International monetary policy coordination, on the few occasions when it was actively attempted, became the preserve of small inter-governmental groups of leading industrialised countries, the G5/7 – most famously in the Plaza and Louvre Accords in the mid 1980s. Over time, the international monetary system has evolved into a patchwork of different approaches to policy, in contrast to the uniformity of the Bretton Woods system. Many large developed countries with open capital markets now pursue independent monetary polices and let their exchange rates float freely, while smaller and less developed countries tend to peg or heavily manage their exchange rates, effectively surrendering control over domestic inflation. There are regional monetary unions – notably the euro zone. And some emerging and developing economies still combine managed exchange rates with restrictions on capital flows, in an attempt to retain a degree of monetary independence. How has the world economy changed? The backdrop to these developments has been a transformation in the world economy over the past thirty years. For the present purposes, there are two major aspects to what is commonly known as ‘globalisation’. First, there has been a very rapid integration of the world economy. Trade liberalisation, new technology, falling communication costs, and the resulting globalisation of supply chains have contributed to a great opening in national markets. Since 1970, trade openness – defined as the ratio of exports and imports to GDP – has risen from around 25% to over 40% for industrialised countries, and from 15% to 60% for emerging markets.

How might this work in practice? Member countries would each provide a systematic description of their chosen policy frameworks in key areas - relating to monetary, fiscal, financial, and exchange rate policies. For these purposes, a policy framework is just a more or less formal description of a country’s policy objectives and the policy instruments that have been assigned to meet them, including any policy rules, targets or strategies that may be used as a guide to decision-taking. This approach would exploit the Fund’s already significant access to information about members’ policy frameworks, and if necessary its power to request more. And it would also avoid prescription and explicitly recognise members’ undoubted right to choose their own policy frameworks, providing that they are consistent with their commitments under the Articles. Given this starting point, Fund surveillance could then focus on two key sets of issues. First, is an individual country’s set of monetary, fiscal, financial, and exchange rate frameworks internally consistent? The key questions would be: is this a sustainable approach to policy? And is policy being implemented in a way which is consistent with the stated framework? Taken together are the policy frameworks adopted by a member consistent with its obligations under the Fund’s Articles, including the member’s overarching commitment to collaborate with the Fund and other members to assure external stability? The Asian crisis of the late 1990s illustrates the problems that can develop from internally inconsistent financial and exchange rate policies.