Rachel Lomax: International monetary stability – can the IMF make a difference? The Gam Gilbert de Botton Award lecture delivered by Ms Rachel Lomax, Deputy Governor of the Bank of England, at Somerset House, London, 1 November 2006. I am grateful to Phil Evans, Gregor Irwin and Gareth Ramsay for their help in preparing this lecture. I would also like to thank Katie Farrant, Andrew Hauser, Jens Larsen, Chris Salmon and Misa Tanaka for their very helpful contributions. *  *  *  Next month will be the thirty-fifth anniversary of the Smithsonian Agreement – hailed at the time by President Nixon as ‘the most significant monetary agreement in the history of the world’. Today it is remembered, if at all, as a stage in the collapse of the Bretton Woods system of pegged exchange rates. But it also inaugurated a period of intense debate about the future of the international monetary system and the role of the International Monetary Fund, which culminated in the Second Amendment to the Fund’s Articles in 1976. Thirty years on, the Fund’s role in promoting international monetary stability is again under scrutiny. The world economy and the international monetary system have been transformed since the late 1970s. The Fund has evolved to deal with new situations and fresh crises. But much more change is needed if it is to meet the challenges of the 21st century. That much is common ground.
In short, what is now needed is a new decision which will provide a comprehensive framework for surveillance; which will approach members’ obligations explicitly from the perspective of external stability; and which will do so in terms which can readily be made operational. And it must be written in clear and unambiguous language. This is a tall order I know – so here are some suggestions. One very simple way of keeping surveillance focused would be to include a ‘selectivity principle’ in a new Decision. This would say that the scope of all surveillance activities should be based on their relevance to external stability: and that what matters is how a member’s policies could affect the rest of the world. The most difficult challenge will be to state members’ commitments in terms that are both general enough to take account of their very different economic circumstances, and specific enough to provide a clear focus for IMF surveillance. Striking the right balance is essential if a new framework is to provide a useful basis for assessing industrialised countries, emerging markets, and developing countries alike in a way that will be accepted as even handed. A good way of meeting this challenge would be to ground surveillance in a more structured analysis of the policy frameworks which countries themselves choose to adopt. The Fund could then focus on identifying areas where a member’s policy frameworks might be unsustainable or inconsistent with external stability, and then offer policy recommendations tailored to the circumstances of the country or countries concerned.