Updated June 11, 2024
Exchange Rates and Currency Manipulation
At various points over the past two decades, some Members
exchange markets that limited appreciation of its
of Congress have expressed concerns that other countries
currency, the renminbi.
are engaging in currency manipulation—that is,
Currency manipulation is a controversial topic. There are
purposefully using exchange rate policies to gain an unfair
questions about the extent to which governments can
trade advantage. There are broad debates among economists
successfully influence the value of their currency,
and policymakers about currency manipulation, including
particularly with today’s highly liquid and integrated
how it should be defined, its prevalence, and its
international financial markets. Additionally, many
implications for the U.S. economy. Amidst these debates,
economic policies (including fiscal and monetary policies)
the U.S. government has developed and applied policy tools
impact exchange rates. Policymakers and analysts may face
to address currency manipulation. This product provides an
difficulty differentiating “unfair” currency manipulation
overview of the various policy tools and highlights specific
from “legitimate” economic policies (for example,
issues that Congress might consider in evaluating debates
consistent with a central bank’s mandate to support
about the exchange rate policies of other countries.
employment). Furthermore, the net economic effects of
Background
currency manipulation for the United States are unclear—
while U.S. exports may fall when other countries have
An exchange rate is the price of one currency in terms of
weak currencies, U.S. consumers may benefit from less
another currency. Exchange rates are among the most
expensive imports.
important prices in the global economy: they affect
international trade and financial flows and the value of
Policy Tools
every overseas investment.
The United States has sought to address currency
Governments have different exchange rate policies, and
manipulation through a variety of international institutions
these policies may change over time. Some governments,
and forums, U.S. laws and regulations, and trade policy
including the United States today, allow the value of their
tools. U.S. policymakers have used these approaches to
currency to fluctuate depending on the supply and demand
varying degrees and in varying contexts.
of their currency relative to other currencies. The supply
and demand of currencies, in turn, depend on a range of
International Institutions and Forums
factors, such as economic growth, interest rates, inflation,
The International Monetary Fund (IMF). After World
and geopolitical events.
War II, the United States in conjunction with European
allies led the creation of the IMF to promote international
Other governments actively intervene in foreign exchange
monetary stability. Upon joining the IMF, member
markets (by buying and selling currencies) in order to
countries agree, among other commitments, to refrain from
influence the value of their currency—for example, to
manipulating their exchange rates to gain an unfair trade
sustain the currency at a fixed value or to keep the currency
advantage. The IMF has never determined that a member
from deviating too far from a target value.
country has manipulated its currency during the
institution’s
Currency Manipulation
nearly eight-decade history. If the IMF did
determine a member was manipulating its exchange rate,
Currency manipulation refers to government policies that
that member could lose access to IMF financing and its
interfere with market forces and intentionally push down
voting rights at the IMF, and ultimately, face expulsion
the value of the country’s currency in order to boost
from the institution
exports. The resulting weak or depreciated currency makes
a country’s exports less expensive to foreign buyers than
The Plaza and Louvre Accords. During the 1980s, the
they would be otherwise. All else equal, currency
United States negotiated agreements on exchange rate
manipulation by other countries makes U.S. exports less
issues directly with major trading partners. In 1985, the
competitive in global markets.
Group of 5 (G5, comprised of France, West Germany,
Japan, the United States, and the United Kingdom) signed
U.S. policymaker concerns about exchange rates were
the Plaza Accord, in which countries agreed to intervene in
particularly salient during
currency markets to depreciate the U.S. dollar. In 1987, six
• the 1930s, when countries repeatedly devalued their
countries (the G5, plus Canada) signed the Louvre Accord,
currencies in order to boost exports during the Great
in which they agreed to halt the depreciation of the U.S.
Depression;
dollar through a variety of different policy measures.
• the 1980s, when the U.S. dollar appreciated relative to the G7 and G20 discussions. The United States engages in
currencies of its major trading partners; and
exchange rate discussions at the G7 (a small group of
•
advanced economies) and the G20 (a larger group of major
the 2000s and 2010s, when the Chinese central bank
advanced and emerging-market economies). Over the past
engaged in ongoing, large-scale interventions in foreign
decade, G7 and G20 statements routinely have included
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Exchange Rates and Currency Manipulation
commitments to adopt market-determined exchange rates
Select Policy Issues for Congress
and refrain from competitive devaluations. Commitments
Appreciation of the U.S. dollar. The U.S. dollar has
made at the G7 and the G20 are not enforceable.
appreciated by about 30% against a basket of currencies
over the past decade (Figure 1). Congress could create a
U.S. Legislation
commission or require Treasury and/or the Federal Reserve
The Omnibus Trade and Competitiveness Act of 1988
to analyze the factors contributing to the dollar’s
(P.L. 100-418). P.L. 100-418 requires the Treasury
appreciation, including whether currency manipulation has
Department (“Treasury”) to analyze and report
played a role.
semiannually on the exchange rate policies of major U.S.
Figure 1. Nominal Broad U.S. Dollar Index
trading partners. If countries are found by Treasury to be
manipulating their currencies, the legislation requires the
Jan. 2006 – Mar. 2024 (Jan. 2006=100)
Treasury Secretary, in some instances, to initiate
negotiations with those countries to address the issue.
Treasury made four designations of currency manipulation
between 1988 and 1994 and three designations between
2019 and 2021. Designations lasted a few months to a few
years.
The Trade Facilitation and Trade Enforcement Act of
2015 (P.L. 114-125). In 2015, Congress enacted legislation
that specifies metrics for determining whether or not
countries are engaged in currency manipulation. If concerns
persist after one year of “enhanced bilateral engagement,”

