Use Of Currency Research Articles

The Upsides of Currency Manipulation: How China Survived the East Asian Crisis of 1997-8

For more than a decade, the United States has spearheaded the efforts to pressure China to appreciate the yuan versus the dollar. China’s exchange rate regime has been accused of as manipulative and dishonest, as Beijing has sought to keep the yuan at a rate of between 10 and 40 percent under its supposed value. China’s devaluation of the yuan has not only undermined its Asian neighbors’ export growth; it has also widened significantly the current account gap between the United States and China over the past decade, burdening the US economy with an ever-increasing trade deficit. I argue that despite the inconvenience caused to the East Asian economies and to the United States’ economy in the past decade, China’s currency manipulation has been favorable and advantageous to its own growth. Specifically, I analyze how useful China’s exchange rate policy was before and throughout the East Asian crisis of 1997. My conclusion is that without China’s currency manipulation, it is possible that China would have been hit much harder by the financial crisis, such that it would have taken it much longer to emerge into the world’s globalized economy as a leading player. I discuss China’s motivation for currency manipulation in the context of its desire to avoid social and political unrest.

China's Currency Devaluation and WTO Issues

INTRODUCTION The value of China's currency, the renminbi (RMB), and the conduct of China's exchange rate policy have generated intense debate in academic and international policy circles. The RMB was pegged from 1994 until mid-2005 at 8.28 yuan to the US dollar. China shifted in 2005 to a policy of loosely pegging the RMB to a basket of major currencies. Since then, the RMB has appreciated against the dollar, and the current RMB/dollar exchange rate stands at roughly 6:30. Over the same period, RMB generally depreciated against the Euro, falling from 10.06 in June 2005 to 10.79 in June 2008. With the 2007/2008 financial crisis, however, the Euro has depreciated and the RMB/Euro exchange rate presently stands at 8.99. Throughout this period, China has intervened actively in foreign exchange markets to prevent the RMB from appreciating faster by selling RMB and buying other major currencies (mostly US dollars). A number of economic commentators argue that China's policies amount to market-distorting manipulation. For example, C. Fred Bergsten of the Peterson Institute for International Economics recently suggested that the RMB must appreciate by approximately 40 per cent against the dollar to correct current and urged the United States to take multilateral, and if necessary unilateral action, to pressure China to change its ways. (1) Michael Mussa and Arvind Subramanian have expressed similar views. (2) Politicians have become involved. Trade officials from both the US and Europe have argued that Chinese practices unfairly distort trade, amounting to the equivalent of a subsidy to exports and a tariff on imports that would violate World Trade Organization (WTO) rules if imposed directly. US President Barack Obama stated in November 2009, for example, that China's current trade surplus is directly related to its manipulation of its currency's value. He concurrently promised to use all diplomatic means at his disposal to achieve change in China's manipulation of the value of its currency, a practice that contributes to massive global imbalances and provides Chinese companies with an unfair competitive advantage. (3) During the 2012 US elections season, Mr. Mitt Romney, one of the two presidential candidates, promised--while bashing President Obama, his opponent, of failing to act against China's currency manipulation--that if he was to be elected, he would label China a currency manipulator from day one. (4) Over the past few years, various proposals for action against China have been put forward in the US Congress. These range from insisting that the Treasury Department refer the matter to the International Monetary Fund (IMF), to requiring that the US Trade Representative bring a formal complaint to the WTO, treating China's alleged manipulation as a source of dumping or countervailable subsidies that would permit the imposition of antidumping or countervailing duties on Chinese imports. IMF case studies have shown that the IMF has never identified a certain member engaging in exchange manipulation, or indicated that the acts of any of its members amount to foreign exchange manipulation. Theoretically, the RMB exchange rate issue can become the subject matter of WTO dispute settlement proceedings only when China's trade partner(s) (e.g., the US and/or the European Union) lodge a complaint against China in the WTO dispute settlement body. Before moving to an action in the WTO, the governments of China's trade partners must take into consideration the translation of China's exchange rate policies (and specifically the magnitude of its exchange rate misalignment) into equivalent real trade policies that could then be more readily evaluated under the rules of the WTO, e.g., under Article XV of the General Agreement on Tariffs and Trade (GATT) 1994, Article XXIII of the GATT or Article 3 of the Agreement on Subsidies and Countervailing Measures (SCM). …

