aMF Working Paper Revised system for the classification of Exchange Rate Arrangements Karl Habermeier, Annamaria Kokenyne Romain veyrune, and harald anderson INTERNATIONAL MONETARY FUND
WP/09/211 Revised System for the Classification of Exchange Rate Arrangements Karl Habermeier, Annamaria Kokenyne, Romain Veyrune, and Harald Anderson
o 2009 International Monetary Fund WP/09/211 IMF Working Paper Monetary and Capital markets department Revised system for the Classification of Exchange rate arrangements Prepared by Karl Habermeier, Annamaria Kokenyne, Romain Veyrune, and Harald anderson Authorized for distribution by Karl Habermeier September 21, 2009 This version November 17 2009 Abstract Since 1998, the staff of the International Monetary Fund has published a classification of countries' de facto exchange rate arrangements. Experience in operating this classification system has highlighted a need for changes. The present paper provides information on revisions to the system in early 2009. The changes are expected to allow for greater consistency and bjectivity of classifications across countries, expedite the classification process, conserve resources, and improve transparency This Working Paper should not be reported as representing the views of the me. The views expressed in this Working Paper are those of the author(s)and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s)and are published to elicit comments and to further debate JEL Classification Numbers. E0. E5. E6F31. F53 Keywords: exchange rate regime, exchange rate arrangement, classification, taxonomy, de facto, de jure Authors'E-mail khabermeier @imf org, akokenyne( @imf. org, rveyrune(@imf.org Addresses harald anderson @utoronto . ca
© 2009 International Monetary Fund WP/09/211 IMF Working Paper Monetary and Capital Markets Department Revised System for the Classification of Exchange Rate Arrangements Prepared by Karl Habermeier, Annamaria Kokenyne, Romain Veyrune, and Harald Anderson Authorized for distribution by Karl Habermeier September 21, 2009 This version: November 17, 2009 Abstract Since 1998, the staff of the International Monetary Fund has published a classification of countries’ de facto exchange rate arrangements. Experience in operating this classification system has highlighted a need for changes. The present paper provides information on revisions to the system in early 2009. The changes are expected to allow for greater consistency and objectivity of classifications across countries, expedite the classification process, conserve resources, and improve transparency. This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate. JEL Classification Numbers: E0, E5, E6, F31, F53 Keywords: exchange rate regime, exchange rate arrangement, classification, taxonomy, de facto, de jure Authors’ E-Mail Addresses: khabermeier@imf.org, akokenyne@imf.org, rveyrune@imf.org, harald.anderson@utoronto.ca
Contents L. Introduction II. Principles Objectives and Operational Considerations 346 IlL. Need for Change ....................... V. The Revised De Facto Classification System Tables 1. Shares of Classifications Using the 1998 and 2009 Methodologies FI 1. Development of the Residual Category, 1975-2008 2. Decision Process for Revised Classification Methodology Appendices I Revised Classification System-Definitions of Categories I L. The Evolution of the imf's classification taxonomies 15
2 Contents Page I. Introduction ............................................................................................................................3 II. Principles, Objectives, and Operational Considerations .......................................................4 III. Need for Change ..................................................................................................................6 IV. The Revised De Facto Classification System......................................................................7 Tables 1. Shares of Classifications Using the 1998 and 2009 Methodologies......................................4 Figures 1. Development of the Residual Category, 1975–2008 .............................................................6 2. Decision Process for Revised Classification Methodology...................................................9 Appendices I. Revised Classification System—Definitions of Categories .................................................11 II. The Evolution of the IMF’s Classification Taxonomies.....................................................15
. INTRODUCTION Since 1998, the staff of the International Monetary Fund(IMf) has published a classification of countries' de facto exchange rate arrangements. Experience in operating thi classification system has highlighted several challenges, notably the residual category of managed floating has become overly heterogeneous; and intervention practices, which are used in characterizing arrangements, have become increasingly complex, while adequate data on intervention are sometimes not available The existing IMF staff classification system has been modified to address these and other issues(see Appendix I for the new definitions ). The revised classification will be published in the 2009 Annual Report on Exchange Arrangements and Exchange Restrictions (AREAER)and in the IMF's 2009 Annual Report. Specifically, the 2009 AREAER will Intervening period. The revised classification of member countries'arrangements is also a include the revised classification at end-April 2009 and end-April 2008, and changes in the being used in all Article IV staff reports issued on or after February 1, 2009. It is intended to evise the classification series backward in time. Country authorities have the opportunity to comment on changes in classifications and discuss them with IMF staff before they are publish Key changes to