IMF’s exchange rate regime classifications
The IMF classifies all exchange rate regimes into eight specific categories.The eight categories span the spectrum of exchange rate regimes from rigidly fixed to independently floating.
1.Exchange arrangements with no separate legal tender.The currency of another country circulates as the sole legal tender or the member belongs to a monetary or currency union in which the same legal tender is shared by the members of the Union.
2.Currency board arrangements.A monetary regime based on an implicit 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.
3.Other conventional fixed peg arrangements.The country pegs its currency (formally or de facto)at a fixed rate to a major currency or a basket of currencies (a composite), where the exchange rate fluctuates within a narrow margin or at most composite), where the exchange rate fluctuates within a narrow margin or at most ±1％ around a central rate.
4.Pegged exchange rates within horizontal bands.The value of the currency is maintained within margins of fluctuation around a formal or de facto fixed peg that are wider than ±1％ around a central rate.
5.Crawling pegs.The currency is adjusted periodically in small amounts at a fixed, preannounced rate or in response to changes in selective quantitative indicators.
6.Exchange rates within crawling pegs.The currency is maintained within certain fluctuation margins around a central rate that is adjusted periodically at a fixed preannounced rate or in response to changes in selective quantitative indicators.
7.Managed floating with no preannounced path for the exchange rate.The monetary authority influences the movements of the exchange rate through active intervention in the foreign exchange market without specifying, or precommitting to, a preannounced path for the exchange rate.
8.Independent floating.The exchange rate is market-determined, with any foreign exchange intervention aimed at moderating the rate of change and preventing undue fluctuations in the exchange rate, rather than establishing a level for it.
The most prominent example of a rigidly fixed system is the euro area, in which the euro is the single currency for its member countries.However, the euro itself is an independently floating currency against all other currencies.Other examples of rigidly fixed exchange regimes include Ecuador and Panama, which use the US dollar as their official currency; the Central African Franc (CFA)zone, in which countries such as Mali, Niger, Senegal, Cameroon and Chad among others use a single common currency (the franc, tied to the euro)and the Eastern Caribbean Currency Union (ECCU), whose members use a single common currency (the Eastern Caribbean dollar).
At the other extreme are countries with independently floating currencies.These include many of the most developed countries, such as Japan, the United States, the United Kingdom, Canada, Australia, New Zealand, Sweden, and Switzerland.
However, this category also includes a number of unwilling participants—emerging market countries that tried to maintain fixed rates but were, forced by the marketplace to let them float.Among these are the Republic of Korea, the Philippines, Brazil, Indonesia, Mexico and Thailand.It is important to note that only the last two categories, including 80 of the 186 countries covered, are actually “floating” in any real degree.Although the contemporary international monetary system is typically referred to as a “floating regime”, it is clearly not the case for the majority of the world’s nations.