April 22, 2015
Debates over “Currency Manipulation”
Overview

which, if any, government policies should count as currency
manipulation. Economists have also developed a number of
Some Members of Congress and policy experts argue that
models to estimate whether the actual value of a currency
U.S. companies and jobs have been adversely affected by
differs from what it “should” be according to economic
the exchange rate policies adopted by China, Japan, and a
fundamentals. Various models produce different results.
number of other countries. They allege that these countries
use policies to “manipulate” the value of their currency in
A 2012 study by the Peterson Institute of International
order to gain an unfair trade advantage against other
Economics identifies countries that have engaged in large
countries, including the United States.
interventions in foreign exchange markets over a long
period of time as “currency manipulators.” These countries
Other analysts are more skeptical about currency
include China, Denmark, Hong Kong, Malaysia, South
manipulation being a significant problem. They raise
Korea, Singapore, Switzerland, and Taiwan.
questions about whether government policies have long-
term effects on exchange rates; whether it is possible to
Some analysts have also recently accused Japan of currency
differentiate between “manipulation” and legitimate central
manipulation. In the first half of 2013, Japan’s central bank
bank activities; and the net effect of currency manipulation
launched a new set of expansionary monetary policies,
on the U.S. economy.
similar to the Fed’s quantitative easing programs. Japan’s
policies contributed to a decline in the value of the yen
Background
relative to the U.S. dollar. Japanese officials deny any
manipulation of the yen.
What is currency manipulation? At the heart of current
debates is whether or not other countries are using policies
Figure 1. Yen per Dollar
to intentionally weaken the value of their currency, or
sustain a weak currency, to gain a trade advantage. A weak
currency makes exports less expensive to foreigners, which
can spur exports and job creation in the export sector.
Can governments weaken their currencies? Economists
disagree about whether government policies have long-term
effects on exchange rates, particularly for countries with
floating exchange rates. However, some economists believe
that, at least in the short run, some government policies can
impact the value of currencies. One policy is buying and
selling domestic and foreign currencies (“intervening”) in
foreign exchange markets. Another is monetary policy, the
process by which the central bank controls the supply of
money in an economy. It is important to note that although
these policies can affect exchange rates, they may be
implemented for other reasons, such as increasing foreign

exchange reserves or combatting a domestic recession.
Existing Policy Frameworks
What is the impact on the United States? If another
What frameworks are in place to address currency
country weakens its currency relative to the dollar, U.S.
manipulation? Multilaterally, members of the International
exports to the country may be more expensive and U.S.
Monetary Fund (IMF) have committed to refraining from
imports from the country may be less expensive. As a
manipulating their exchange rates to gain an unfair trade
result, U.S. exports to the country may be negatively
advantage. Violators could face loss of IMF funding,
affected, and U.S. producers of import-sensitive goods may
suspension of voting rights or, ultimately, expulsion from
find it hard to compete with imports from the country. On
the IMF. The IMF has never publicly labeled a country as a
the other hand, U.S. consumers who buy imports and U.S.
currency manipulator. Some argue that commitments made
businesses that rely on inputs from overseas may benefit,
in the context of the World Trade Organization (WTO) are
because goods from the country may be less expensive.
relevant to disagreements over exchange rates, although this
view is debated. Exchange rates have also been discussed
Which countries are accused of currency manipulation?
by the G-7 and the G-20.
There is debate over which countries, if any, are
manipulating their exchange rates. Part of the debate is
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Debates over “Currency Manipulation”
In the United States, the 1988 Trade Act (P.L. 100-418)

