, if the fund were to develop a detailed manual it would be accused of having a cookie cutter approach to the issue. it is not surprising that there is no such manual, for there is no way of specifying the right exchange rate system for a country without a careful analysis of its circumstances – and there is no question that among those circumstances is its exchange rate regime history. " if it ain't broke – or likely to break soon, or being held together only with the help of economically distortionary and costly measures – don't fix it " is good advice in this area too. the general presumption then is that as countries become more developed, they should be moving away from intermediate regimes, towards greater flexibility of the exchange rate – or in some cases towards a hard peg. iv. exchange rate surveillance and advice to return now to the new decision on bilateral surveillance, the quotes with which this paper opens raise two questions. first, there seems to be a tension between the focus on an unsustainable balance of payments position, and that on exchange rate manipulation, which relates to an undervalued exchange rate. from the viewpoint of what types of situation might give rise to disruptive exchange rate movements, a currency that is overvalued, or a balance of payments deficit that is so large as to be unsustainable, can give rise to rapid exchange rate movements. one example is the current account deficit of the united states in recent years. there was no exchange rate manipulation ; nonetheless by most measures the currency was overvalued. possibly the overvaluation could be offset – though not fully, so long as other countries maintained their dollar pegs – through fiscal policy, thereby reducing the underlying threat to stability of the global exchange rate system. which takes us to the second question : why does the decision relate to " exchange rate policies that result in external instability, regardless of their purpose … " ( underlining added ) rather than to " policies that result in external instability, regardless of their purpose "? the failure to use fiscal policy to deal with an unsustainable current account deficit would be as deserving of staff and board censure as would policies – such as sustained intervention – to manipulate the exchange rate to increase net exports. presumably the emphasis on exchange rate policies was included to deal with the difficulty that if other countries peg to the dollar, then a significant part of the normal adjustment mechanism is neutralized – and that the pegging decision

economic income occurred despite the inequality in wage per hour remaining high. this trend is supported by policy to reduce the negative incentives for employment that were incorporated in the past in the welfare system, and some increase in services supporting employment such as making the compulsory free education law effective from age 3 and expanding the subsidy of afternoon childcare and home - based prenursery facilities. as we have already shown in the report, there is a need to expand the scope of these services. in contrast, the inequality in net income, after bis central bankers ’ speeches allowances and taxation, remains especially high, and derives from a combination of relatively low contribution of the system of allowances and the progressive tax system to reducing inequality. a main tool in dealing with this issue, which the government even expanded the use of recently, is the earned income tax credit. a fair share of the results we have seen regarding the insufficient level of public services, the moderate increase in productivity reflected in moderate growth, and the high inequality in net income, are the consequences of civilian expenditure that is too low. after public expenditure that was very high in the beginning in the 2000s, there was a marked reduction in the share of public expenditure in gdp, and currently the gap in civilian expenditure between us and most advanced economies is large, and thus also the public expenditure. government expenditure on clear growth drivers such as r & d is also low in international comparison. broader government support can be the key to factories ’ ability, not just in the high tech sector, to upgrade technology that will help them succeed in a competitive world, or active labor market policy – relevant professional training, or making services that support employment, such as subsidizing childcare, more accessible – can help in successful integration into the labor market, and to increase the entry of working families who nonetheless remain poor. an increase in the earned income tax credit will contribute to increasing the earnings of low - income working families. steps are being taken in these directions, and there is also a decision to greatly expand professional training beginning with this year. it is important to work assiduously in these directions. so how can the government act to advance the economy ’ s challenges in view of the challenges we are facing, in both the short term and the long term? how is it possible to improve the quality and efficiency of services to the citizen, to improve the level of human capital and the physical infrastructure, in order to support inclusive and sustainable growth? as i illustrated in the