April 22, 2015
Debates over “Currency Manipulation”
Some Members of Congress and policy experts argue that
U.S. companies and jobs have been adversely affected by
the exchange rate policies adopted by China, Japan, and a
number of other countries. They allege that these countries
use policies to “manipulate” the value of their currency in
order to gain an unfair trade advantage against other
countries, including the United States.
Other analysts are more skeptical about currency
manipulation being a significant problem. They raise
questions about whether government policies have longterm effects on exchange rates; whether it is possible to
differentiate between “manipulation” and legitimate central
bank activities; and the net effect of currency manipulation
on the U.S. economy.
What is currency manipulation? At the heart of current
debates is whether or not other countries are using policies
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.
What is the impact on the United States? If another
country weakens its currency relative to the dollar, U.S.
exports to the country may be more expensive and U.S.
imports from the country may be less expensive. As a
result, U.S. exports to the country may be negatively
affected, and U.S. producers of import-sensitive goods may
find it hard to compete with imports from the country. On
the other hand, U.S. consumers who buy imports and U.S.
businesses that rely on inputs from overseas may benefit,
because goods from the country may be less expensive.
Which countries are accused of currency manipulation?
There is debate over which countries, if any, are
manipulating their exchange rates. Part of the debate is
which, if any, government policies should count as currency
manipulation. Economists have also developed a number of
models to estimate whether the actual value of a currency
differs from what it “should” be according to economic
fundamentals. Various models produce different results.
A 2012 study by the Peterson Institute of International
Economics identifies countries that have engaged in large
interventions in foreign exchange markets over a long
period of time as “currency manipulators.” These countries
include China, Denmark, Hong Kong, Malaysia, South
Korea, Singapore, Switzerland, and Taiwan.
Some analysts have also recently accused Japan of currency
manipulation. In the first half of 2013, Japan’s central bank
launched a new set of expansionary monetary policies,
similar to the Fed’s quantitative easing programs. Japan’s
policies contributed to a decline in the value of the yen
relative to the U.S. dollar. Japanese officials deny any
manipulation of the yen.
Figure 1. Yen per Dollar
Existing Policy Frameworks
What frameworks are in place to address currency
manipulation? Multilaterally, members of the International
Monetary Fund (IMF) have committed to refraining from
manipulating their exchange rates to gain an unfair trade
advantage. Violators could face loss of IMF funding,
suspension of voting rights or, ultimately, expulsion from
the IMF. The IMF has never publicly labeled a country as a
currency manipulator. Some argue that commitments made
in the context of the World Trade Organization (WTO) are
relevant to disagreements over exchange rates, although this
view is debated. Exchange rates have also been discussed
by the G-7 and the G-20.
www.crs.gov | 7-5700
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
rate policies of other countries. If some countries are found
to be manipulating their currencies, the Act requires the
Treasury Secretary, in some instances, to initiate
negotiations to eliminate the “unfair” trade advantage. The
Act also has a semiannual reporting requirement on
exchange rates in major trading partners. Treasury has not
found currency manipulation under the terms of the Act
Are current frameworks effective? Some argue that they
are ineffective, particularly because the definitions of
“manipulation” are too vague. Others argue that the
frameworks are effective, and no recent actions have been
taken by Treasury or the IMF because no country is
manipulating its currency.
We, the G-7 Ministers and Governors, reaffirm our
longstanding commitment to market determined
exchange rates and to consult closely in regard to
actions in foreign exchange markets. Statement by the
G-7 Finance Ministers and Central Bank Governors,
February 12, 2013.
Some Members are calling for currency manipulation to be
addressed in trade agreements. In 2013, 230
Representatives and 60 Senators sent letters to the Obama
Administration calling for currency manipulation to be
addressed in trade agreements under negotiation,
particularly in the Trans-Pacific Partnership (TPP). The
TPP is a proposed free trade agreement that the United
States is negotiating with Japan and 10 other countries in
the Asia-Pacific region.
Additionally, addressing currency manipulation is identified
as a principal negotiating objective in Trade Promotion
Authority (TPA) legislation introduced in the 114th
Congress (H.R. 1890, S. 995). TPA is the authority
Congress grants to the President to enter into certain
reciprocal trade agreements and to have their implementing
bills considered under expedited legislative procedures
when certain conditions have been met.
TPA bills introduced in the 114th Congress call for U.S.
trade agreement partners to “avoid manipulating exchange
rates in order to prevent effective balance of payments
adjustment or to gain unfair competitive advantage.” The
language calls for multiple possible remedies, “as
appropriate,” including “cooperative mechanisms,
enforceable rules, reporting, monitoring, transparency, or
other means.” This is the same language included in the
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
of certain priorities” section (P.L. 107-210).
Additionally, two bills introduced in the 114th Congress are
specifically focused on exchange rates. The Currency
Reform for Fair Trade Act (H.R. 820) and The Currency
Undervaluation Investigation Act (S. 820) would apply U.S.
countervailing laws to imports from countries whose
currencies are “fundamentally undervalued” or
“undervalued.” Although the two bills take a similar
general approach, there are differences. For example, there
are differences in the types of indicators used to examine
the exchange rate policies of other countries. Similar
legislation has been introduced in previous Congresses.
Possible Policy Issues
How should currency manipulation be defined and
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
policies shaping the exchange rate level have been for the
express purpose of increasing net exports, and that “intent”
is hard to establish. Analysts also disagree on how to
calculate or estimate whether currencies are misaligned
from their “equilibrium” long-term value, making the
classification of currencies as over- or under-valued
complex and subject to much debate.
If the United States were to address currency
manipulation, what is the best forum for doing so?
Different forums for addressing currency manipulation have
various pros and cons. For example, some argue that
addressing currency manipulation in a trade agreement is a
promising alternative to existing frameworks and sensible
given the strong links between exchange rates and trade.
Others disagree, because any agreement on currencies
would apply only to parties of the agreement (and not to
countries more broadly in the global economy) and could
make the agreement more difficult to conclude.
Would measures to combat currency manipulation
serve U.S. economic interests? Some analysts argue that
currency manipulation gives other countries an unfair
competitive trade advantage over the United States. Others
disagree, arguing that the effects on the U.S. economy are
not unambiguously negative. U.S. consumers and U.S.
businesses that rely on inputs from overseas may benefit
when other countries have weak currencies. They also
caution that labeling other countries as currency
manipulators could trigger retaliation, making it more
difficult for the United States to finance its trade deficit.
For more information, see CRS Report R43242, Current
Debates over Exchange Rates: Overview and Issues for
Congress, by Rebecca M. Nelson.
Rebecca M. Nelson, email@example.com, 7-6819
www.crs.gov | 7-5700