The political economy of “currency manipulation” bashing

In recent years, one of the most frequently debated issues in Congress has been the value of the Chinese renminbi (RMB) relative to the U.S. dollar. Many members of Congress often accuse China of being a “currency manipulator.” This paper has two objectives. First, it investigates the extent to which PAC contributions from key interest groups as well as constituent interests influence the frequency with which members of Congress criticize China's exchange rate policy, controlling for other factors. The results indicate that the odds that a congressman will call China a “currency manipulator” are 1.35 times higher for every $5000 in PAC contributions from groups that favor legislation against China. In addition, the results show that a one percentage point increase in the share of the congressional district labor force in manufacturing is associated with a 19.6% increase in the likelihood that the district's legislator will label China a “currency manipulator.” Second, this paper investigates the consequences that “currency manipulation” bashing may have on the rate at which the RMB appreciates against the U.S. dollar. The results for a VAR model indicate that an increase in the incidence of “currency manipulation” bashing appears to temporarily slow down, rather than accelerate, the rate at which the renminbi appreciates against the dollar. This result suggests that bashing China may actually be counterproductive.

Who is the Exchange Rate Manipulator: China or America?

The manipulation of the US dollar and other countries' currencies has been a longstanding American prerogative, thus American politicians and scholars are accustomed to labeling countries that fight against American policies on the US dollar as “currency manipulators.” The substance of America's accusation of currency manipulation against China is that when America starts to control dollars in order to transfer its domestic economic problems abroad, China is expected to do nothing and simply live with an unstable RMB exchange rate. Obviously, there is a great difference between China and Japan. China will never allow itself to become “the second Japan” that swallows bitter pills like the Plaza Accord.

The Political Economy of 'Currency Manipulation' Bashing

One of the most frequently debated issues in Congress over the past few years has been the value of the Chinese renminbi (RMB) relative to the dollar. It is no secret that congressmen in the U.S. frequently accuse China of being a “currency manipulator.” This paper has two objectives. First, it investigates the extent to which PAC contributions from key interest groups influences the frequency with which congressmen criticize China’s exchange rate policy, controlling for other factors. The results indicate that the odds that a congressman will call China a “currency manipulator” are 1.35 times higher for every additional $5,000 in PAC contributions from groups that favor legislation against China. The odds go up to 1.8 for an additional $10,000 in PAC contributions. Second, it investigates the consequences that “currency manipulation” bashing may have on the rate at which the RMB appreciates against the U.S. dollar. The results for a VAR model indicate that an increase in the incidence of “currency manipulation” bashing appears to slow down, rather than accelerate, the rate at which the Renmibi appreciates against the dollar. This last result suggests that bashing China may actually be counterproductive.

THE NEW NEO-MERCANTILISM: CURRENCY MANIPULATION AS A FORM OF PROTECTIONISM

Three waves of mercantilism have arisen in the past few centuries. The first wave was countered by the classical economists. The second wave (neo-mercantilism) hit during the inter-war period. Today's third wave uses monetary policy. We explore the mercantilist waves and argue in favour of a free trade policy. We conclude that an international system of free banking best protects the economy from currency manipulation as a form of protectionism.

Exchange Rate Misalignments: A Comparison of China Today Against Recent Historical Experiences of Japan, Germany, Singapore and Taiwan

The familiar claim of Chinese currency manipulation is generally asserted without reference to empirical evidence. To investigate the legitimacy of the claim, we ask if the undervalued misalignment found in the real effective exchange rate (REER) of the Chinese renminbi (RMB) over the past decade has any recent historical precedents. Four cases are examined: the Japanese yen, the Deutsche mark, the Singapore dollar and the Taiwan dollar. Panel-based misalignment estimates of the REER of the four currencies are obtained using quarterly data from the late 1970s to the early 2000s. Our estimates suggest that there are precedents to the recent misalignment of the RMB in terms of magnitude, duration or breadth of currency coverage, and that a net build-up in foreign asset does not necessarily result in currency misalignment. In addition to finding little empirical justification for the claim of Chinese currency manipulation, we note that REER misalignment runs a risk of propagating inflation in the home economy.