addresses currency manipulation. A key component
requires the Treasury Department to analyze the exchange
Additionally, two bills introduced in the 114th Congress are
rate policies of other countries. If some countries are found
specifically focused on exchange rates. The Currency
to be manipulating their currencies, the Act requires the
Reform for Fair Trade Act (H.R. 820) and The Currency
Treasury Secretary, in some instances, to initiate
Undervaluation Investigation Act (S. 820) would apply U.S.
negotiations to eliminate the “unfair” trade advantage. The
countervailing laws to imports from countries whose
Act also has a semiannual reporting requirement on
currencies are “fundamentally undervalued” or
exchange rates in major trading partners. Treasury has not
“undervalued.” Although the two bills take a similar
found currency manipulation under the terms of the Act
general approach, there are differences. For example, there
since 1994.
are differences in the types of indicators used to examine
the exchange rate policies of other countries. Similar
Are current frameworks effective? Some argue that they
legislation has been introduced in previous Congresses.
are ineffective, particularly because the definitions of
“manipulation” are too vague. Others argue that the
Possible Policy Issues
frameworks are effective, and no recent actions have been
taken by Treasury or the IMF because no country is
How should currency manipulation be defined and
manipulating its currency.
measured? Analysts debate the best way to define or
operationalize currency manipulation. For example, some
argue that the IMF’s definition requires it to determine that
We, the G-7 Ministers and Governors, reaffirm our
policies shaping the exchange rate level have been for the
longstanding commitment to market determined
express purpose of increasing net exports, and that “intent”
exchange rates and to consult closely in regard to
is hard to establish. Analysts also disagree on how to
actions in foreign exchange markets. Statement by the
calculate or estimate whether currencies are misaligned
G-7 Finance Ministers and Central Bank Governors,
from their “equilibrium” long-term value, making the
February 12, 2013.
classification of currencies as over- or under-valued
complex and subject to much debate.
Congressional Proposals
If the United States were to address currency
Some Members are calling for currency manipulation to be
manipulation, what is the best forum for doing so?
addressed in trade agreements. In 2013, 230
Different forums for addressing currency manipulation have
Representatives and 60 Senators sent letters to the Obama
various pros and cons. For example, some argue that
Administration calling for currency manipulation to be
addressing currency manipulation in a trade agreement is a
addressed in trade agreements under negotiation,
promising alternative to existing frameworks and sensible
particularly in the Trans-Pacific Partnership (TPP). The
given the strong links between exchange rates and trade.
TPP is a proposed free trade agreement that the United
Others disagree, because any agreement on currencies
States is negotiating with Japan and 10 other countries in
would apply only to parties of the agreement (and not to
the Asia-Pacific region.
countries more broadly in the global economy) and could
make the agreement more difficult to conclude.
Additionally, addressing currency manipulation is identified
as a principal negotiating objective in Trade Promotion
Would measures to combat currency manipulation
Authority (TPA) legislation introduced in the 114th
serve U.S. economic interests? Some analysts argue that
Congress (H.R. 1890, S. 995). TPA is the authority
currency manipulation gives other countries an unfair
Congress grants to the President to enter into certain
competitive trade advantage over the United States. Others
reciprocal trade agreements and to have their implementing
disagree, arguing that the effects on the U.S. economy are
bills considered under expedited legislative procedures
not unambiguously negative. U.S. consumers and U.S.
when certain conditions have been met.
businesses that rely on inputs from overseas may benefit
when other countries have weak currencies. They also
TPA bills introduced in the 114th Congress call for U.S.
caution that labeling other countries as currency
trade agreement partners to “avoid manipulating exchange
manipulators could trigger retaliation, making it more
rates in order to prevent effective balance of payments
difficult for the United States to finance its trade deficit.
adjustment or to gain unfair competitive advantage.” The
language calls for multiple possible remedies, “as
For more information, see CRS Report R43242, Current
appropriate,” including “cooperative mechanisms,
Debates over Exchange Rates: Overview and Issues for
enforceable rules, reporting, monitoring, transparency, or
Congress, by Rebecca M. Nelson.
other means.” This is the same language included in the
Rebecca M. Nelson, rnelson@crs.loc.gov, 7-6819
TPA legislation introduced in the 113th Congress (H.R.
3830, S. 1900). When TPA was last renewed in 2002,

Congress included exchange rate issues in the “promotion
IF10049
of certain priorities” section (P.L. 107-210).
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