is a policy used by governments and central banks of some of America’s largest trading partners to artificially lower the value of their currency (in turn lowering the cost of their exports) to gain an unfair competitive advantage.
Simply explained, in order to weaken its currency, a country sells its own currency and buys foreign currency – usually U.S. dollars. Following the laws of supply and demand, the result is that the manipulating country reduces the demand for its own currency while increasing the demand for foreign currencies.
Currency manipulator is a designation applied by
United States government authorities, such as the
United States Department of the Treasury, to countries that engage in what is called
“unfair currency practices” that give them a
trade advantage. Such practices may be
currency intervention or
monetary policy in which a
central bank buys or sells foreign currency in exchange for domestic currency, generally with the
intention of influencing the exchange rate and commercial policy. Policymakers may have different reasons for currency intervention, such as controlling
inflation, maintaining international competitiveness, or
financial stability. In many cases, the central bank weakens its own currency to subsidize
exports and raise the price of
imports, sometimes by as much as 30-40%, and it is thereby a method of
protectionism. Currency manipulation is not necessarily easy to identify and some people have considered
quantitative easing to be a form of currency manipulation.
[Following the
1985 Plaza Accord]: Under the
1988 Omnibus Foreign Trade and Competitiveness Act, the
United States Secretary of the Treasury is required to "analyze on an annual basis the exchange rate policies of foreign countries … and consider whether countries manipulate the
exchange rate between their currency and the
United States dollar for purposes of preventing effective
balance of payments adjustments or gaining unfair
competitive advantage in
international trade" and that "If the Secretary considers that such manipulation is occurring with respect to countries that (1) have material global current account surpluses; and (2) have significant bilateral trade surpluses with the United States, the Secretary of the Treasury shall take action to initiate negotiations with such foreign countries on an expedited basis, in the
International Monetary Fund or bilaterally, for the purpose of ensuring that such countries regularly and promptly adjust the
rate of exchange between their currencies and the
United States dollar to permit effective
balance of payments".
A designated currency manipulator can be excluded from U.S. government procurement contracts.
According to the
Trade Facilitation and Trade Enforcement Act of 2015, the Secretary of the Treasury must publish a semi-annual report in which the developments in international economic and exchange rate policies are reviewed. If a country is labeled a currency manipulator under this Act, "The
President, through Treasury, shall take specified
remedial action against any such countries that fail to adopt policies to correct the undervaluation of their currency and
trade surplus with the United States."
It has been argued that the concept of "currency manipulation" is hypocritical, given that the
US already has the privilege of having the main reserve currency of the world, which is
needed for international trade.
Massive interventions of the Federal Reserve since the
financial crisis of 2008, such as
Quantitative Easing and
interventions in the REPO market have been cited as alleged examples of the U.S.. itself engaging in currency manipulation.