Exchange rate misalignments: a comparison of China today against recent historical experiences of Japan, Germany, Singapore and Taiwan

The familiar claim of Chinese currency manipulation is generally asserted without reference to empirical evidence. To investigate the legitimacy of the claim, we ask if the undervalued misalignment found in the real effective exchange rate (REER) of the Chinese renminbi (RMB) over the past decade has any recent historical precedents. Four cases are examined: the Japanese yen, the Deutschmark (DM), the Singapore dollar and the new Taiwan dollar. Panel-based misalignment estimates of the REER of the four currencies are obtained using quarterly data from the late 1970s to the early 2000s. Our estimates suggest that there are precedents to the recent misalignment of the RMB in terms of magnitude, duration or breadth of currency coverage, and that a net build-up in foreign assets does not necessarily result in currency misalignment. In addition to finding little empirical justification for the claim of Chinese currency manipulation, we note that REER misalignment runs a risk of propagating inflation in the home economy.

Currency Manipulation Policy in Emerging Foreign Exchange Markets

This paper examines the currency manipulation policy in the foreign exchange markets of thirteen emerging countries using a structural vector autoregressive (SVAR) framework to link the dynamics of real exchange rates and foreign reserves. It is found that for Korea, Singapore, and Taiwan, exchange rate shocks are the main source of fluctuations in foreign reserves over all time horizons. Empirical evidence suggests that these countries intervene substantially in the foreign exchange markets.

China Bashing: How Much? Who Does It? Has it Worked?

Many scholars in both the United States and China argue that a lot of the news stories about China published in major U.S. newspapers tend to have a negative slant. This tendency has generally been called “China bashing.” The purpose of this paper is threefold: (1) to quantify and measure the extent of this bashing, (2) to determine whether there are ideological reasons behind it, and (3) to assess whether the bashing has “worked” from the U.S. point of view (e.g. has it influenced the rate of appreciation of the Renminbi against the dollar?).To accomplish the first objective, I construct two China-bashing indices that track the incidence of news reported in the United States with a negative slant toward China. The first index tracks newspaper articles in major U.S. outlets containing one of the following “grievance” key phrases: “human rights,” “democracy,” “child labor,” “Tibet,” and “repression,” phrases that have persistently been associated with criticisms of China. I find that this index correlates well with opinion polls about China conducted in the United States, and the correlation suggests that the index is a meaningful measure of bashing. The second index tracks articles containing one or more of the following key phrases: “exchange rate manipulation,” “exchange rate manipulator,” “currency manipulation,” and “currency manipulator.” The indices, which span the 1990 to 2010 period, reveal that the composition of China-bashing in U.S. print media has shifted over time.While “human rights” bashing has declined somewhat, “currency manipulation” bashing has risen sharply. My estimates indicate that U.S. newspapers report news with a negative slant about China 130 to 150 percent as often as newspapers in other countries.To address the second objective I break down the “human rights” bashing index by the ideological slant of the newspaper. The results indicate that “liberal” newspapers bash China more intensely than “conservative” newspapers do, suggesting that ideology may be a relevant issue behind the bashing.Pertaining to the last objective – whether bashing has worked – the empirical results indicate that it has not. In fact, I find that currency-manipulation bashing appears to slow down, rather than accelerate, the rate at which the renminbi appreciates against the U.S. dollar. If the U.S. objective is to have China let the renminbi appreciate against the dollar, then the empirical results reported in this paper indicate that China bashing may actually be counterproductive.

