The International Monetary Fund must fundamentally reform its approach to surveillance over exchange rates, said U.S. Treasury Secretary Henry Paulson on Saturday.

"Exercising firm surveillance over members' exchange rate policies is the core function of the institution," said the U.S. minister at the spring meetings of the IMF and the World Bank.

"Reform of the IMF's foreign exchange surveillance is the lynchpin on which other reforms depend, and we look forward to action in this important area very soon after these meetings," he said. "The IMF staff must do a better job in addressing foreign exchange surveillance on a day-to-day basis."

In the speech, Paulson also advocated greater exchange rate flexibility in emerging Asian economies. Analysts said Paulson's remark was aimed to pressure emerging economies to make more compromises in their currency system reforms.

Also Saturday, Paulson said prospects for the U.S. economy are good and it was expected to rebound 3 percent by the end of the year.

"I am happy to report that the U.S. continues to make excellent progress in steadily 2004 to 1.9 percent in 2006, a pace faster than most thought likely," he said.

"We are committed to keeping the U.S. economy open to trade and investment, which underpins our economic strength, and to opposing protectionism whenever and wherever it arises," he added.