Q&A: Steve Hanke on IMF

This article appeared in the Latin America Advisor, May 30, 2006.
Question: The International Monetary Fund has appointed an independent “committee of eminent persons” to help it move forward amid a strain on its finances. What is the future of the IMF? What should be its role in the global economy?

Guest Comment: Steve Hanke: “Unfortunately, the IMF’s future will be much the same as its past. When the job for which a bureaucracy was organized changes or disappears, the industrious bureaucrats will find new work to do. On April 21, the G-7 finance ministers and central bank governors issued a communique. For the first time, the Gang of Seven singled out China and its exchange-rate regime for criticism. According to the G-7 countries, China must part ways with its ‘fixed’ exchangerate setup and allow the yuan to float. Even though the ‘fixed’ yuan/dollar system has contributed mightily to China’s stellar economic performance for over a decade, the Gang claims that China’s exchange rate is contributing to dangerous global imbalances. To help find a solution to this socalled problem, the IMF was given a new mandate: to start immediate negotiations between countries with the largest trade imbalances (read: the US and China) with the goal of reducing the imbalances (read: raising the value of the Chinese yuan from 12 cents to a much larger sum). This new mandate promises a lot of IMF jobs and a potential danger for China.”

Senior fellow Steve H. Hanke is a professor of Applied Economics at the Johns Hopkins University in Baltimore.