the classification system include replacing the current distinction between managed and independent floating with two new categories: floating and free floating, with clearer definitions drawing a distinction between formal fixed and crawling pegs, and arrangements that re merely peg-like or crawl-like; increasing the transparency of the system by basing it on rules that can be implemented using specified information, with a more clearly circumscribed role for These changes are expected to allow for greater consistency and objectivity of classifications across countries, expedite the classification process, co and impr transparency, with benefits for the IMF's bilateral and multilateral surveillance The overall composition of arrangements using the previous and revised classification systems is shown in Table 1, below A chronology of the IMF's methodologies for classifying exchange rate arrangements is given in Appendix Il
3 I. INTRODUCTION Since 1998, the staff of the International Monetary Fund (IMF) has published a classification of countries’ de facto exchange rate arrangements.1 Experience in operating this classification system has highlighted several challenges, notably: the residual category of managed floating has become overly heterogeneous; and intervention practices, which are used in characterizing arrangements, have become increasingly complex, while adequate data on intervention are sometimes not available. The existing IMF staff classification system has been modified to address these and other issues (see Appendix I for the new definitions). The revised classification will be published in the 2009 Annual Report on Exchange Arrangements and Exchange Restrictions (AREAER) and in the IMF’s 2009 Annual Report. Specifically, the 2009 AREAER will include the revised classification at end-April 2009 and end-April 2008, and changes in the intervening period. The revised classification of member countries’ arrangements is also being used in all Article IV staff reports issued on or after February 1, 2009. It is intended to revise the classification series backward in time. Country authorities have the opportunity to comment on changes in classifications and discuss them with IMF staff before they are published. Key changes to the classification system include: replacing the current distinction between managed and independent floating with two new categories: floating and free floating, with clearer definitions; drawing a distinction between formal fixed and crawling pegs, and arrangements that are merely peg-like or crawl-like; increasing the transparency of the system by basing it on rules that can be implemented using specified information, with a more clearly circumscribed role for judgment. These changes are expected to allow for greater consistency and objectivity of classifications across countries, expedite the classification process, conserve resources, and improve transparency, with benefits for the IMF’s bilateral and multilateral surveillance. The overall composition of arrangements using the previous and revised classification systems is shown in Table 1, below. 1 A chronology of the IMF’s methodologies for classifying exchange rate arrangements is given in Appendix II
Table 1. shares of Classifications Using the 1998 and 2009 Systems as of April 30, 2008 1998 de facto system 2009 de facto system Arrangement with no 10 Exchange arrangement with separate legal tender no separate legal tender Currency board 13 Currency board arrangement Soft peg Conventional fixed peg 68 Conventional pegged Stabilized of which: Intermediate pegs 13 11 Pegged exchange rate 3 Pegged exchange rate within vithin horizontal bands horizontal bands Crawling band 2 Crawl-like arrangement Managed floating 44 Floatin Independently floating 40 Free floating Other managed arrangements(residual na Total Source: Staff calculations. Information for end-April 2009 will be published in the 2009 Annual Report on Exchange Arrangements and Exchange Restrictions(AREAER), forthcoming IL. PRINCIPLES, OBJECTIVES, AND OPERATIONAL CONSIDERATIONS The classification of exchange rate arrangements is based on three broad principles capturing the outcome of actual exchange rate policies on a de facto basis as opposed to the announced or de jure arrangement avoiding value judgments on the appropriateness of monetary policies or the choice of adopting a backward looking approach that seeks to describe the outcome of past exchange rate policies and does not imply statements or views on future or intended
4 Table 1. Shares of Classifications Using the 1998 and 2009 Systems, as of April 30, 2008 1998 de facto system 2009 de facto system Hard pegs 23 23 Arrangement with no separate legal tender 10 Exchange arrangement with no separate legal tender 10 Currency board arrangement 13 Currency board arrangement 13 Soft pegs 81 78 Conventional fixed peg 68 Conventional pegged arrangement 45 Stabilized arrangement 22 of which: Intermediate pegs 13 11 Pegged exchange rate within horizontal bands 3 Pegged exchange rate within horizontal bands 3 Crawling peg 8 Crawling peg 5 Crawling band 2 Crawl-like arrangement 3 Floating arrangements 84 75 Managed floating 44 Floating 39 Independently floating 40 Free floating 36 Other managed arrangements (residual) n.a. 12 Total 188 188 Source: Staff calculations. Information for end-April 2009 will be published in the 2009 Annual Report on Exchange Arrangements and Exchange Restrictions (AREAER), forthcoming. II. PRINCIPLES, OBJECTIVES, AND OPERATIONAL CONSIDERATIONS The classification of exchange rate arrangements is based on three broad principles: capturing the outcome of actual exchange rate policies on a de facto basis as opposed to the announced or de jure arrangement; avoiding value judgments on the appropriateness of monetary policies or the choice of the exchange rate arrangement; adopting a backward looking approach that seeks to describe the outcome of past exchange rate policies and does not imply statements or views on future or intended policies