Walter Mitty and the Dragon: An Analysis of the Possibility for WTO or IMF Action against China’s Manipulation of the Yuan

Given the recurring debate over whether China's monetary policies constitute currency manipulation actionable under the World Trade Organization (WTO) or International Monetary Funds (IMF) Agreements, a legal analysis of these possibilities is prudent. As shown in this article, China's policies do not run afoul of the Agreement on Subsidies and Countervailing measures, as they do not constitute a financial contribution under Article 1.1(a)(1) nor are they 'specific' within the meaning of Article 5. These policies are also not prohibited by General Agreement on Tariffs and Trade (GATT) Article XV, primarily because they are not covered by a proper interpretation of the scope of this Article. Finally, Article IV of the IMF Agreement is not violated because the necessary wrongful intent is not present and/or cannot be demonstrated. There is therefore no legal basis for action against China under these Agreements. Over the past year renewed calls for China to re-value its currency against the threat of legal action have been made in legal and economic periodicals, international conferences, and, perhaps most effectively, the US Congress. Considering the dismal state of the American and indeed the world economy, such a demand is not surprising. As one of the world's largest markets, China's economic and political policies have a major impact on the global economy. If in fact the yuan - the basic denomination of the Renminbi (RMB) - is undervalued, it is generally agreed that Chinese exports would be favoured while international imports would be penalized. Thus, a strong argument exists for China to remedy this imbalance by re-valuing their currency. Despite this, commentators overshoot the mark when they demand legal action under the Agreement on Subsidies and Countervailing Measures, GATT Article XV, or the IMF Articles of Agreement. The fact of the matter is that while a case may be made for the finding of a violation of one or more of these regimes, it is ultimately unlikely to succeed. The main reasons for this are that the relevant articles are not intended to cover a situation where a country artificially keeps the value of its currency low, and that even if they can be read to, the facts do not support the finding of a violation in this case. Moreover, assuming that a violation could be found, serious difficulties arise with regard to implementing remedies. While there is an abundance of commentary on this issue, most authors focus on economic or political discussions and they are not necessarily incorrect for doing so. This paper, however, intends to fill the gap through an in depth analysis of whether China's policy is actionable under the Agreement on Subsidies and Countervailing Measures, the GATT, and/or the IMF Articles of Agreement. It will further be considered whether and what kind of remedies would be available in the event that a violation of one or more of these agreements is found. In the end, though, it will be seen that in this case it is better to simply let the dragon lie.

Wielding Finance as a Weapon of Diplomacy: France and Britain in the 1920s

France had long conceived of finance as an instrument of diplomacy. The role of French finance in the sealing of the Franco-Russian Alliance in 1892 is well known; the Quai d'Orsay's use of access to the French financial markets and the Bourse as an arm of foreign policy before the War was the subject of much research in the early 1970s. However, the use of currency speculation as a diplomatic instrument has received little attention. Of course, under a regime of fixed rate parities as existed before the Great War—the Gold Exchange Standard—currency fluctuation was uncommon; it was extremely difficult to attack currencies in a concerted manner on the international money markets for any reason, let alone for diplomatic advantage. But following the outbreak of the Great War, many currencies came off the gold standard, and a state of financial turmoil prevailed in the post-war period. The French franc was not alone in being buffeted on the international market. Currency vulnerability and the ramifications it had for national economic policies became all too obvious. Friends and foe alike could not ignore how short-term concerted action by banks and financial institutions on a currency by heavy selling or buying could undermine governments and their policies. It was not long before governments would view currency speculation as a means of influencing policy. The question of stabilising the French franc in the 1920s and returning it to a fixed parity against gold has been studied from economic and political dimensions; the diplomatic has been the missing dimension. This article looks at the stabilisation of the French currency in 1926 under Raymond Poincaré and the manner in which finance was wielded as an instrument of diplomacy against Britain. It first analyses how France perceived herself to be the object of currency manipulation for political aims by Germany and Britain in the early 1920s, and then it analyses how during the stabilisation of the franc after 1926 under Premier and Finance Minister Raymond Poincaré she was able to turn the tables and use short-term financial advantage as leverage against Britain on important policy matters.

