Stability and Prosperity in Monetary Union

The stability of the currency is being maintained.

The national currency the manat has been stabilized.

The National Bank was strongly committed to low inflation and stable currency targets.

Global coordination of economic policies was also essential for the promotion of macroeconomic stability, especially in the monetary and financial markets.

One approach centers on prices, with the consumer price index appearing to be the most obvious indicator. The problem is that the relationship between the money supply (which ultimately determines the value of money) and prices is an unstable one.

A country wide currency exchange was completed in January 2003, introducing a new currency controlled exclusively by the Central Bank, thereby providing a basis for economic stability.

Unfortunately, monetary policymakers effort to operationalize the objective of ensuring that the value of money remains stable has taken on a life of its own. Today s economics textbooks assume that a primary objective of central banks is to stabilize consumer prices, rather than the value of money.

After inflation and unstable government, Charles de Gaulle rebuilt the French political system, but also the idea of the French nation, by championing currency stability. He explicitly went back to the legacy of Napoleon, and argued that France could be stable only with a strong currency.

Furthermore, we have achieved a positive growth rate of 5.5 per cent and stability in the rate of exchange of the national currency.

Our stable macro economic situation is the outcome of a mix of prudent monetary and fiscal policies.

(i) Introduction of reforms in the international monetary system, so as to stabilize exchange rates and discourage international financial speculation

Monetary stabilization programmes and currency controls introduced since 1992 have managed to reduce inflation, GDP is on the rise and gradual recovery in production and trade is taking place (see table 1).

18. The ability to use monetary policy for domestic stabilization purposes is inseparable from the choice of exchange rate regime.

The International Monetary Fund (IMF) reported that countries in this interim stage encountered difficulties in maintaining macroeconomic stability.4

For starters, the lag time between changes in the money supply and price movements is long, variable, and unpredictable. Given this, targeting consumer prices in the next 2 3 years will not guarantee that the value of money remains stable in the long term.

It is time for central banks to accept this fact and adopt a comprehensive, long term monetary policy approach even if it means that, in the short term, consumer price inflation deviates from what is currently understood as price stability. Temporary fluctuations in a narrow and imprecisely measured CPI are a small price to pay to secure the long term stability of money.

Macroeconomic indicators overall continued to be favourable inflation remained at a low level (10 per cent) and the currency remained stable.

At the same time, the economic crisis in Mexico in 1994 and currency fluctuations currently affecting the South East Asian region revealed the need to recognize the potentially adverse impact of fluctuations among the major international currencies on developing countries.

We have successfully conducted a set of stringent measures in the credit and monetary and budget and tax spheres which has helped contain inflation and stabilize the economy.

In Algeria, real depreciations appear to have been accompanied by constant real wages and falling labour productivity.

Monetary policy needs to look beyond its core focus on low and stable inflation and pay much greater attention to financial stability. The debate now is how, exactly, to factor this imperative into monetary policy, and how to coordinate the work of monetary and regulatory authorities.

But that's just part of the story. You have a similar trend with currencies currencies going through an extreme time of stability.

That was inconsistent with the Articles of Agreement of the International Monetary Fund (IMF).

The issue is not merely one of fairness. According to the Belgian economist Robert Triffin, an international monetary system based on a national currency is inherently unstable, owing to the resulting tensions among the inevitably divergent interests of the issuing country and the international system as a whole.

The International Monetary Fund continued to assist the Government, through a close policy dialogue, in maintaining macroeconomic stability, especially in the area of fiscal policy.

For a given supply of money, an increase in the production of goods will increase the value of a currency, because each unit will buy more goods. Likewise, increasing the supply of money relative to a fixed amount of output will lead to a decline in the purchasing power of money, as each currency unit buys fewer goods.

As it is, the valuation of a country s currency is not so much determined by the performance of its economy as by the forces of supply and demand on foreign exchange markets. For a given supply of money, an increase in the production of goods will increase the value of a currency, because each unit will buy more goods.

(c) Counterfeiting currency, as defined in the International Convention for the Suppression of Counterfeiting Currency of 1929 League of Nations Treaty Series, vol. 112, p. 171.

Central banks have been forced onto a policy path that is far from ideal not least because they increasingly risk inciting some of the zero sum elements of an undeclared currency war. With the notable exception of the Fed, central banks fear the impact of an appreciating currency on domestic companies' competitiveness too much not to intervene indeed, an increasing number of them are working actively to weaken their currencies.

Today s financial turmoil and economic downturn are highlighting the EMU s advantages in several important ways. First, the euro has eliminated the possibility of exchange rate turbulence and speculative currency attacks that more vulnerable economies could have expected in the current turmoil.

Non convertible

Non convertible currency

At the same time, ways must be found, including through the International Monetary Fund (IMF), to tackle problems arising from the potential volatility of some of the private capital flows and the resulting destabilization in recipient countries.

In Morocco, real wages have been stable despite significant and continuing real appreciations since 1986.

China s monetary and foreign exchange policies are now in a state of limbo. Instead of stable guidelines with a well defined monetary (exchange rate) anchor and a firm mandate to complete financial liberalization, China s macroeconomic and financial decision making will be ad hoc and anybody s guess as was true, and still is, for Japan.

China s monetary and foreign exchange policies are now in a state of limbo. Instead of stable guidelines with a well defined monetary (exchange rate) anchor and a firm mandate to complete financial liberalization, China s macroeconomic and financial decision making will be ad hoc and anybody s guess as was true, and still is, for Japan.

Decisions of the private sector to move money in or out of a currency are matters of judgement in an uncertain situation subject to dramatic changes.

Political uncertainty lack of stable and rational rules of the game, and high inflation were considered most disturbing.

First, the ECB s mandate enshrined in the Maastricht Treaty is to deliver and maintain price stability. Focusing on the goal of maintaining a low and stable rate of inflation is the best contribution that monetary policy can make to economic welfare, sustainable growth, and job creation.

A useful reserve currency must be limited in supply, but have sufficient elasticity to satisfy the large, unpredictable needs that may arise in a turbulent financial world. Above all, confidence in its stability and availability must be maintained, which highlights the practicality of a national currency, or perhaps a variety of national currencies.

Among the elements of a supportive external environment are global financial stability and promoting that is central to our work in the IMF and certainly also more open trade.

Stable money, too, is the foundation of political order. We should not allow ourselves to be so overwhelmed by today s crisis that we forget that.

The IMF s management shares many strategic considerations repeatedly raised by the Bundesbank, which has argued that the Fund should limit its activities to its core mandate promoting monetary and financial stability. Thus, the IMF s role in the international monetary system should not go beyond applying its key instruments for promoting macroeconomic stability surveillance and economic policy advice.

It must be emphasized that a system based on competing reserve currencies would not solve the instability and inequities of the current system. In fact, it would add another one the instability of the exchange rates among major reserve currencies.