Taking these principles into account, the objectives of the de facto classification of exchang ate arrangements are to support IMF surveillance by bringing greater transparency, consistency, and evenhandedness to the description of the results of members' policy actions; help imf staff to identify institutional and operational obstacles to the achievement of he authorities' policy objectives; and provide a summary description that facilitates cross country analysis From an operational perspective, a de facto classification system should reflect the wide range of exchange rate arrangements across the Fund membership with no overlap among categories consistently classify countries according to transparent and verifiable rules; and be operationally feasible without ambiguity or unnecessary delays This said, no classification system can capture all aspects of a country' s exchange rate arrangement. By its nature, a classification system can only reflect certain basic features, the most important of which is the extent to which the exchange rate is determined by markets rather than official action, a distinction which will often be reflected in the flexibility of the exchange rate. Thus, the classification system needs to be complemented by a more detailed description of exchange rate policies 2 While the de facto classification supports surveillance, it is distinct from the assessment of exchange rate olicies under the 2007 Decision. Surveillance must analyze members' exchange rate policies, with a view to providing (i)a clear description of these policies--supported by the de facto classification; and (ii)an assessment of the consistency of these policies with the Principles for the Guidance of Members outlined in the 2007 Decision. These two judgments must be underpinned by the same analysis and understanding of the member's policies, but ultimately consistency with the Principles will be assessed for exchange rate policies they arise, regardless of the de facto classification assigned to the arrangement
5 Taking these principles into account, the objectives of the de facto classification of exchange rate arrangements are to: support IMF surveillance by bringing greater transparency, consistency, and evenhandedness to the description of the results of members’ policy actions;2 help IMF staff to identify institutional and operational obstacles to the achievement of the authorities’ policy objectives; and provide a summary description that facilitates cross country analysis. From an operational perspective, a de facto classification system should: reflect the wide range of exchange rate arrangements across the Fund membership with no overlap among categories; consistently classify countries according to transparent and verifiable rules; and be operationally feasible without ambiguity or unnecessary delays. This said, no classification system can capture all aspects of a country’s exchange rate arrangement. By its nature, a classification system can only reflect certain basic features, the most important of which is the extent to which the exchange rate is determined by markets rather than official action, a distinction which will often be reflected in the flexibility of the exchange rate. Thus, the classification system needs to be complemented by a more detailed description of exchange rate policies. 2 While the de facto classification supports surveillance, it is distinct from the assessment of exchange rate policies under the 2007 Decision. Surveillance must analyze members’ exchange rate policies, with a view to providing (i) a clear description of these policies—supported by the de facto classification; and (ii) an assessment of the consistency of these policies with the Principles for the Guidance of Members outlined in the 2007 Decision. These two judgments must be underpinned by the same analysis and understanding of the member’s policies, but ultimately consistency with the Principles will be assessed for exchange rate policies as they arise, regardless of the de facto classification assigned to the arrangement
II. NEED FOR CHANGE As noted, two key motivations for change were the overly heterogeneous nature of the residual category of managed floating(Figure 1)and more complex intervention practices Figure 1. Development of the Residual Category, 1975-2008/2/ (In percent of classified countries; quarterly data 1977 taxon 1975 taxonomy Source: areaer database 1/ For the 1975 taxonomy, Independently floating, for the 1977 taxonomy, Other; for the 1982 taxonomy, Other managed floating, and for the 1997 taxonomy," Managed floating with no predetermined path for the exchange rate 2/End-April 2008 As the number of countries more actively managing their exchange rate has again increased in recent years, many have resisted a reclassification as managed floats or fixed pegs. This has posed significant operational problems the distinction between independent floating and managed floating under the existing classification system relied too heavily on judgment; and many countries have objected to a change in classification from a managed float to a fixed peg, arguing that they have no commitment to defending a particular level of he exchange rate As to intervention practices, a growing number of countries are now able to switch betwee domestic and foreign currency debt on commercial terms, while others have had income particular from oil, that may or may not be channeled through the central bank, and have been building pools of reserve-like assets in the form of oil stabilization funds or longer-term investment funds. As a result, conventional measures of intervention may understate the degree to which floating exchange rates in some countries are managed. The problems are compounded by the lack of availability of data on foreign exchange Intervention
