cost of production and rent.
ms
Different inflation rates.

OO
Cultural preferences and aversion to burgers.

Comparison based on a single product.

Global Official Approach to PPP- World Bank
International Comparison Programme(ICP)
Symbiosis Institute of Business Management , Bengaluru aR lRM

What is ICP?
International Comparison Program (ICP)
¢ The ICP is one of the largest statistical initiatives in the world. It is managed by the
World Bank under the auspices of the United Nations Statistical Commission, and
relies on a partnership of international, regional, sub-regional, and national
agencies working under a robust governance framework and following an
established statistical methodology.
The main objectives of the ICP are to:
¢ (i) produce purchasing power parities (PPPs) and comparable price level indexes
(PLIs) for participating economies;
¢ (li) convert volume and per capita measures of gross domestic product (GDP) and
its expenditure components into a common currency using PPPs.

Size of Economies by GDP PPP — ICP 2017
Figure 1.2 PPP-based GDP and share of global PPP-based GDP, by economy, 2017
2017 PPP
§ (billions), and global share (%|
WES ELaT|
31,2038
i
eae
eo

GDP PPP Top Economies
2020 2019 2018 2017 2016 2015 2014
1 China EE 24.162.44 23,393.00 21,659.30 19,814.06 18,701.70 17,880.34 17,200.69
2 United States Po 20,807.27 21,433.23 20,611.88 19,542.97 18,745.10 18,238.30 17,527.28
3 India P| 8,681.30 9,547.25 8,998.69 8,280.93 7,735.00 7,159.80 6,781.02
4 Japan | 5,236.14 5,450.65 5,319.35 5,180.33 5,076.06 5,136.02 4,986.57
5 Germany || 4,454.50 4,672.01 4,564.72 4,401.87 4,164.75 3,890.13 3,607.12
6 Russia i 4,021.73 4,135.99 4,009.65 3,818.78 3,538.58 3,526.23 3,763.54
7 Indonesia ma 3,328.29 3,331.87 3,116.82 2,894.13 2,744.90 2,647.71 2,622.25
8 Brazil i 3,078.90 3,222.99 3,130.87 3,017.72 2,939.09 43,014.76 3,187.16
9 United Kingdom i 2,978.56 3,254.85 3,151.66 3,037.05 2,897.57 2,768.62 27,665.88
10 France i 2,954.20 3,228.04 3,124.29 2,997.30 2,863.82 2,719.22 2,662.03
11 Mexico || 2,424.51 2,625.90 2,587.71 2,472.59 2,383.39 2,230.64 2,173.23
12 Italy || 2,415.41 2,665.52 2,610.91 2,529.50 2,420.43 2,241.52 2,200.26
13 Turkey || 2,381.59 2,471.66 2,406.26 2,282.30 2,116.18 2,022.94 1,860.47
14 Korea wi 2,293.48 2,304.83 2,219.15 2,105.89 2,026.54 1,933.85 1,792.60
15 Canada a 1,809.00 1,921.00 1,856.56 1,777.24 1,678.39 1,594.90 1,621.40
16 Spain a 1,773.36 2,006.05 1,932.66 1,843.95 1,733.04 1,621.51 1,558.31
17 Saudi Arabia a 1,608.61 1,677.38 1,642.52 1,565.89 1,475.67 1,541.83 1,722.86
18 Australia a 1,307.92 1,345.68 1,298.17 1,233.60 1,174.42 1,113.04 1,111.53
19 Egypt i 1,292.48 1,230.83 1,145.58 1,062.27 1,057.09 1,064.24 985.26
20 Poland a 1,280.66 1,309.45 1,235.26 1,145.05 1,073.94 1,020.17 973.57
21 Taiwan Province of Ch... 1,275.81 1,25745 1,202.81 1,143.22 1,112.78 1,102.04 1,066.10
https://knoema.com/atlas/ranks/GDP-based-on-PPP
94 Symbiosis Institute of Business Management, Bengaluru ag A
GDP PPP Per Capita Top Performers
2020 2019 2018 2017 2016 2015 2014 2013
1 Luxembourg Ee 1012.875 120,490 118,004 113,905 111.757 104,976 102,521 96.716
2 Singapore Po 95,603 101.458 100,092 94,941 89.386 86,975 84,423 $3,002
3 Oatar Po 91,897 95,108 93,880 91,743 84,269 97,847 143,222 161,194
4 Ireland Po 89,383 91,959 86444 78,209 71.339 68,860 51,006 AT.749
5 Switzerland Pr 68,340 72,008 70,376 67,402 66,094 64,275 62,297 60,504
6 Norway Po 64,856 66,214 64,707 62,782 58,736 60,190 65,647 66,742
7 United States Po 63,051 65,254 63,056 60,106 58,017 56,849 55,025 53,072
8 Brunei Darussalam Po 61,816 61,033 59,960 60,281 56,638 62,922 81,806 $4,019
9 Macao SAR Po 58,931 121,764 127,837 120,988 109,946 109,014 142,956 145,992
10 United Arab Emirates [x 58.466 63,590 63,320 62,864 60,756 62,748 72,926 71,676
11 Hong Kong SAR PY 58,165 627,267 62,234 59,676 56,907 56,267 54,605 53,454
12. Denmark PY 57,781 59,719 57,572 55,220 52,160 49,265 48,040 46,829
13 Netherlands Po 57,101 59,693 57,847 55,509 52,441 50,419 49,338 49,314
14 San Marino ro 56,690 63,133 61,667 59,527 58,103 56,138 55,875 53,898
15 Austria Po 55.406 58,850 56,741 54,531 52.614 49,955 48,814 47,937
16 Iceland PY 54482 58,965 58,220 56,377 53,489 49,109 45,956 44,419
17 Taiwan Province of Ch... 54,020 53,275 50,990 48,501 47,272 46,911 45,494 43,435
18 Germany Po 53,571 56,226 55,059 53,255 50,574 47,622 47,011 44,994
19 Sweden ro 52.477 55,265 54,130 52,413 50,062 48,858 46,937 46,099
20 Australia Po 50,845 52,726 51,571 49,796 48,152 46,407 47,018 46,506
21 Belgium fF 50,114 54,029 52,607 50,830 48.696 46,365 45,043 43,755
127 India i 6,284 6,977 6,054 6,186 5,840 5,465 5,234 5,057
https://knoema.com/atlas/ranks/GDP-per-capita-based-on-PPP
95 Symbiosis Institute of Business Management, Bengaluru ag A
5 LBM
How to Calculate GDP PPP?
¢ Calculate India’s PPP GDP for the years 2011 to 2020 based on the data in WEO
India data file.
96 Symbiosis Institute of Business Management, Bengaluru S 5IBM

Extrapolating PPP Conversion Rate
¢ Since global PPP estimates —such as those provided by the ICP— are not
calculated annually, but for a single year, PPP exchange rates for years other than
the benchmark year need to be extrapolated. One way of doing this is by using the
country's GDP deflator. To calculate a country’s PPP exchange rate in dollars for a
particular year, the calculation proceeds in the following manner:
PPPratex ; =
GDPdef,,
PPPratezs _ - GDP,
* Where PPPrate,; is the PPP exchange rate of country X for yeari, PPPrate,,, is the
PPP exchange rate of country X for the benchmark year, PPPrate,,,, is the PPP
exchange rate of the United States (US) for the benchmark year (equal to 1),
GDPdet, ; is the GDP deflator of country X for yeari, GDPdef,, is the GDP deflator
of country X for the benchmark year, GDPdef,,, is the GDP deflator of the US for
yeari, and GDPdef,, is the GDP deflator of the US for the benchmark year.

