The Board of the International Monetary Fund yesterday approved a $16 billion loan facility for Ukraine, with $4.5 billion being drawn immediately. Perhaps the main news, at least for anyone not paying close attention to the details of the package as it evolved, is that any attempt at an exchange rate peg for Ukraine is dead. The IMF announcement makes repeated references to a “flexible exchange rate regime” and in particular –
Base money will be the near-term anchor for monetary policy until an inflation targeting regime can be implemented.
In other words, targets will be set for the growth of a narrow definition of the money supply and that will be the only explicit basis for interest rate adjustments. Among other things, the Fund doesn’t want the central bank to be blowing reserves on a futile defence of a particular level of the exchange rate. And money targets are back in style. It’s the 1970s all over again.
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Feed: A Fistful of Euros
November 6th, 2008 at 8:04 pm
If I understand this correctly, the IMF is imposing monetary policies at the same time that many national Governments are moving toward Keynesian measures.
I wonder if the world will move towards distinct monetarist and Keynesian blocs, or will some countries make the Old Labour mistake of trying both; trying to defend their currencies at the same time they are debauching it with Keynesian spending.
It’s been long enough since Callaghan and the IMF that there could be a lot of Governments out there with the illusion that you can inflate without inflation, and the rest of that nonsense.
November 6th, 2008 at 9:41 pm
How do you pursue a Keynesian policy if the government has no credit? It seems to me that these states have no choice.
December 4th, 2008 at 5:04 am
[...] IMF-backed stabilization program in Ukraine barely a month after it was announced. As we noted at the time, the program emphasized a flexible exchange rate, to avoid blowing reserves on a futile defence of [...]