6 III. NEED FOR CHANGE As noted, two key motivations for change were the overly heterogeneous nature of the residual category of managed floating (Figure 1) and more complex intervention practices. Figure 1. Development of the Residual Category, 1975–2008 1/ 2/ (In percent of classified countries; quarterly data) 1975 taxonomy 1977 taxonomy 1982 taxonomy 1998 taxonomy 0 5 10 15 20 25 30 35 1975 1979 1983 1987 1991 1995 1999 2003 2007 0 5 10 15 20 25 30 35 Source: AREAER database. 1/ For the 1975 taxonomy, “Independently floating;” for the 1977 taxonomy, “Other;” for the 1982 taxonomy, “Other managed floating;” and for the 1997 taxonomy, “Managed floating with no predetermined path for the exchange rate.” 2/ End-April 2008. As the number of countries more actively managing their exchange rate has again increased in recent years, many have resisted a reclassification as managed floats or fixed pegs. This has posed significant operational problems: the distinction between independent floating and managed floating under the existing classification system relied too heavily on judgment; and many countries have objected to a change in classification from a managed float to a fixed peg, arguing that they have no commitment to defending a particular level of the exchange rate. As to intervention practices, a growing number of countries are now able to switch between domestic and foreign currency debt on commercial terms, while others have had income flows, in particular from oil, that may or may not be channeled through the central bank, and have been building pools of reserve-like assets in the form of oil stabilization funds or longer-term investment funds. As a result, conventional measures of intervention may understate the degree to which floating exchange rates in some countries are managed. The problems are compounded by the lack of availability of data on foreign exchange intervention
IV. THE REVISED DE FACTO CLASSIFICATION SYSTEM The revisions do not represent a fundamental overhaul of the system, but instead seek to strengthen it while maintaining continuity. In particular, the distinction between hard pegs, soft pegs, and floats, which is widely accepted in the economics profession, has been preserved. The revised definitions of the various categories are given in Appendix I Whenever consistent with observed policies and outcomes countries are classified in line with their de jure or declared exchange rate arrangements. Information on de jure arrangements is being systematically collected for the IMF membership as part of the AREAER exercise. Where the description of the de jure arrangement can be empirically confirmed over at least the previous six months, and where the de jure arrangement is the most appropriate description of the arrangement, the country is classified in the same way on a de facto basis. It is important to note that hard pegs, such as currency boards or formal dollarization, are always and only confirmed de jure arrangements, as are conventional fixed pegs, crawling pegs, and pegged exchange rates within horizontal bands(the last is a very specific de jure and de facto arrangement found mainly in recent European Union(EU) accession countries) In some countries, however, observed policies and outcomes will not be consistent with the de jure arrangement. In these cases, it is necessary to determine the appropriate de facto classification. In order to limit the potential for controversy that is inevitable in such cases the definitions and underlying criteria have been simplified and clarified. The process involves three basic steps(see also Figure 2) a distinction is first to be drawn between de facto arrangements that are floating (market-determined) and those that are not The non-floating de facto arrangements are subdivided into only two categories tabilized and crawl-like. These categories in turn are defined in terms of more easily verifiable quantitative and qualitative criteria. For many purposes of economic analysis, stabilized arrangements can be considered as peg-like The floating category is further refined by identifying a subset as free floating with classification as a free float requiring that specific quantitative and qualitative criteria are met. This change substantially reduces or eliminates the ambiguities inherent in the current distinction between independent and managed floats Any arrangement not falling into any of these categories is classified as other managed arrangement, which is the new residual categor <s By Article IV, Section 2 (a)of the IMF's Articles of Agreement, each member is required to notify the IMF of exchange arrangements it intends to apply and to notify the imf promptly of any changes in its exchange arrangements. Paragraph 16 of the 2007 Surveillance Decision emphasizes this requirement in the context of surveillance In the AREAER, countries are being asked to self-describe their exchange arrangement. Countri may also assign themselves to one of the classification categories, on a voluntary basis
