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Foreign Exchange Risk Regulation; Issues for Industrial and Developing Countries

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  • Philipp Hartmann

Abstract

Capital adequacy regulations or quantity restrictions on bank portfolios put forward by the Basle Committee on Banking Supervision have virtually become an international standard of prudential regulation. Recent proposals aim at extending this approach to market risks, in particular to foreign exchange risk. The present paper provides a critical analysis of proposals to introduce foreign exchange position limits on a uniform cross-country basis, focusing on their effectiveness and their possible impact on the functioning of both mature and developing foreign exchange markets. Theoretical considerations are underpinned in the paper with descriptions of existing or proposed regulations, in a broad range of both industrial and developing countries. Experiences with the use of foreign exchange position limits in developing countries provide insight into their widespread use for other than prudential purposes, in particular to support exchange rate and exchange control policies.

Suggested Citation

  • Philipp Hartmann, 1994. "Foreign Exchange Risk Regulation; Issues for Industrial and Developing Countries," IMF Working Papers 94/141, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:94/141
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    Cited by:

    1. Jürgen Von Hagen & Ingo Fender, 1998. "Central Bank Policy in a More Perfect Financial System," Open Economies Review, Springer, vol. 9(1), pages 493-532, January.
    2. Martín Tobal, 2014. "Prudential Regulation, Currency Mismatches and Exchange Rate Regimes in Latin America and the Caribbean," Documentos de Investigación - Research Papers 17, Centro de Estudios Monetarios Latinoamericanos, CEMLA.
    3. Tobal Martín, 2017. "Prudential Regulation, Currency Mismatches and Exchange Rates in Latin America and the Caribbean," Working Papers 2017-21, Banco de México.

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