Extrapolating PPP Conversion rates
«As per ICP 2017,India’s PPP Conversion rate is 20.648 which means $1 =
Rs.20.648 in PPP terms or What $1 can buy in US economy can be bought with
Rs.20.648 in India.
¢ Calculate PPP conversion rate for 2018 using the data in the excel file WEO India
Data.

PPP conversion rate for 2018
GDPdefx ;
PPPratey 9 -
GDP defy,
PPPratey j =
GDPdef;,;
PPPraters, -
GDPdef; ,
PPP rate 2018 = 20.648 saa R75

130.016) = 21.4196 = 20.917
1x faa 1.024
107.71

Limitations of ICP Approach
«PPPs are statistical estimates. Like all statistics they are subject to sampling errors,
measurement errors, and errors of classification. Therefore, they should be treated
as approximations to true values.
¢ The ICP is designed to compare levels of economic activity across economies,
expressed in a common currency, in a particular benchmark year. As such, PPP-
based expenditures are not directly comparable with the 2005 ICP round estimates
because they are based on two different price levels.
¢ The ICP should not be used to compare changes in an economy’s PPP-based GDP
over time. Experience has shown that sizeable discrepancies can arise between
extrapolated estimates and a new benchmark, even when they are only a couple of
years apart. The gap between the latest ICP rounds(2011&2017) was six years,
which has resulted in some very large differences for many economies between the
extrapolated PPP-based expenditures for 2011 and the benchmark PPP-based
expenditures that are available from ICP 2011.

Alternatives for Measuring Welfare of the
People

Human Development Index
¢ The Human Development Index (HDI) is a composite statistic of life

expectancy, education, and income per capita indicators, which are used to rank
countries into four tiers of human development.
¢ A country scores higher HDI when the life expectancy at birth is longer, the
education period is longer, and the income per capita is higher.
¢ The HDI was developed by Pakistani economist Mahbub ul Hag,
elt is published by the United Nations Development Programme(UNDP).

Calculating the human development indices—graphical presentation
Human Development DIMENSIONS Long and healthy life Knowledge A decent standard of living
Index (HDI)
INDICATORS © Life expactancyat birth Mean years Expected years GNI par captta (PPP§)
of schooling of schooling |
DIMENSION Life expectancy index Education index GNI index

INDEX - | 4
S Human Development
Index (HDI)

Levels of Human Development Based on HDI Value
1 Very high human development 0.800 and above
2 High human development 0.700-0.799
3 Medium human development 0.550-—0.699
4 Low human development Below 0.550

HDI Top 10 Countries
Life Expected iteela
expectancy years of years of
Elms aty) schooling schooling Gross national income
Wee led) Wee led) Wee led) (GNI) per capita (PPP
Country HDI value (2019) SDG3 SDG 4.3 SDG 4.6 $) SDG 8.5
ear a bse 18.1 ra) bela her]
Ireland 0.955 bi a tears rai 66,371
Reva 8| 0.955 ta | Alem Be bo? Bast |
Hong Kong,
LOL) bar 16.9 1a | 62,985
Perm beret4]
tore Fs lure) 0.949 tm U | a bers MeL
Germany ST 81.3 17.0 14.2 beta

es |
Sweden ta be Fas) 19.5 a.) 54,508
Australia ASDF a ees 27.0 rari cree Oe be)
a Ceili te tera ee eee sae varFa
Denmark 0.940 12.6 pelosPl
Seem eee ee a eRe)
http://hdr.undp.org/en/content/latest-human-development-index-ranking

HDI Worst Performers
hr Expected Mean
expectancy Vets we)i elem d |
Fem eat schooling schooling Gross national income
iste LE? == Led) == Ted (GNI) per capita (PPP
eel Talia eB) rel erm eae) SDG3 SDG 4.3 SDG 4.6 S$) SDG 8.5
Mozambique 0.456 60.9 10.0 Sa} 1,250
Burkina Faso 0.452 61.6 9.3 Bs} 2,133
Sierra Leone 0.452 bat 10.2 3.7 1,663
EIT fore? 59.3 7 2A 2,269
Burundi tay) 3.3 754

South Sudan re : AB rm OOee
Chad bat Di C ves) 1,955
Central
African L ul A3 903
eis ]0 a) Ce
ites i L ; set
Source: Human Development Report Office 2020. + Created with Datawrapper

HDR 2020 India Ranking
Latest Human Development Index Ranking
Human Development Index (HDI) Ranking
CUM ereatrie sp ieee
P tea
nc Expected Mean
expectancy years of years of
mt schooling schooling Gross national income
C=) C=) C=) (GNI) per capita (PPP $)
ells erel Tata PATE) trem ee LSD) SDG3 SDG 4.3 SDG 4.6 SDG 8.5
a India
Source: Human Development Report Office 2020. - Created with Datawrapper

India HDI Trends
Table A: India’s HDI trends based on consistent time series data and new goalposts
Life at
expectancy Expectedin
vous = 1 wean
_ years of | GNI
chooling 12017 PPPS)ita HDI value
1990 57.9 76 30 ier 0.429

1995 60.3 82 3.5 2.078 0.461
2000 62.5 a4 44 2.548 0.495
2005 64.5 97 48 3.217 0.536
2010 66.7 108 54 4182 0.579
2015 68.6 12.0 62 5.381 0.624
2016 68.9 119 64 5722 0.630
2017 69.2 123 6.5 6.119 0.640
2018 69.4 12.2 6.5 6.427 0.642
2019 69.7 122 65 6.681 0.645
http://hdr.undp.org/sites/all/themes/hdr_theme/country-notes/IND.pdf

HDI State Level Performance India
Ranking of Indian states in the world according to 2015 Human Development Report
STATE HDI:
International comparison
Constructed Hypothetical
States HDI score HDI ‘iain Countries HDI score
Kerala O77 ~—s «104 Maldives 0.706 son eS Uzbekistan

Himachal Pradesh 0.6701 116 Uzbekistan 0.675 =
Tamil Nadu 0.6663 118 Philippines 0.668
Maharashtra 0.6659 ng South Africa 0.666
Punjab 0.6614 124 Bolivia 0.662
Haryana 0.6613 125 Kyrgyzstan 0.655
Jammu and Kashmir 0.6489 128 Iraq 0.654
Karnataka 06176 137 Tajikistan 0.624
Bhutan
Andhra Pradesh 0.6165 8 Tajikistan 0.624
Gujarat 0.6164 139 Honduras 0.606
West Bengal 0.6042 142 Bhutan 0.605

Rajasthan 0.5768 151 Ghana 0579
Odisha 0.5567 154 Bangladesh 0.57
Madhya Pradesh 0.5567 155 Bangladesh 0.57
Assam 0.5555 156 Cambodia 0.555 ‘
Uttar Pradesh 0.5415 161 Pakistan 0.538 ; a Philippines
Bihar 0.5361 163 Myanmar 0536 Maldives
Sources UNDP 2015 Human Development Report; RBI (for state per capita income): Desa, Sonalde, and Reeve Vanneman. india Human Development Survey-tl 201)-12 (for education indicators SRS Based Life Tables 2009-13 and Mint calculations
https: //www.livemint.com/Politics/3KhGMVXGxXcGYBRMsmDCFO/Why-Kerala-is-like-Maldives-and-Uttar-
Pradesh-Pakistan.html
World Happiness Report
¢ The World Happiness Report is a measure of happiness published by the United
Nations Sustainable Development Solutions Network.
¢ The report is edited by Professor John F. Helliwell, of the University of British
Columbia and the Canadian Institute for Advanced Research; Lord Richard Layard,
Director of the Well-Being Programme at LSE’s Centre for Economic Performance;
and Professor Jeffrey Sachs, Director of The Earth Institute at Columbia University,
Director of the SDSN, and Special Advisor to the UN Secretary General.
¢9 Happiness Reports have been published till date

Happiness Index Methodology
On a scale running from 0 to 10, people in over 150 countries, surveyed
by Gallup World Poll.
Six parameters included in calculating Happiness are;
1. real GDP per capita
2. healthy life expectancy
3. having someone to count on
4. perceived freedom to make life choices
5. freedom from corruption
6. generosity
https: //worldhappiness.report/

Global Happiness Report India Ranking
2015 117
2016 118
2017 122
2018 133
2019 140
2020 144
2021 139
https://worldhappiness.report/archive/

Poverty Line
What is a poverty line?

