Summary
Reflecting renewed interest in exchange rate flexibility as currencies have come under pressure and many central banks are revisiting their monetary policy frameworks, the JVI recently hosted a two-day Caucasus and Central Asia Central Bank Practitioners (CCA-CBP) Workshop/Forum on monetary and exchange rate policy in the region. The event, organized jointly by the IMF, the Swiss National Bank (SNB), the Swiss State Secretariat for Economic Affairs (SECO), and the JVI, aimed to foster peer-to-peer dialogue and knowledge sharing.[1]

The Case for More Flexibility and Clarity
The workshop featured round table sessions, involving brief presentations from IMF experts followed by frank and open discussions with deputy governors and department heads from each of the CCA central banks. Throughout, the case was made for greater exchange rate flexibility as a way to deal with external adjustment in the face of large and sustained shocks. Among these shocks in the CCA today are the decline in oil and other commodity prices, depreciation of the Russian ruble, weaker growth in Russia and China, and appreciation of the U.S. dollar.

Flexibility, however, is only one element of a broader policy mix that may include changes in both the monetary and fiscal stance and strengthened prudential supervision. In addition, moving to a clear monetary policy framework to anchor inflation and guide monetary policy decisions is essential to reap the full benefits of exchange rate flexibility.

Participants broadly agreed with this assessment while also recognizing that implementation of these policies would be challenging. The challenges stem partly from concerns with how exchange rate flexibility would affect price and financial stability, the latter especially given the significant dollarization of domestic financial systems in the region. In addition, improving monetary and exchange rate policy frameworks requires working on many fronts: investing in internal analytical capacity, developing effective operational frameworks, including for intervening in foreign exchange markets, and changing how central banks communicate. There are also important political economy factors across the region. Most of the discussions focused on how to move forward in these areas.

Central Bank Communications and the Limits to Monetary Policy
How central banks communicate was spotlighted: Marek Petrus, former Director of Communications at the Czech National Bank, emphasized the need for central banks to speak openly and often, including about risks and uncertainties. Keynote speaker Thomas Moser from the SNB also emphasized the importance of communications within the central bank, across departments and with senior management, especially when major policy changes are being implemented.

The experts at the workshop encouraged central bankers to publicly acknowledge the limits of both their knowledge and monetary and exchange rate policy. The latter point was also emphasized by Governor Ewald Nowotny of the Oesterreichische Nationalbank in his introductory remarks and stood out as one of the key lessons of the workshop.

Peer-to-Peer Activities and the JVI
Participants were very pleased with the workshop and thanked the IMF, the Swiss authorities and the JVI for organizing it, and they expressed their support for the CCA-CBP initiative. As emphasized by SNB Director Moser, peer-to-peer interactions have become highly important for learning from the experience of other countries.

Most of the participating senior central bank officials had attended JVI courses in the past, some as long ago as the 1990s, underlining the reach and role of the JVI alumni network. With its cooperation among several partners, presentations by all country authorities, and frank and open discussions the workshop can serve as a best practice example for further peer-to-peer high-level events. 

Rafael Portillo, Senior Economist, JVI

If you are interested in learning more about the CCA-CBP Network please contact Mark Horton (mhorton@remove-this.imf.org) or Natan Epstein (nepstein@remove-this.imf.org) of the IMF’s Middle East and Central Asia Department.

[1] CCA countries include Armenia, Azerbaijan, Georgia, Kazakhstan, Kyrgyz Republic, Tajikistan, Turkmenistan, and Uzbekistan.