It’s a matter of national prestige and power, much like votes in the UN Human Rights Council or student government elections. It tells you how powerful and popular you are, but that’s different from the report having any real impact.

But it looks like the phenomenon of souvereign national states under democratic regimes is rather at odds with endowing any suprantional instution with credibility. Even the EU is struggling with this: opportunistic politicians (the only kind that survives) have the low cost option of blaming incumbents for being too generous to foreigners.

The case of the Chinese reports is interesting but there may be a range of explanations, not all indicating rational (I mean the peculiar form or rationality that drives policy decisions there) strategic activity in an international arena. Increasingly, Chinese officials have to look at the domestic and international arenas in combination and that could be difficult, and in their set-up simply lead to non-action. Earlier remarks on policy space dynamics apply.

Why exactly? Routine household shopping on four continents during the past two years (shoes, clothing, toys, computers) all said Made In China. If they stop subsidizing jobs in the export sector, do we have to go barefoot?

AJ — I very much agree with your points.

Pseudorandom — the IMF articles require that member countries subject themselves to annual assessment by the IMF. They do not require that the report be published. indeed, for a long time the norm was that these reports were not published. Not the norm is that they are, but it isn’t a requirement of membership.

There is this quote attributed to Henry Kissinger that academic politics is so bitter because the stakes are so low. I’m sure the IMF’s reports are important to people associated with the IMF, I just can’t see why anyone outside should care about them.

Specifically, Article IV of the IMF Articles of Agreement requires that countries “avoid manipulating exchange rates or the international monetary system in order to prevent effective balance of payments adjustment or to gain an unfair competitive advantage over other members.”

If the IMF continues to ignore their own agreement, there is a strong possibility that the dollar will collapse throwing the entire international monetary system that it was designed to stabilize into incredible turmoil.

In our book Trading Away Our Future ( http://www.idealtaxes.com ) we point out that if countries want to build reserves, they don’t have to build up their stashes of foreign currencies, they could simply buy IMF credits. The IMF could then lend their money to the countries desperate for infrastructure such as Haiti. As far as the world is concerned, it would be much better if China’s savings were loaned to the poorest countries of the world instead of to the richest.

Howard Richman
http://www.tradeandtaxes.blogspot.com

The main reason in my opinion is Brad’s comment:
“Deficit countries need to depreciate against surplus countries, and that is hard so long as surplus countries peg to the currency of a big debtor.”

Floating exchange rates are the final means of “punishing” a country when things go awry, and then forcing real changes in behavior and the structure of the economy. Or the flip side, floating rates moderate things like rampant speculation in markets and help limit too much capital investment by business. In theory at least they should be a stabilizing influence on local economies and markets.

Some think that Dollar Hegemony is a wonderful thing and has created economic miracles in the US but, as we are beginning to realize, the lack of necessary adjustment is increasing the chances of a catastrophic event.

But from a pragmatic standpoint, we have this big problem now, and how do you fix it without breaking things completely?

Dollar pegging has been a far too popular approach taken by Asian countries that adopt an export driven “economic model”. Not too hard to figure out why after you get past a layman’s natural skepticism that slowly wiping out your currency is the path to riches. It seems to work better for central banks and governments than working people (poor ones in Asia and unemployed ones in the US) and real investors.

But central banks can print their own currencies like crazy, and also recycle dollars back to the US in a concentrated way; all piled into two “assets”, treasuries or GSE paper. And if the GSE paper smells funny, looks like we are getting close to swapping it for treasuries. So we have BW2 and dollar pegging to thank for that the way I see it.

So maybe we need some sort of global cop to tell countries they aren’t allowed to do that, but just typing this sentence makes me feel like I’m wishing for some silly dream to come true.

Disclosure:

I’m retired and would like a low risk investment that pays a little more than the inflation rate. I do NOT want a job. I WANT to be a capitalist !

— I agree that the IMF’s influence is now much more limited, but i suspect an IMF report that indicated that China was undervalued in real terms would have an impact. China certainly seems to want to avoid the release of such a report.

(The Saudis have never allowed the IMF to release its assessment of Saudi policy) —

But, it seems as though the currency peg may be even more distorting in terms of investment due to the second order policy adjustments required to keep it in effect. Yet, so far, nothing much has been said.

I’d prefer not see wide spread threats of outright protectionism, but with the free trade advocates shredding their own credibility that seems to be the most likely option. The best case scenario may be for China’s Asian neighbors to persuade them to begin adjusting.

Yes, you are right, at least in part.

But I can´t help noticing the irony: from sole superpower to subprime borrower subjected to predatory lending in less than a decade. The barabrians are really at the gates…