¢ The poverty line defines a threshold income. Households earning below this
threshold are considered poor.
How is it measured?
¢ Poverty is measured based on consumer expenditure surveys of the National
Sample Survey Organization. A poor household is defined as one with an
expenditure level below a specific poverty line.

Poverty Line
¢ Earlier, India used to define the poverty line based on a method defined by a task
force in 1979. It was based on expenditure for buying food worth 2,400 calories in
rural areas, and 2,100 calories in urban areas.
¢ In 2011, the Suresh Tendulkar Committee defined the poverty line on the basis of
monthly spending on food, education, health, electricity and transport. According to
this estimate, a person who spends Rs. 27.2 in rural areas and Rs. 33.3 in urban
areas a day are defined as living below the poverty line. For a family of five that
spends less than Rs. 4,080 and Rs. 5,000 in rural and urban areas respectively is
considered below the poverty line. This has been criticized for fixing the poverty line
too low.

Poverty Estimates In India Based on National Poverty Line
Head Count Millions Millions Millions

Ratio of Poor fo} elele of Poor
National(%) National Rural Urban
21.9 25.7 13.7 269.8 216.7 53.1

29.8 33.8 20.9 354.7 278.2 76.5
37.2 41.8 25.7 407.1 326.3 80.8
‘LE 45.3 50.1 31.8 403.7 328.6 74.5
‘TY 39.3 39.1 40.1 312.7 229.4 83.3
44.8 45.6 42.2 327 251.7 75.3
yay 51.8 53.1 47.4 332 264.3 67.7
ye) 54.9 56.4 49.2 321.6 261.3 60.3
Source: Planning Commission Documents

Poverty State Level Scenario
2011-12
2011-12
State No. of Percenta
Persons No. of
(in Lakh) Be State Persons |Percent
Goa 0.8 5.1 (in age
Kerala 24.0 7.1 Lakh)
Himachal Pradesh 5.6 8.1 West Bengal 185.0 20.0
Sikkim 0.5 8.2 Mizoram 2.3 20.4
Punjab 23.2 8.3 Karnataka 129.8 20.9
Andhra Pradesh 78.8 9.2 Uttar Pradesh 598.2 209.4
Jammu and Kashmir 13.3 10.4 Madhya Pradesh 234.1 31.7
Haryana 28.8 11.2 Assam 101.3 32.0
Tamil Nadu 82.6 11.3 Odisha 138.5 32.6
Uttarakhand 11.6 11.3 Bihar 358.2 33.7
Meghalaya 3.6 11.9 Arunachal Pradesh 4.9 34.7
Tripura 5.2 14.1 Manipur 10.2 36.9
Rajasthan 102.9 14.7 Jharkhand 124.3 37.0
Gujarat 102.2 16.6 Chhattisgarh 104.1 39.9
Maharashtra 197.9 17.4
Nagaland 3.8 18.9
Source: https://rbi.org.in/Scripts/PublicationsView.aspx?id=20002
International Poverty Line
«In October 2015, the World Bank updated international poverty line to
$1.90(2011 PPP) a day. In 2008, the World Bank came out with a figure
(revised largely due to inflation) of $1.25 at 2005 purchasing-power
parity (PPP).
THE VWVORLD BANK Working for a World Free of Pi
~~ ABOUT RESEARCH LEARMSIMGG MEvVS
Data Powertby & Equity Data Portal Country
Poverty & Equity Data Portal
India
Country Iodicators
Powerty headcount ratio at $1.90 a day (2011 PPP) (% of

population)
121 ee es

Poverty Statistics India Based On International Poverty Line
($1.90 PPP 2011)
Ratio(%
9
7
11
13.4
22.5
31.1
38.2
1993 45.9
Source: World Bank, _https://worldpoverty.io/map

Sustainable Development Goals(SDGs)
¢ The Sustainable Development Goals (SDGs), otherwise known as the Global
Goals, are a universal call to action to end poverty, protect the planet and ensure
that all people enjoy peace and prosperity.
¢ The SDGs came into effect in January 2016, and they will continue to guide UNDP
policy and funding until 2030. As the lead UN development agency, UNDP is
uniquely placed to help implement the Goals through our work in some 170
countries and territories.
¢ UNDP's strategic plan focuses on key areas including poverty alleviation,
democratic governance and peacebuilding, climate change and disaster risk, and
economic inequality.

17 SDGs
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Ha iam 1 ale an Sled
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INSTITUTIONS
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2
SDG Index 2020 Country Ranking
Country Ranking 2020 url

httos://dashboards.sdgindex.ora/#/
India Country Profile url

httos://dashboards.sdaindex.ora/profiles/ind
India Rank 2020 : 117

SDG Index Indian States 2019-20
KERALA
HIMACHAL PRADESH
ANDHRA PRADESH
TRARIL IMAL
TELAN GAMA
BARATPA
Goa
SIKKIM
GUJARAT
LAA ALAS HT
UT TA FA ROA
A DD
PUNJAB
MANEP UR
WEST BEN GALL
MADHYA PRADESH
ODISHA
TRIPURA
HA RoW,
AAG AAA
FAAS TAM
CHHATTISGARH
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UTTAR PRADESH
PvE Ga HA La
ARUNACHAL PRADESH
JAR ROAD
BIHAR
https; //niti.gov.in/sdg-india-index-dashboard-2019-20
National Income Accounting
2
Session Outline
Importance of National Income
History of National Income Accounting (NIA)
Difficulties in Measuring NI
Limitations of NIA
International Comparison of National Income
Alternatives for measuring Welfare of People
3
IMPORTANCE OF NATIONAL INCOME
CALCULATION
4
• National income data are used to measure economic welfare of the community.
Other things being equal, economic welfare is greater if national income is greater.
• National income figures give us an idea as to the standard of living of a community.
• The national income figures are further useful in helping us to assess the pace of
economic development of a country. If they do not measure progress precisely, at
least they will show us the trends.
• The study of national income statistics is also useful in diagnosing the economic
ills of a country and suggesting remedies.
• The national income data are used for planned economic development of the
country. In their absence all planning will be a leap in the dark. -
5
• The national income data are used to assess the saving and investment potential of
the community. The rate of saving and investment is ultimately dependent on the
national income.
• National income data also enable us to assess inter-sectoral growth of an
economy. This information is useful in planning development of the various sectors.
• We can make inter-temporal comparisons, i.e., comparisons between two periods
of time in the country in order to form an idea of the economic conditions prevalent
in the respective periods.
• We can also make inter-country comparisons by taking the national income data of
two countries. This will help us to know where we stand among the world
economies.
6
HISTORY OF NATIONAL INCOME
ACCOUNTING & NATIONAL INCOME
DATA DISSEMINATION
7
• In India, a systematic measurement of national income was first attempted in 1949.
• In 1949, a National Income Committee (NIC) was appointed with P.C. Mahalnobis
as its Chairman, and Dr. D.R. Gadgil and V.K.R.V. Rao as members.
• To assist the Committee a 'National Income Unit (NIU) was set up.
• The estimates of national income and the details of methodology adopted by the
committee were published in the first and final reports of the National Income
Committee brought out in April 1951 and February 1954.
8
• The Committee recommended preparation of national income estimates on a
regular (annual) basis.
• Accepting this recommendation, the Government of India transferred the entire
establishment of NIU, then working for the National Income Committee, to the
Ministry of Finance to take charge of the work on a regular basis.
• The work of estimation was later transferred to the Central Statistical Organisation
(CSO) and a full-fledged National Income Division was created which is now
designated as National Accounts Division (NAD) in conformity with the expansion in
its activity.
• CSO was established in 1951.But till 1967, the CSO had followed the methodology
laid down by the NIC. Thereafter, the CSO adopted a relatively improved
methodology and procedure which had become possible due to increased
availability of data.
9
National Income Data In India
• The Central Statistics Office under the Ministry of Statistics and Programme
Implementation(MOSPI) has been bringing out annual estimates of Gross
Domestic Product and other macro-economic aggregates since 1956.
• CSO introduced the advance estimates of national income in the year 1993 and
quarterly estimates of GDP in 1999.
10
Data Release Nomenclature Annual GDP
11
Quarterly GDP Estimates
• GDP estimates for a quarter (QGDP) are released two months after the end of a
quarter.
• QGDP estimates of Q1, Q2, Q3 and Q4 are brought out in the public domain by
Press Release. The Press release includes quarterly data for the current year and
previous two years for purpose of comparison.
• After the release of Q4 estimates in May, when data for all the four quarters of a
year becomes available, complete series of quarterly data is uploaded on the
website.
12
National Income Data Release Calendar
http://www.mospi.gov.in/release-calendar
13
NATIONAL INCOME CONCEPTS
14
NI Concepts
Personal Disposable Per capita

