WASHINGTON -- The International Monetary Fund said Wednesday it will introduce a new approach for evaluating exchange rates as it extends its currency surveillance to emerging economic powers in Asia and elsewhere.

The move comes as the IMF strengthens and expands its watchdog role over currency policies from advanced economies to 20 emerging market countries that have a greater stake in the world economy, including China, Brazil, India, South Korea, Russia, Mexico, Turkey and Malaysia.

Since the mid-1990s, the IMF has evaluated the currencies of industrial nations using two approaches, but will now use three new methodologies, Jonathan Ostry, deputy director of the IMF's Research Department, told a conference call.

"The rapid growth of emerging market countries in global trade, finance, and more recently, their contribution to the global imbalances, made integrating the emerging market countries ... a priority," he said.

While the fund is willing to go public on the new methodologies, it would not release its findings because the system still held some statistical and economic uncertainties, Ostry said.

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"So we would like to gain experience of working with this methodology over time before coming to a view of where to go next in terms of the information that gets released," he said.

While the IMF has long evaluated the exchange rates during routine surveillance of countries, shareholder governments now want it to expand that to look at if the exchange rate values of a specific country are appropriate and how the policies of one country affects others.

That will not always be easy as some governments see the issue as too politically sensitive.

Ostry said the new approach should lead to more balanced judgments about how currencies may ultimately need to adjust as current global imbalances are narrowed.

"Using these three approaches can be useful in establishing robustness of the underlying results," Ostry said.

The new approaches focused on different aspects, Ostry said, but when they "point in similar directions this is a powerful signal that economically relevant aspects of exchange rate misalignments are being captured."

NEW METHODS

The new methodologies will calculate whether a country's current account balance at prevailing exchange rates is broadly consistent with its economic and structural fundamentals over the medium term.

Second, they will look directly at exchange rate behavior over time in terms of fundamentals such as net foreign asset position, productivity growth and terms of trade.

And third, they will consider actual current account balances compared with balances that would stabilize a country's net foreign asset position at an appropriate level.

Ostry said the IMF was "under no illusion" the estimates of exchange rate misalignments under the new approach are very precise.

He said while the outcomes would not be published, member governments would be informed.

"Clearly country authorities will be aware of the estimates and assessments that the procedure makes and we see this as a way to engage with country authorities on the issue of exchange rate misalignment," Ostry said.

Emerging economic powers have cautioned that the IMF should not single out the policies of a specific country or region when looking at exchange rates.

Last year, the United States complained the IMF was not doing enough to highlight the threat to the global economy from trade imbalances caused by some countries keeping their currencies unfairly weak. The United States has specifically pressured China to raise the value of its currency.

Ostry said by expanding its surveillance, the IMF's currency assessments would be more effective.

"The goal of multilateral consistency is better served by having this broader country coverage," he said.

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