Realignment of Exchange Rates

There has been a great deal of questioning of late of the emphasis in the IMF charter on stability of exchange rates and orderly changes in them. We, in India, are not averse to a greater degree of flexibility being introduced in the system and to any extensive realignment of exchange rates in the present situation. Indeed, we are not averse to the whole IMF charter being subjected to a detailed review with a view to radical reform. But we do feel that if there is to be a change, whether in the present alignment of currencies or in the basic tenets of the IMF charter, these changes must be made within the four corners of the Fund and not for all practical purposes in a group of 6 or 10 or 16 however wealthy and powerful it may be. You cannot have a spectable of the wealthy and the powerful deciding things on their own without impairing the image and effectiveness of the institution we have nourished and nurtured over so many years.

As far as we are concerned, we favour a solution in terms of stable exchange rates and orderly changes in monetary system. A regime of floating rates creates additional problems and uncertainties for our overstretched economies and administrative machinery. We have said it on more than, one occasion that going beyond any immediate realignment of exchange rates that may be necessary, we are prepared to agree that somewhat wider margins around parities may be necessary to discourage speculative capital flows. At the same time, we cannot help wondering whether in the name of freedom we have not disregarded the sound principle adumbrated at Bretton Woods, namely, that freedom of capital movements can often be an enemy of freedom on the current account. We also feel that the sound emphasis on appropriate discrimination at Bretton Woods has somehow been replaced by indiscriminate non-discrimination whereby for the sins of the developed countries, the less developed countries are also punished by imposition of duties and reduction in aid. Cannot the commonwealth countries at least agree that they are not in favour of such meaningless and even harmful non-discrimination ?