GVA GDP GNI NNP NDP
Income Income Income
15
Gross Domestic Product (GDP)
GDP refers to the market value of final goods and services produced within the
geographical area of a country in a given period of time.
GDP Classification
• Nominal GDP(GDP at Current Prices)
• Real GDP(GDP at Constant Prices)
16
Market Value :
• We use market value because the number of goods and services produced in an
economy are both large and diverse. They cannot be reduced into a common unit
of measurement.
• Assume in an economy Apples & Aeroplanes are produced.
• Market value of Apples = Total quantity of Apples x Price of Apples
• Market value of Aeroplanes = Total quantity of Aeroplanes x Price of Aeroplanes.
• In an economy, each good and service is valued at its market price and then
aggregated to arrive at the total market value.
17
• Produced Goods and Services
• GDP always refers to what is produced and not necessarily, what is sold. Also
what is actually produced is equal to what is demanded.
Example
• Assume that the production capacity in the cement industry is 100 tons per annum.
But the actual sales turned out to be only 80 tons.
• How does production equals demand then?
• Production equals the demand bcoz the unsold inventory of 20 tons is actually
considered as bought, demanded by the cement industry.
• The total demand = market demand of 80 tons + inventory demand of 20
tons.
• Addition to stock of inventories from current year production is treated as inventory
demand.
18
• Since there is a gap between actual production and actual sales in the market, it is
considered as a slowdown.
• If actual production is equal to demand(market dd +inventory dd), where is the
slowdown here?
• It signals a slowdown, because next year, if 80 tons is projected to be the actual
demand, the cement industry will cut production to 60 tons and meet 80 tons
demand from 60 tons of new production and 20 tons of unsold inventories from last
year’s production.
• Actual production will be below capacity output, which is the definition of a
slowdown.
19
• Final Goods and Services
• GDP considers only the final value of goods and services produced in an economy
in order to avoid the problem of double counting.
• Example of a Car
• Market value of the car is given by its price.
• Certain amount of steel along with various other intermediary goods, has gone into
the manufacturing of the car.
• Should we value this also?
• No, because the price of the final product i.e ,the car already includes the price of
intermediate products that have gone into the making of the car.
• If we value them again, that will lead to double counting.
20
• Period of Time
• GDP is not a stock concept, but a measure of the total flow of goods and services
in the economy. Since it is a flow, it has to be over a specified period of time.
• Normally time period is a year (annual estimate) or quarter (quarterly estimate).
21
Nominal Vs Real GDP
Or
GDP at Current Prices and GDP at Constant Prices.
22
Nominal(Current Prices) Vs Real GDP(Constant Prices)
• From a managerial or policy making perspective, we are interested in knowing
whether an economy is;
Growing? Or Stagnating? Or Declining
• This information can be obtained by identifying the growth in Production or Output
in an economy during a specific period of time.
• GDP = P XQ aggregated over all goods and services in an economy.
The problem
• It may be possible that the GDP may grow at impressive rate with no change in Q.
The entire increase can be due to increase in P.
Solution to the problem
• Keep P constant, so that any change in GDP will happen only due to change in Q.
23
• When ‘P’ is not held constant at a certain level and we multiply each year’s P with
prices.
Example
24
• When ‘P’ is not held constant at a certain level and we multiply each year’s P with
prices.
Example
25
• In the national income statement “at current price” signifies nominal GDP.
26
• When P is held constant at a certain level and only change in Q is considered in
arriving at GDP, this is called Real GDP or GDP at Constant prices.
National output is
expressed with respect
to a base year(constant
prices)
27
28
Comparison of GDP Growth using Real & Nominal Concepts
Growth Rate in Nominal GDP compared to the Base Year
21980 -17,200 x 100 = 27.79%

17,200
• This growth is partly due to increase in Q and partly due to increase in P.
Growth Rate in real GDP compared to the Base Year
19,220 -17,200 x 100 = 11.74%

17,200
• This reflects the increase in Q alone. By holding price constant at the base level,
we have eliminated the impact of any change in price during this period in the
estimation of real GDP.
29
GDP Deflator
• GDP Deflator helps in identifying the price change which we have eliminated while
calculating the Real GDP.
• In our example
GDP Deflator = (21,980/19,220) x 100 = 114.36
• Inference: Increase in prices during this period, which we eliminated in real GDP
calculation was 14.36% compared to the base year
https://www.thehindu.com/business/Economy/what-is-the-gdp-deflator/article24489279.ece
30
Converting Nominal Values into Real Values
In the earlier example

Nominal GDP = Rs. 21,980
GDP Deflator = 114.36
Convert GDP Deflator index into decimal form by dividing it by
100 = 114.36/100 = 1.1436
Real GDP = 21980/1.1436 = 19,220
31
GDP Deflator as a measure of Inflation
• The GDP deflator is a measure of price inflation. It is calculated by
dividing nominal GDP by real GDP and then multiplying by 100.
• Nominal GDP is the market value of goods and services produced in an economy,
unadjusted for inflation.
• Real GDP is nominal GDP, adjusted for inflation to reflect changes in real output.
• Trends in the GDP deflator are similar to changes in the Consumer Price Index,
which is a different way of measuring inflation.
32
India GDP Deflator data 2011-12 Series
33
Calculating Inflation rate using GDP Deflator
How to find inflation rate using GDP deflator?

For example if you want to find out the inflation rate between 2018 and 2019 based on the data
in the above chart, you need to calculate the percentage change in GDP deflator between 2019
and 2020.