Global financial architecture, global imbalances and the future of the dollar in a post‐crisis world

PurposeFinancial globalization and global imbalances are two facets of the same phenomenon, which has resulted in the worst global economic and financial crisis since the Great Depression. The purpose of this paper is to analyze the complex interaction of several mutually reinforcing trends and factors – the global monetary easing of 2001‐2004, financial innovation, regulatory failure, in particular in the USA and the UK, US fiscal indiscipline and Chinese currency manipulation – that contributed to the global financial crisis. The key to a return to global financial buoyancy will be the coordinated resolution of the global imbalances over the medium term, as well as the establishment of a strong global financial regulatory framework focusing on both macro‐ and micro‐financial risks.Design/methodology/approachIn the paper, the author analyzes the role of the interaction of financial innovation, regulatory and global imbalances in the creation of the real estate bubble, shadow banking and the eventual collpase of what the author dubbed the Banking 2.0 structure (1980s).FindingsThe main findings are that these factors contributed to a flattening of the yield curve in 2004‐2006 despite the tightening of monetary policy and growing US fiscal deficits. Moreover, while the US dollar is on a long‐term weakening trend, the lack of alternatives means that it will maintain its role as a reserve currency.Originality/valueThis paper focuses on the role of the global imbalances in triggering the financial crisis and shaping the role of the dollar in the post‐crisis world.

The Difference Between Currency Manipulation and Monetary Policy

But because this [Chinese] exchange rate policy is externally focused and relies heavily on regulations, which restrain normal market forces, it is reasonable to say that the policy constitutes currency manipulation for purposes of gaining an advantage in trade.

‘Currency manipulation’ and world trade

AbstractCentral bank intervention in foreign exchange markets may, under some conditions, stimulate exports and retard imports. In the past few years, this issue has moved to center stage because of the foreign exchange policies of China. Numerous public officials and commentators argue that China has engaged in impermissible ‘currency manipulation’, and various proposals for stiff action against China have been advanced. This paper considers the relationship between exchange rate policy and international trade, and addresses the questions of whether and how currency manipulation should be addressed by the international trading system. Our conclusions are at odds with much of what is currently being said by proponents of multilateral or unilateral actions against China. In particular, we question whether China's practices can be adjudicated to be ‘manipulation’ under international law, and doubt that their trade effects can be identified with the degree of confidence necessary to ascertain whether the practices ‘frustrate the intent’ of WTO/GATT commitments. The difficulty of identifying the trade effects of currency practices undermines the ability of the WTO dispute resolution system to address them, and calls into question the wisdom and legitimacy of unilateral countermeasures that have been proposed in various quarters.

BEYOND THE COUNTERTRADE TABOO: WHY THE WTO SHOULD TAKE ANOTHER LOOK AT BARTER AND COUNTERTRADE

Associated during the Cold War with currency controls, unreal exchange rates, administratively managed trade, and other pathologies of command economies, barter and other forms of countertrade such as counterpurchase have more than survived the end of Communism. In official trade-policy circles, however, there is a marked and long-standing distaste for countertrade, stemming from their strong association with the dysfunctions of command economies. In this essay I explore the emergence of the prejudice against barter and countertrade in the gatt era during the 1980s; I then draw on a body of economic literature that applies transaction costs theory to international barter and countertrade transactions to suggest why these transactions may have ‘legitimate’ economic rationales rather than being attributable to pathologies such as corruption, cronyism, wasteful subsidization, and currency manipulation. In light of this analysis, I then proceed to examine relevant provisions of the wto treaties, in order to assess the extent to which these disciplines may limit the scope of countertrade between wto members.

Beyond the countertrade taboo: Why the WTO should take another look at barter and countertrade

Associated during the Cold War with currency controls, unreal exchange rates, administratively managed trade, and other pathologies of command economies, barter and other forms of countertrade such as counterpurchase have more than survived the end of Communism. In official trade-policy circles, however, there is a marked and long-standing distaste for countertrade, stemming from their strong association with the dysfunctions of command economies. In this essay I explore the emergence of the prejudice against barter and countertrade in the GATT era during the 1980s; I then draw on a body of economic literature that applies transaction costs theory to international barter and countertrade transactions to suggest why these transactions may have 'legitimate' economic rationales rather than being attributable to pathologies such as corruption, cronyism, wasteful subsidization, and currency manipulation. In light of this analysis, I then proceed to examine relevant provisions of the WTO treaties, in order to assess the extent to which these disciplines may limit the scope of countertrade between WTO members.

