by Edwin M. Truman, Peterson Institute for International Economics
The International Monetary Fund (IMF) plays a substantial regulatory role in the international monetary and financial system. It has been assigned a formal regulatory role in a limited number of areas such as obligations covering exchange rate policies. The Fund has a broader informal role derived from the voluntary consent of its members such as in surveillance over members' financial sector policies and international payments imbalances.
The IMF's regulatory role is unlike that of its member governments within their own jurisdictions. To be effective, the Fund's formal and informal regulation must be constantly nurtured and renewed via peer-review processes. In this context, there are several broadly defined regulatory challenges for the IMF and its members. The first set stems from the obligations members agree to when they join the IMF. Another set is navigating the informal regulations that members have agreed to although they are not part of any formal obligation from the Articles of Agreement, such as the Fund's financial sector assessment programs. A third set of challenges revolves around past and future IMF regulations in the area of global growth and adjustment.
Edwin Truman explores the question of whether the IMF can effectively rise to these regulatory challenges. While considering that the recent economic and financial crisis increased the value of the IMF, it is also important to keep in mind that the IMF's success following the crisis will depend more on the informal role assigned to it by its members than its formal regulatory role. Regardless of whether derived from formal obligation or mutual, ad hoc agreement from members, the IMF's regulatory role must be continuously renewed and nurtured by active peer-review processes.
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