% Change = 138.8 – 134.8 x 100 = 2.96%
134.8
Inflation Rate between 2019 &2020 = 2.96%
34
Understanding National Income Statement
35
• The System of National Accounts, 2008 (2008 SNA) is a statistical framework that
provides a comprehensive, consistent and flexible set of macroeconomic accounts
for policymaking, analysis and research purposes. It has been produced and is
released under the auspices of
• the United Nations,
• the European Commission,
• the Organization for Economic Co-operation and Development(OECD)
• the International Monetary Fund
• the World Bank Group.
36
• The System of National Accounts (SNA) is the internationally agreed standard set
of recommendations on how to compile measures of economic activity in
accordance with strict accounting conventions based on economic principles.
The recommendations of consists of
• concepts
• definitions
• classifications
• accounting rules that comprise the internationally agreed standard for measuring
such items as gross domestic product (GDP), the most frequently quoted indicator
of economic performance.
• The accounting framework of the SNA allows economic data to be compiled and
presented in a format that is designed for purposes of economic analysis, decision-
taking and policymaking.
37
Base Year for NIA
• Base years are changed periodically to take into account the structural changes
which have been happening in the economy.
• Estimates at the prevailing prices of the current year are termed as current
prices(Nominal),while estimates that are prepared at the base year prices are
termed as constant prices(Real).
38
Base Year for NIA
• In the past, National Accounts Statistics were revised decennially changing the base to a
year, which ends with 1.
• With the informal/unorganised sector playing a major role in the Indian economy, this was
primarily because in the base year estimates of national accounts aggregates, the work
force estimates especially that for the unorganized sector were obtained from the
Population Census conducted decennially in the years ending with 1. This practice
continued up to the series with base year 1980-81.
39
Base Year for NIA
• Since the 1993-94 series, the CSO started using the work force estimates from the
results of Quinquennial Employment and Unemployment Surveys of National
Sample Survey Organization (NSSO), which are conducted once in every five
years, and
• consequently started revising the base years of national accounts statistics once in
every five years coinciding with the years for which the NSSO conducts the
Quinquennial Employment and Unemployment Surveys (EUS).
• The National Statistical Commission has also recommended that all economic
indices should be rebased at least once in every five years.
40
Base Year for NIA
• The NSS 61st Round Quinquennial EUS conducted in the year 2004-05, on which
the previous series of national accounts was based, was followed by a
quinquennial EUS in 2009-10.
• However, the year was not considered a “normal” year since it succeeded the
global slowdown of 2008.
• Therefore, a fresh EUS was conducted in 2011-12.
• The results of this survey have been used for the compilation of the estimates in the
new series with base year 2011-12, released on 30th January, 2015.
41
Terminologies used in NI Statement
42
GVA(Gross Value Added)
• Gross value added provides the money value for the amount of goods and
services that have been produced, less the cost of all inputs and raw materials that
are directly attributable to that production.
GVA= Gross Value of Output(GVO) – Cost of Inputs
43
How is GVA Calculated? Example
For 2011-12 series

GVO = Rs.1236067 cr
Cost of Inputs = Rs.249464 cr
GVA = GVO – Cost of Inputs
Rs.1236067 cr -Rs.249464 cr = Rs.986603 cr
44
GVA & GDP

Product taxes/subsidies depend on quantity produced. Product taxes or subsidies
are paid or received on per unit of product (Eg: tax —excise tax, sales tax, service
tax and import and export duties; subsidies — food, petroleum and fertilizer
subsidies, interest subsidies given to farmers, households, etc)
45
GDP Gross Domestic Product
Net Tax on Products = Product Taxes – Product Subsidies
http://mospi.nic.in/sites/default/files/press_release/PRESS%20NOTE%20PE%20and%20Q4%20estimates%20of%20GDP.pdf
46
GDP Growth Rates Quarterly
Quarterly Growth Rate
• Quarterly GDP growth rate is expressed by comparing the GDP of the current
quarter with similar quarter of the previous year.
Source : http://mospi.nic.in/sites/default/files/press_release/PRESS%20NOTE%20SAE%2026-02-2021.pdf
47
GDP Growth Rates Annual
Annual Growth Rate

• Annual GDP growth rate is expressed by comparing the current GDP to previous
year GDP.
Source:http://mospi.nic.in/sites/default/files/press_release/PRESS%20NOTE%20PE%20and%20Q4%20esti
mates%20of%20GDP.pdf
48
Recession vs Slowdown
• An economic recession signifies a drop in the gross domestic product (GDP), while
a slowdown is merely a decline in the growth rate of the GDP.
• It is like the difference between a salary cut and a smaller increment. While one
reduces an individual’s actual income, the other is merely a drop in the growth of
that income. A slowdown usually precedes recession, but does not
necessarily lead to one.
• The GDP must decline for two consecutive quarters for it to be called recession.
49
India Economic Growth
50
Types of Recessions
• V-shaped recessions begin with a steep fall, but trough and recover quickly.
• W-shaped recessions begin like V-shaped recessions, but turn down again after
false signs of recovery are exhibited. Also known as double-dip recessions,
because the economy drops twice prior to full recovery.
• In a U-shaped recovery, the economy experiences a sharp decline without a clearly
defined trough but instead a period of stagnation followed by a relatively healthy
rise back to its previous peak. A U-shaped recovery is similar to a V-shaped
recovery except that the economy spends a longer time slogging along the bottom
of the recession rather than immediately rebounding.
Source: https://economictimes.indiatimes.com/news/economy/policy/indias-economic-recovery-more-likely-to-be-u-or-w-shaped-and-
not-v-analysts/articleshow/76508711.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst
51
The Demand & Supply of GDP
52
The Demand & Supply Side of GDP
Supply Side Demand Side

• The GDP is estimated from the • It is also estimated from the
supply side by aggregating the demand side by aggregating
value added in different sectors private consumption (C),
such as agriculture (agri), government consumption (G), total
manufacturing (manf), electricity investment (I) and exports (X) and
(elec) and construction (const). subtracting imports (M).
• Supply side estimate of GDP = • Demand Side estimate of GDP=
Gross Value Added (agri, manf, C+G + I +(X-M).
etc) + Product Taxes – Producer
Subsidies.
53
The Supply side – Quarterly Estimate
54
The Supply side – Quarterly Estimate
• In the quarterly data on supply-side only GVA is shown and not GDP. This is
because of the lack of availability of data on product taxes and subsidies on a
quarterly basis.
55
The Supply Side of GDP Annual Estimate
http://mospi.nic.in/sites/default/files/press_release/PRESS%20NOTE%20PE%20and%20Q4%20estimates%20of%20GDP.pdf
56
Demand Side of GDP Quarterly Estimate
57
Demand Side of GDP Annual Estimate
PFCE: Private Final Consumption Expenditure (C)

GFCE: Government Final Consumption Expenditure (G)
GFCF: Gross Fixed Capital Formation (I)
Exports (X)
Imports (M)
CIS: Change in Stock
58
Discrepancy = GDP (supply side) – GDP (demand side)
Or
Discrepancy = GDP calculated using Production Method -