7 IV. THE REVISED DE FACTO CLASSIFICATION SYSTEM The revisions do not represent a fundamental overhaul of the system, but instead seek to strengthen it while maintaining continuity. In particular, the distinction between hard pegs, soft pegs, and floats, which is widely accepted in the economics profession, has been preserved. The revised definitions of the various categories are given in Appendix I. Whenever consistent with observed policies and outcomes, countries are classified in line with their de jure or declared exchange rate arrangements. Information on de jure arrangements is being systematically collected for the IMF membership as part of the AREAER exercise.3 Where the description of the de jure arrangement can be empirically confirmed over at least the previous six months, and where the de jure arrangement is the most appropriate description of the arrangement, the country is classified in the same way on a de facto basis. It is important to note that hard pegs, such as currency boards or formal dollarization, are always and only confirmed de jure arrangements, as are conventional fixed pegs, crawling pegs, and pegged exchange rates within horizontal bands (the last is a very specific de jure and de facto arrangement found mainly in recent European Union (EU) accession countries). In some countries, however, observed policies and outcomes will not be consistent with the de jure arrangement. In these cases, it is necessary to determine the appropriate de facto classification. In order to limit the potential for controversy that is inevitable in such cases, the definitions and underlying criteria have been simplified and clarified. The process involves three basic steps (see also Figure 2): A distinction is first to be drawn between de facto arrangements that are floating (market-determined) and those that are not. The non-floating de facto arrangements are subdivided into only two categories: stabilized and crawl-like. These categories in turn are defined in terms of more easily verifiable quantitative and qualitative criteria. For many purposes of economic analysis, stabilized arrangements can be considered as peg-like. The floating category is further refined by identifying a subset as free floating, with classification as a free float requiring that specific quantitative and qualitative criteria are met. This change substantially reduces or eliminates the ambiguities inherent in the current distinction between independent and managed floats. Any arrangement not falling into any of these categories is classified as other managed arrangement, which is the new residual category. 3 By Article IV, Section 2(a) of the IMF’s Articles of Agreement, each member is required to notify the IMF of the exchange arrangements it intends to apply and to notify the IMF promptly of any changes in its exchange arrangements. Paragraph 16 of the 2007 Surveillance Decision emphasizes this requirement in the context of surveillance. In the AREAER, countries are being asked to self-describe their exchange arrangement. Countries may also assign themselves to one of the classification categories, on a voluntary basis
The most critical decision in the modified de facto classification scheme is thus whether or not the arrangement is floating. The criterion for a float is that the exchange rate is largely market-determined. The observed behavior of the exchange rate, complemented by information on the monetary and foreign exchange policy actions taken by country authorities(notably intervention), allow for a judgment to be made in most cases as to whether the exchange rate is determined primarily by market forces or by official policy actions As noted, once a de facto exchange rate arrangement has been identified as floating, it can be further qualified as free floating if there has been no intervention over the past six months, with the exception of limited intervention to address disorderly market conditions.If IMF staff responsible for the classification do not have sufficient information and data to verify whether this criterion has been met, the arrangement is classified as floating. Data and its availability, rather than subjective judgment, thus play the key role in assigning a country to the free floating category Those de facto arrangements not identified as floating will usually be some type of soft peg As noted previously, a distinction is made in the revised classification system between those pegs that are confirmed de jure arrangements and those for which the de facto and the de jure arrangements differ. The latter are called stabilized arrangements or cranvl-like arrangements, to emphasize that they do not necessarily entail a policy commitment. This terminology is intended to provide a description of the outcome of exchange rate policies looking backward(the exchange rate is not largely market determined and meets certain verifiable statistical criteria), while obviating the need for subjective interpretation of the authorities' policy intentions If the statistical criteria for a soft peg are met, there is a presumption that the arrangement is not floating. Experience has shown that an exchange rate meeting the statistical criteria for a soft peg usually does so as a result of official action, or because the economy has only been subject to small shocks. To make a judgment on the nature of the authorities policy actions, IMF staff may request specific information, including on direct and indirect intervention, foreign exchange market turnover(both spot and derivatives), reserve level and currency composition, interest rates, the foreign exchange activities of public enterprises and sovereign wealth funds, debt composition and debt management policies, macroeconomic data of sufficient reliability, and any other items that may be relevant in a particular instance Consultations with the country authorities have an important role to play. In case of doubt, the statistical classification criteria remain determinative One cannot judge whether an exchange rate is market determined solely by looking at its variability. The definition allows for 3 instances of intervention, each lasting no more than 3 business days. Normally, disorderly market conditions last for only 1 or 2 days