P.L. 114-125 requires Treasury to undertake a range of
Source: Federal Reserve.
specific actions, including raising the issue at the IMF and
Treasury’s “Monitoring List.” As part of its semiannual
prohibiting U.S. procurement contracts with the country in
report to Congress on the international economic and
question. Treasury has designated three countries for
exchange rate policies of major U.S. trading partners,
currency manipulation under the criteria outlined in P.L.
Treasury includes a “Monitoring List” of countries with
114-125, with designations lasting a few months to a few
exchange rate policies that merit close attention. In
years.
November 2023 (most recent), the list included China,
Germany, Malaysia, Singapore, Taiwan, and Vietnam.
Trade Tools
Congress might consider, for example, how the list is
Trade negotiations and agreements. In 2015, Congress
constructed, whether or not to require additional analysis of
included exchange rate policies as a principal negotiating
the countries on the list, and/or whether or not to require
objective in Trade Promotion Authority (TPA) legislation
engagement with countries on the list.
(P.L. 114-26). Pursuant to TPA, Treasury negotiated
currency issues in the context of the United States-Mexico-
China and ongoing transparency issues. Treasury has
Canada Agreement (USMCA, which entered into force in
repeatedly noted China’s lack of transparency around key
July 2020). The TPA granted by Congress to the President
features of its exchange rate mechanism, complicating
in 2015 expired in 2021, and has not been renewed.
analysis of China’s policies. Legislation has been
introduced in the 118th Congress that would require the U.S.
Tariffs on imports from countries with undervalued
Executive Director at the IMF to advocate for greater
exchange rates. In 2020, the Commerce Department
transparency of China’s exchange rate policies (H.R. 839/S.
(Commerce) implemented a regulatory change that attempts
4418).
to counter currency manipulation through tariffs. The
regulation allows, in certain circumstances, tariffs on
Expansion of policy tools. As the number of policy tools to
imports from countries designated by Commerce, in
address currency manipulation has expanded, so too has the
consultation with Treasury, to be undervaluing their
number of international bodies and U.S. government
currency. In 2021, Commerce announced its first, and to
agencies engaged in evaluating currency policies. Different
date only, affirmative finding regarding a currency-related
actors have different criteria and processes for evaluating
subsidy involving tires from Vietnam, and imposed a
currency manipulation, and they at times arrive at different
countervailing duty on such imports from Vietnam.
conclusions. Congress might consider how to balance the
flexibility provided by an expanded array of policy tools
Section 301. In October 2020, the U.S. Trade
with the ability to send clear signals to U.S. trading
Representative (USTR) announced a “Section 301”
partners. Congress could asses the effectiveness of the
investigation into a country’s currency practices (Vietnam).
range of policy tools by holding hearings with the relevant
Section 301 of the 1974 Trade Act (P.L. 93-618) grants
executive branch agencies and/or policy experts. Congress
USTR a range of responsibilities and authorities to
could also consider whether current legislation relating to
investigate trade practices that may violate U.S. trade
currency manipulation should be amended, expanded,
agreements or engage in acts that are “unjustifiable,” and
terminated, or consolidated.
potentially impose trade sanctions. In 2021, USTR
determined that Vietnam had taken “unreasonable” actions
Rebecca M. Nelson, Specialist in International Trade and
to push down the value of its currency; it lifted the
designation following bilateral negotiations.
Finance
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Exchange Rates and Currency Manipulation

IF10049


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https://crsreports.congress.gov | IF10049 · VERSION 22 · UPDATED

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