GDP Calculated using Expenditure Method
59
• GDP can be calculated using three different approaches:
1) Production
2) Income
3) Expenditure.
• Due to difficulties in getting data on income, India only calculates GDP using
production and expenditure methods. The difference between the two, in
accordance with the SNA, is shown as ‘discrepancies’ .
• The data on the production approach is far more accurate than the data on the
expenditure approach in the Indian context.
• The convention is that discrepancies are shown under the approach for which the
data is less reliable. In India since the expenditure side data quality is poor,
discrepancy term is entered on the expenditure side.
Source: https://economictimes.indiatimes.com/blogs/et-commentary/getting-to-the-bottom-of-discrepancies-in-national-
accounts/
60
Let us find out how to get the discrepancy value?
61
Discrepancy Calculation for Annual Data 2019-20
Sr No Item Amount (in Rs Crore)
1 PFCE 83,25,907
2 GFCE 16,52,367
3 GFCF 43,34,091
4 CIS 2,69,489
5 Valuables 1,92,629
6 Exports 28,17,660
7 Total Expenditure = (1+2+3+4+5+6) 17592143
8 Import 31,15,388
9 Demand side GDP (7-8) 14476755
1,45,65,951
10 Supply-side GDP
11 Discrepancy (GDP supply-side – GDP demand side) 89196
12 Demand side GDP with discrepancy (9+11) 1,45,65,951
62
A Note on the Concept of Discrepancy
• The discrepancy number in the quarterly data does not match, because in the
quarterly data in the supply side only GVA is available and not GDP. This is
because of the lack of availability of data on product taxes and subsidies on a
quarterly basis.
• But in the annual estimate the discrepancy data matches because GDP data is
available both in the demand side and the supply side..
63
Net Domestic Product(NDP)
64
GDP & NDP
• The actual growth of GDP in real terms, is a mirror image of actual growth of
demand for goods and services in the economy.
• Increase in agg.demand, induces more production of goods and services,
assuming production potential exists.
• Given an increase in agg.demand,the growth of GDP depends on two sources;
1. New investments(depends on availability of savings).
2. The rate at which new investment translates into increased production(depends
on Incremental capital output ratio(ICOR)
• Incremental capital output ratio - additional capital required to generate
additional output.
• The higher the ICOR, the lower the productivity of capital and vice versa.
65
Relevance of NDP
• While estimating GDP,we use Gross Investment.

• Gross investment only considers the amount of capital added each year,it does not
consider the fact that each year some capital also get used up or depreciated.
• Suppose Rs.100 crore worth of investment goods)machines and tools) are added
up in the current year, but Rs25 crore of investment goods have been used up or
have depreciated in the production of current year’s output.
• The net addition to investment goods this year is not Rs.100 crore,but Rs.75 crore,
the difference being depreciation.
NDP = GDP- Depreciation or Consumption of Fixed Capital(CFC)
66
Why should we look at NDP?
• The size of depreciation determines the size of Net investment and direction of
economic progress in the country.
• Depreciation > Gross investment Negative net investment (declining

economy)
• Depreciation < Gross investment Positive net investment (Growing
economy)
• Depreciation = Gross investment Zero net investment (Stagnant economy)
• Note: NDP data gets published only in the annual NI estimate(for a particular
financial year) and not in the Quarterly estimates.
67
NDP Data
The difference between GDP and NDP is depreciation or Consumption of

Fixed Capital
68
Per Capita Income
• Per capita GDP Per capita GDP = GDP/Population
69
GDP Omissions
1. Type I : Set of activities, which by definition, are not a part of GDP should be
excluded.
2. Type II : Items which should be included in GDP, but get left out because of
measurement problems.
3. Type III : Sets of considerations related to the welfare of the people, which are
not captured by the manner in which GDP is calculated.
70
Type 1 Omissions
1. Transfer payments – No goods or productive services are produced in exchange
by the recipients of these services
2. Second hand transactions – It does not contribute to the current year production
of goods and services.
71
Type 2 Omissions
1. Non-marketable transactions
2. A part of economic activities in the unorganized sector.
3. Economic transactions through illegal means like black money.
72
Type 3 Omissions
• GDP growth may not represent the growth of an economy. An impressive GDP
growth is perfectly compatible with a situation where a large segment of population
remains poor.
• It does not take into consideration the negative effects of economic growth on
quality of life.pollution,congestion etc are after effects of increased economic
activity.
• Production process leads to depletion of certain irreplaceable resources. This
cannot be accounted for in GDP calculation.
• GDP does not account for inefficiency and quality improvement.
73
1. The first difficulty arises because of the prevalence of non-monetized
transactions in under-developed countries like India, so that a considerable part
of output does not come into the market at all. Agriculture still being in the nature
of subsistence farming in these countries, a major part of output is consumed at
the farm itself. The national income statistician, therefore, has to face the
problem of finding a suitable measure for this part of output.
2. In case of unorganised sectors, assessment of output is a guess work. This
makes the figure for national income unreliable.
3. The national income estimates do not cover illegal activities even though they
may be adding to national product. They include smuggling, production and
income generation concealed from the authorities for avoiding tax obligations
and prosecution etc.
74
4. Problem of Double Counting

Only final goods and services should be included in the national income
accounting. But, it is very difficult to distinguish between final goods and
intermediate goods and services.
5. Petty Production & Illiteracy
There are large numbers of petty producers and it is difficult to include their
production in national income because they do not maintain any account.
Because of illiteracy, most producers have no idea of the quantity and value of
their output. They do not follow the practice of keeping regular accounts. This
makes the task of getting reliable information from a large number of petty
producers all the more difficult.
6. There is a general lack of adequate statistical data and this makes the task of
estimation all the more difficult.
75
Limitations of National Income Accounting
• NI estimates are only rough approximations with all the care taken and the expense
incurred in their preparation. We have, therefore, to be very careful in their use.
• The national income figures measure money incomes rather than real income. Any
attempt at inflating or deflating money incomes in order to ascertain real income will
create a host of other uncertainties.
• Inter-temporal comparisons, i.e., comparisons between two different periods in the
country are difficult. This is due to the fact that a number of changes must have
occurred in the meantime to render the comparison meaningless.
• Inter-country comparisons too are also not very fruitful. This is due to the fact that
economic conditions of the two countries as well as the nature of goods and
services that have entered into calculation may be widely different.
• The national income estimates do not justify any forecasting owing to a large
measure of approximation in their calculation. On their basis we cannot say that a
certain policy will produce the desired results.
76
INTERNATIONAL COMPARISON OF
NATIONAL INCOME
77
Why is international Comparison required?
• How standard of living of people varies across countries?

• Which countries are growing faster?
• Which countries and regions contribute more towards global output?
78
Method 1-Conversion of GDP using market exchange rate.
Take the nominal GDP of each country and convert that into a common currency, say US
dollars at the ongoing rate and then see the relative position.Just convert at the *the rate
prevailing in the foreign exchange market (using either the rate at the end of the period or an
average over the period).
Example
India’s GDP in National Currency(Rupee) = Rs.140
Rupee-Dollar exchange rate $1= Rs.70
India’s GDP Nominal in $ = India’s GDP (in Rupees)/Exchange rate
=140/70
=2$
So India’s GDP (nominal) is 2$.
• Limitations of this method
• Exchange rates are highly volatile. Depending on the variations in the exchange rate, GDP
of a country may change even if there is no change in the level of economic activity.
• It fails to capture the differences in prices for the same goods and services across
countries.
E.g :A haircut in India may cost Rs.200,but the same service in the US may cost $20.
79
GDP in Current prices (billion US dollars)
80 https://knoema.com/atlas/ranks/GDP
GDP in Current prices Per Capita(billion US dollars)
https://knoema.com/atlas/ranks/GDP-per-capita
81
Method 2 –Conversion of GDP using Purchasing Power
Parity(PPP) exchange rate
What is PPP?
• The Purchasing-power-parity (PPP) between two countries is the rate at which the
currency of one country needs to be converted into that of a second country to
ensure that a given amount of the first country's currency will purchase the same
volume of goods and services in the second country as it does in the first.
• In their simplest form, PPPs are price relatives, which show the ratio of the prices in
national currencies of the same good or service in different countries.
82
PPP Exchange rate and GDP(PPP) Calculation
Take a basket of commodities (like 1 kg sugar,wheat,veggies and cloths etc).

Now find out how much money do you need to buy everything from that basket?
For India suppose the bill is Rs. 1700
Go to America and buy same items from their local market, the bill is 100$
So $100= Rs. 1700 = $1= Rs 17.
So, PP exchange rate is Rs 17 per $ 1
To calculate GDP (PPP) - Example
• GDP at Current Prices (in Rupees) / PPP exchange rate for Rupees
=100/17
= $5.88
India’s GDP (PPP)= $ 5.88
83
Burgernomics, Big Mac index & PPP
84
Big Mac Index
• Big Mac index in 1986 as a light-hearted introduction to exchange-rate theory.