8 The most critical decision in the modified de facto classification scheme is thus whether or not the arrangement is floating. The criterion for a float is that the exchange rate is largely market-determined. The observed behavior of the exchange rate, complemented by information on the monetary and foreign exchange policy actions taken by country authorities (notably intervention), allow for a judgment to be made in most cases as to whether the exchange rate is determined primarily by market forces or by official policy actions.4 As noted, once a de facto exchange rate arrangement has been identified as floating, it can be further qualified as free floating if there has been no intervention over the past six months, with the exception of limited intervention to address disorderly market conditions.5 If IMF staff responsible for the classification do not have sufficient information and data to verify whether this criterion has been met, the arrangement is classified as floating. Data and its availability, rather than subjective judgment, thus play the key role in assigning a country to the free floating category. Those de facto arrangements not identified as floating will usually be some type of soft peg. As noted previously, a distinction is made in the revised classification system between those pegs that are confirmed de jure arrangements and those for which the de facto and the de jure arrangements differ. The latter are called stabilized arrangements or crawl-like arrangements, to emphasize that they do not necessarily entail a policy commitment. This terminology is intended to provide a description of the outcome of exchange rate policies looking backward (the exchange rate is not largely market determined and meets certain verifiable statistical criteria), while obviating the need for subjective interpretation of the authorities’ policy intentions. If the statistical criteria for a soft peg are met, there is a presumption that the arrangement is not floating. Experience has shown that an exchange rate meeting the statistical criteria for a soft peg usually does so as a result of official action, or because the economy has only been subject to small shocks. To make a judgment on the nature of the authorities’ policy actions, IMF staff may request specific information, including on direct and indirect intervention, foreign exchange market turnover (both spot and derivatives), reserve level and currency composition, interest rates, the foreign exchange activities of public enterprises and sovereign wealth funds, debt composition and debt management policies, macroeconomic data of sufficient reliability, and any other items that may be relevant in a particular instance. Consultations with the country authorities have an important role to play. In case of doubt, the statistical classification criteria remain determinative. 4 One cannot judge whether an exchange rate is market determined solely by looking at its variability. 5 The definition allows for 3 instances of intervention, each lasting no more than 3 business days. Normally, disorderly market conditions last for only 1 or 2 days
Figure 2. Decision Process for Revised Classification Methodology De jure Ye arrangement De facto= De jure confirmed Ye market Floating Stabilized or crawl-like Yes De facto soft Yo Intervention peg No Other managed arrangement〔 residua) Free floating 1/The figure provides a stylized representation, and includes only the key decisions. The decisions in the classification process begin at the top of the figure and proceed downward Any arrangement that does not fall into any of the categories described above is assigned to the category other managed arrangements. This is a new residual category. As indicated in Table 1, less than 10 percent of the IMF's membership fell into the residual category at end April 2008. In the main, this category captures countries in which the de facto and the de jure arrangement differ, which manage their exchange rates but are not floating, and which exhibit frequent or irregular changes in policies The de facto classification should accurately reflect policy outcomes over the relevant assessment period. However, judgment and consultation with member country authorities are being used to avoid spurious or noisy" changes in classification in borderline cases. To this end, the usual assessment period can be lengthened by up to three months In particular, this category is not equivalent to the managed float category under the existing methodology
9 Figure 2. Decision Process for Revised Classification Methodology 1/ 1/ The figure provides a stylized representation, and includes only the key decisions. The decisions in the classification process begin at the top of the figure and proceed downwards. Any arrangement that does not fall into any of the categories described above is assigned to the category other managed arrangements. This is a new residual category. As indicated in Table 1, less than 10 percent of the IMF’s membership fell into the residual category at endApril 2008.6 In the main, this category captures countries in which the de facto and the de jure arrangement differ, which manage their exchange rates but are not floating, and which exhibit frequent or irregular changes in policies. The de facto classification should accurately reflect policy outcomes over the relevant assessment period. However, judgment and consultation with member country authorities are being used to avoid spurious or “noisy” changes in classification in borderline cases. To this end, the usual assessment period can be lengthened by up to three months. 6 In particular, this category is not equivalent to the managed float category under the existing methodology. De jure arrangement confirmed De facto = De jure Largely market determined De facto soft peg Intervention Floating Free floating Other managed arrangement (residual) Stabilized or crawl-like Yes Yes Yes No No No No Yes