The debate on government debt in the context of possible reforms of the international financial architecture has thus far focused on crisis resolution. This paper seeks to broaden this debate. It asks how government debt could be structured to pursue other objectives, including crisis prevention, international risk-sharing, and facilitating the adjustment of fiscal variables to changes in domestic economic conditions. To that end, the paper considers recently developed analytical approaches t...

Foreign exchange intervention is widely used as a policy tool, particularly in emerging markets, but many facets of this tool remain limited, especially in the context of flexible exchange rate regimes. The Latin American experience can be informative because some of its largest countries adopted floating exchange rate regimes and inflation targeting while continuing to intervene in foreign exchange markets. This edited volume reviews detailed accounts from several Latin American countries...

This note examines the costs and benefits of using two policy instruments—the policy interest rate and sterilized foreign exchange market intervention—in emerging market economies (EMEs) seeking both low inflation and to avoid excessive volatility in exchange rates. The financial crisis has taught us that policymakers need to deliver more than stable consumer prices to achieve sustained and stable growth, and that the instruments at their disposal include more than just the policy interest...

With the global economy beginning to emerge from the financial crisis, capital is flowing back to emerging market countries (EMEs). These flows, and capital mobility more generally, allow countries with limited savings to attract financing for productive investment projects, foster the diversification of investment risk, promote intertemporal trade, and contribute to the development of financial markets. In this sense, the benefits from a free flow of capital across borders are similar to ...

A staff policy note on the above topic is under preparation, and the target delivery date is December 2010. The note will look at a number of issues, including: possible tensions between the prudential case for capital controls and the macroeconomic case; the role of capital controls and other prudential regulations in limiting the risks associated with the boom-bust cycle in capital flows (and the nature of policy prescriptions as a function of the underlying risks facing the economy—cred...

This paper describes recently established deposit insurance systems, identifying emerging trends. In line with previous IMF work on the subject, it argues against the development of "best practices" applicable to all systems. Rather, it stresses the importance of incorporating each country’s individual objectives in adopting a deposit insurance system, as well as that country’s characteristics, to ensure an effective system that minimizes disincentives and distortions to financial sector i...

This volume contains country experiences explained by policy makers and studies by leading experts on causes and consequences of capital flows as well as policies to control these flows. It addresses portfolio flow issues central to open economies, especially emerging markets.

Macrofinancial linkages have long been at the core of the IMF's mandate to oversee the stability of the global financial system. With the advent of the economic crisis, the Fund has drawn on this research in order to contribute to critical debates on the nature of appropriate policy responses at both the national and multilateral levels. The current juncture offers a good opportunity to take stock of this body of research by IMF staff and to share it with a wider audience, particularly sin...

This paper addresses the challenges to prudential supervision in highly dollarized economies, where central banks and supervisors may be constrained in the use of standard money and financial policy tools. The study’s conclusions are the basis of an ongoing policy dialogue with IMF member countries, standard-setters in the financial area, and academia. The paper is part of the policy development work conducted by the IMF’s Monetary and Financial Systems Department.