• The Economist's Big Mac index is based on one of the oldest concepts in
international economics: the theory of purchasing-power parity (PPP).
85
Big Mac Index
• The idea behind the Big Mac Index was to measure the percentage of
overvaluation and undervaluation between two currencies in each nation by
comparing prices of a Big Mac hamburger.
• This is effective because Big Macs are sold in almost 120 nations. Since the Big
Mac became the standard consumer good common to all nations, devising a
method for determining overvaluation and undervaluation of currency pairs would
be based on the formula of purchasing power parity.
86
Big Mac Index
87
Big Mac Index January 2021 Data
Based on the data in the excel sheet find out
1. Dollar PPP for India
2. Under or over valuation of Indian Rupee wrt to Dollar
88
Dollar PPP for India
• Implied PPP of $ = Big Mac Prices in Local Currency/Big Mac Price in US in $

• Implied PPP of $ = 190/5.66 = 33.57
• Under/Over Valuation of Rupee Against the $(%) =
Implied PPP of $ – Actual Exchange Rate X 100

33.57 – 73.39 x 100 = -54.3% (Undervaluation of rupee due to the negative sign)
73.39
Source: https://www.economist.com/big-mac-index
89
Limitations of Big Mac Index
1. Big Mac prices in different countries are distorted by differences in taxes.
2. Difference in cost of production and rent.
3. Different inflation rates.
4. Cultural preferences and aversion to burgers.
5. Comparison based on a single product.
90
Global Official Approach to PPP- World Bank
International Comparison Programme(ICP)
91
What is ICP?
International Comparison Program (ICP)
• The ICP is one of the largest statistical initiatives in the world. It is managed by the
World Bank under the auspices of the United Nations Statistical Commission, and
relies on a partnership of international, regional, sub-regional, and national
agencies working under a robust governance framework and following an
established statistical methodology.
The main objectives of the ICP are to:
• (i) produce purchasing power parities (PPPs) and comparable price level indexes
(PLIs) for participating economies;
• (ii) convert volume and per capita measures of gross domestic product (GDP) and
its expenditure components into a common currency using PPPs.
92
Size of Economies by GDP PPP – ICP 2017
93
GDP PPP Top Economies
https://knoema.com/atlas/ranks/GDP-based-on-PPP
94
GDP PPP Per Capita Top Performers
https://knoema.com/atlas/ranks/GDP-per-capita-based-on-PPP
95
How to Calculate GDP PPP?
GDP PPP = GDP in Current Prices expressed in National Currency Unit ÷ PPP Conversion rate
for a particular year
• Calculate India’s PPP GDP for the years 2011 to 2020 based on the data in WEO
India data file.
96
Extrapolating PPP Conversion Rate
• Since global PPP estimates —such as those provided by the ICP— are not
calculated annually, but for a single year, PPP exchange rates for years other than
the benchmark year need to be extrapolated. One way of doing this is by using the
country's GDP deflator. To calculate a country's PPP exchange rate in dollars for a
particular year, the calculation proceeds in the following manner:
• Where PPPrateX,i is the PPP exchange rate of country X for year i, PPPrateX,b is the
PPP exchange rate of country X for the benchmark year, PPPrateU,b is the PPP
exchange rate of the United States (US) for the benchmark year (equal to 1),
GDPdefX,i is the GDP deflator of country X for year i, GDPdefX,b is the GDP deflator
of country X for the benchmark year, GDPdefU,i is the GDP deflator of the US for
year i, and GDPdefU,b is the GDP deflator of the US for the benchmark year.
97
Extrapolating PPP Conversion rates
• As per ICP 2017,India’s PPP Conversion rate is 20.648 which means $1 =
Rs.20.648 in PPP terms or What $1 can buy in US economy can be bought with
Rs.20.648 in India.
• Calculate PPP conversion rate for 2018 using the data in the excel file WEO India
Data.
98
PPP conversion rate for 2018
PPP rate 2018 = 20.648 x 134.875

130.016 = 21.4196 = 20.917
1 x 110.296 1.024
107.71
99
Limitations of ICP Approach
• PPPs are statistical estimates. Like all statistics they are subject to sampling errors,
measurement errors, and errors of classification. Therefore, they should be treated
as approximations to true values.
• The ICP is designed to compare levels of economic activity across economies,
expressed in a common currency, in a particular benchmark year. As such, PPP-
based expenditures are not directly comparable with the 2005 ICP round estimates
because they are based on two different price levels.
• The ICP should not be used to compare changes in an economy’s PPP-based GDP
over time. Experience has shown that sizeable discrepancies can arise between
extrapolated estimates and a new benchmark, even when they are only a couple of
years apart. The gap between the latest ICP rounds(2011&2017) was six years,
which has resulted in some very large differences for many economies between the
extrapolated PPP-based expenditures for 2011 and the benchmark PPP-based
expenditures that are available from ICP 2011.
100
Alternatives for Measuring Welfare of the
People
101
• The Human Development Index (HDI) is a composite statistic of life

expectancy, education, and income per capita indicators, which are used to rank
countries into four tiers of human development.
• A country scores higher HDI when the life expectancy at birth is longer, the
education period is longer, and the income per capita is higher.
• The HDI was developed by Pakistani economist Mahbub ul Haq,
• It is published by the United Nations Development Programme(UNDP).
102
103
Levels of Human Development Based on HDI Value
104
HDI Top 10 Countries
105
HDI Worst Performers
106
HDR 2020 India Ranking
107
India HDI Trends
http://hdr.undp.org/sites/all/themes/hdr_theme/country-notes/IND.pdf
108
HDI State Level Performance India
https://www.livemint.com/Politics/3KhGMVXGxXcGYBRMsmDCFO/Why-Kerala-is-like-Maldives-and-Uttar-
Pradesh-Pakistan.html
World Happiness Report
• The World Happiness Report is a measure of happiness published by the United
Nations Sustainable Development Solutions Network.
• The report is edited by Professor John F. Helliwell, of the University of British
Columbia and the Canadian Institute for Advanced Research; Lord Richard Layard,
Director of the Well-Being Programme at LSE’s Centre for Economic Performance;
and Professor Jeffrey Sachs, Director of The Earth Institute at Columbia University,
Director of the SDSN, and Special Advisor to the UN Secretary General.
• 9 Happiness Reports have been published till date
110
Happiness Index Methodology
On a scale running from 0 to 10, people in over 150 countries, surveyed
by Gallup World Poll.
Six parameters included in calculating Happiness are;
1. real GDP per capita
2. healthy life expectancy
3. having someone to count on
4. perceived freedom to make life choices
5. freedom from corruption
6. generosity
https://worldhappiness.report/
111
Global Happiness Report India Ranking
https://worldhappiness.report/archive/
112
Poverty Line
What is a poverty line?

• The poverty line defines a threshold income. Households earning below this
threshold are considered poor.
How is it measured?
• Poverty is measured based on consumer expenditure surveys of the National
Sample Survey Organization. A poor household is defined as one with an
expenditure level below a specific poverty line.
113
Poverty Line
• Earlier, India used to define the poverty line based on a method defined by a task
force in 1979. It was based on expenditure for buying food worth 2,400 calories in
rural areas, and 2,100 calories in urban areas.
• In 2011, the Suresh Tendulkar Committee defined the poverty line on the basis of
monthly spending on food, education, health, electricity and transport. According to
this estimate, a person who spends Rs. 27.2 in rural areas and Rs. 33.3 in urban
areas a day are defined as living below the poverty line. For a family of five that
spends less than Rs. 4,080 and Rs. 5,000 in rural and urban areas respectively is
considered below the poverty line. This has been criticized for fixing the poverty line
too low.
114
Poverty Estimates In India Based on National Poverty Line
Source: Planning Commission Documents

115
Poverty State Level Scenario
2011-12
2011-12
State No. of
Percenta
Persons No. of
ge State
(in Lakh) Persons Percent
Goa 0.8 5.1 (in age
Kerala 24.0 7.1 Lakh)
Himachal Pradesh 5.6 8.1 West Bengal 185.0 20.0
Sikkim 0.5 8.2 Mizoram 2.3 20.4
Punjab 23.2 8.3 Karnataka 129.8 20.9
Andhra Pradesh 78.8 9.2 Uttar Pradesh 598.2 29.4
Jammu and Kashmir 13.3 10.4 Madhya Pradesh 234.1 31.7
Haryana 28.8 11.2 Assam 101.3 32.0
Tamil Nadu 82.6 11.3 Odisha 138.5 32.6
Uttarakhand 11.6 11.3 Bihar 358.2 33.7
Meghalaya 3.6 11.9 Arunachal Pradesh 4.9 34.7
Tripura 5.2 14.1 Manipur 10.2 36.9
Rajasthan 102.9 14.7 Jharkhand 124.3 37.0
Gujarat 102.2 16.6 Chhattisgarh 104.1 39.9
Maharashtra 197.9 17.4
Nagaland 3.8 18.9
Source: https://rbi.org.in/Scripts/PublicationsView.aspx?id=20003
116
International Poverty Line
• In October 2015, the World Bank updated international poverty line to
$1.90(2011 PPP) a day. In 2008, the World Bank came out with a figure
(revised largely due to inflation) of $1.25 at 2005 purchasing-power
parity (PPP).
117
Poverty Statistics India Based On International Poverty Line
($1.90 PPP 2011)
Year Head Count
Ratio(%)
2020 9
2018 7
2016 11
2015 13.4
2011 22.5
2009 31.1
2004 38.2
1993 45.9
Source: World Bank, https://worldpoverty.io/map
118
Sustainable Development Goals(SDGs)
• The Sustainable Development Goals (SDGs), otherwise known as the Global
Goals, are a universal call to action to end poverty, protect the planet and ensure
that all people enjoy peace and prosperity.
• The SDGs came into effect in January 2016, and they will continue to guide UNDP
policy and funding until 2030. As the lead UN development agency, UNDP is
uniquely placed to help implement the Goals through our work in some 170
countries and territories.
• UNDP’s strategic plan focuses on key areas including poverty alleviation,
democratic governance and peacebuilding, climate change and disaster risk, and
economic inequality.
119
17 SDGs
120
SDG Index 2020 Country Ranking
Country Ranking 2020 url

https://dashboards.sdgindex.org/#/
India Country Profile url

https://dashboards.sdgindex.org/profiles/ind
India Rank 2020 : 117
121
SDG Index Indian States 2019-20
https://niti.gov.in/sdg-india-index-dashboard-2019-20
122
Trilemma or The Impossible
Trinity
Impossible Trinity
A country cannot have all the three of the
following at the same time:
• Free Capital flows
• Independent Monetary Policy
• Pegged/Controlled Exchange rate
Impossible Trinity in Action
• US has an independent monetary policy and no capital
controls, resulting in a flexible exchange rate.
• Countries in the Euro area have given up monetary
policy independence for a stable exchange rate and
financial integration.
• To stem rupee depreciation in Aug 2013 RBI imposed
partial capital controls. Direct investments by Indian
companies abroad were curtailed, remittances limits for
Indians sending money abroad were reduced and a
scheme to encourage foreign currency non-resident
(FCNR) deposits was introduced. As the rupee
stabilized, these measures were gradually removed.
Therefore, opting for a stable exchange rate, partial
controls were enacted.
https://www.livemint.com/Opinion/8zXO5x6PUmEjhtf2sCwl1K/Indias-impossible-trinity-problem.html
Options for Countries
• Option 1: A stable/pegged exchange rate and free capital flows (but not
an independent monetary policy). If there are capital inflows the pegged
currency would be under pressure to appreciate. So the country’s
monetary policy choice has to be an expansionary one to prevent
appreciation and maintain the exchange rate peg/stability. Eg. Saudi
Arabia
• Option 2: An independent monetary policy and free capital flows (but
not a stable/pegged exchange rate). If there are capital inflows/outflows
the country allows its currency to appreciate/depreciate as it has a
floating exchange rate regime. So there is no monetary policy compulsion
to maintain a fixed/pegged rate. Eg. US, Japan
• Option 3: A pegged exchange rate and independent monetary policy (but
no free capital flows, which would require the use of capital controls). A
country with a pegged currency wanting to maintain independence in its
monetary policy will have to prevent capital inflows/outflows to maintain
the exchange rate peg. Eg. China

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Foreign Exchange Basics

Definition of a Currency Pair

Eg USD/INR: USD is the base currency & INR is the quote

•The currency pair itself can be thought of as a single unit, an

• These pairs are not traded as

• High interest rate differentials

Freely convertible currencies (also called as fully

Eg. USD, Euro, JPY, GBP, Swiss Franc

Note: Indian Rupee is a partially convertible currency.

• Rupee remained one of the most affected and worst-performing emerging

• Why did the rupee depreciate in 2020?

• Exports during April-March 2020-21, however, dipped by 7.4 per cent to

• imports contracted by 10.89 per cent to $306.67 billion

• The U.S. Dollar Index (DXY)

Brief Introduction and Types of Exchange Rates

Depreciation- 45% since mid-2018, 30%

The international monetary system refers to the institutional arrangements

Hard Pegs No Separate Currency Board

Floating Floating Free floating

Evolution of the International Monetary System

Eg USD/INR: USD is the base currency & INR is the quote

•The currency pair itself can be thought of as a single unit, an

• These pairs are not traded as

• High interest rate differentials

Freely convertible currencies (also called as fully

Eg. USD, Euro, JPY, GBP, Swiss Franc

Note: Indian Rupee is a partially convertible currency.

Brief Introduction and Types of Exchange Rates

Depreciation- 45% since mid-2018, 30%

The international monetary system refers to the institutional arrangements

Hard Pegs No Separate Currency Board

Floating Floating Free floating

Evolution of the International Monetary System

• Rupee remained one of the most affected and worst-performing emerging

• Why did the rupee depreciate in 2020?

• Exports during April-March 2020-21, however, dipped by 7.4 per cent to

• imports contracted by 10.89 per cent to $306.67 billion

• The U.S. Dollar Index (DXY)

• Floating exchange rates are valued according to the market forces of

• In a flexible exchange rate system the current account deficit can

Help countries recover from financial crises

Disadvantages of a floating exchange rate regime- volatility, uncertainty,

• Similarly these countries may not be able to increase interest rates to

• So some kind of monetary stability is maintained but it could be at a

• Monetary discipline comes at the cost of monetary independence.

• Smaller countries find pegging their currencies to the dominant

• The biggest drawback for such currencies is that many times

• Speculation and volatility is avoided, and a pegged currency brings

• Higher exports due to depreciation of a currency can actually be the

• Floating exchange rates are valued according to the market forces of

• In a flexible exchange rate system the current account deficit can

Help countries recover from financial crises

Disadvantages of a floating exchange rate regime- volatility, uncertainty,

• Similarly these countries may not be able to increase interest rates to

• So some kind of monetary stability is maintained but it could be at a

• Monetary discipline comes at the cost of monetary independence.

• Smaller countries find pegging their currencies to the dominant

• The biggest drawback for such currencies is that many times

• Speculation and volatility is avoided, and a pegged currency brings