The evolution of renminbi yuan and the protracted debate on its undervaluation: An integrated review

For virtually a decade, the undervaluation of RMB yuan has become an issue of impassioned debate in international monetary economics. This issue kept the academic and policy circles engrossed in argumentative deliberations. That RMB yuan is undervalued is widely acknowledged. With China's emergence as an economic superpower of the future, this debate no doubt has considerable merit and ramifications. This article examines sang-froid the RMB yuan undervaluation and provides a review of recent and on-going research on it. The mid-2005 currency revaluation and modification of foreign exchange regime has enormous significance in this regard. It became a defining moment in the RMB yuan debate. This article attempts to examine whether accusations of currency manipulation made against China can hold, or are merely disingenuous. It encourages the reader to see whether the RMB yuan should be further appreciated. If yes, whether the misalignment is inordinately large or of incidental order which would be corrected with the passage of time. A good number of econometric exercises were undertaken, using differing methodologies. There was a complete lack of consensus on the misalignment of the RMB yuan. It has slowly appreciated since it abandoned its dollar peg in 2005. As the Chinese economy picks up further growth momentum, the currency appreciation is expected to accelerate.

McGuffey, Ford, Baldwin, and the Jews

McGuffey, Ford, Baldwin, and the Jews by Ronald R. Stockton Henry Ford exhibited anti-Semitic attitudes throughout his life. Scholars have no definitive explanation of where these beliefs originated, although many point to political influences during Ford's youth as possible causes: an overarching xenophobia in the country as a whole as well as the tendency for fringe elements to associate Jews with the machinations of powerful banking interests which purportedly engaged in currency manipulation and fomented economic turmoil.1Neil Baldwin's recent book Henry Ford and theJews presents a new theory, that Ford learned anti-Semitism from the various editions ofMcGuffey's Eclectic Readers. Baldwin's book jacket makes the point that Ford's "early intellectual growth was dominated by The McGuffey Reader, a popular schoolbook featuring Shakespeare's Shylock, and traditional scriptural interpretations condemning Jews for not accepting Jesus Christ as the son of God."2 The first chapter in Baldwin's book ("McGuffeyland") notes that Ford grew up with the Readers. Baldwin says that McGuffey emphasized that "Protestant Christianity was the only true religion in America." The Readers taught "a Calvinist structure of reward and punishment" inwhich "hard work, thrift,and rugged conformity were the ideals. Success was desired. Failure was shunned." According to Baldwin, the Readers embraced "an ordered, rigid, and straightforward view of aworld where white was white and black was black."3 None of Baldwin's observations would surprise anyone familiar with the Readers. McGuffey's views were "a mirror of early nineteenth century America." The first two Readers were published in 1835 and 1836. Others came later.They targeted the small towns and rural areas Michigan Historical Review 35:2 (Fall 2009): 85-96 ?2009 by Central Michigan University. ISSN 0890-1686 All Rights Reserved. 1Allan Nevins and Frank Ernest Hill, Ford, Expansion and Challenge, 1915-1933 (New York: Scribner, 1957); Douglas Brinkley, Wheels for theWorld: Henry Ford, His Company, and a Century ofProgress, 1903-2003 (New York: Viking, 2003). 2Neil Baldwin, Henry Ford and theJews: The Mass Production ofHate (New York: Public Affairs, 2001). 3 Ibid., 4-5. 86 MichiganHistoricalReview of what was then the West, where education was fragmentary.4Because teachers at that timewere generally not well educated, graded textbooks that introduced students (and teachers) to the great writers were amajor contribution to the curriculum. The Readers also affirmed the value of ethnic groups through a "cosmopolitan" approach that emphasized "the rich cultural traditions of other nations."5 The books included stories about Germany, England, Scodand, France, Italy, Holland, Russia, Spain, Poland, Arabia, Al Hambra, India, and Catholic Ireland. Many entries praised the ancient Hebrews, their scriptures, and theirmoral teachings. Itwas themulticulturalism of its age. Previous works on Ford's anti-Semitism mentioned theMcGuffey Readers peripherally, if at all, but a number of reviewers of Baldwin's book embraced the theory.Alison Cowan wrote that Ford's "aversion" to Jews dated to his schooldays, "when he was reared on themoralistic teachings of William Holmes McGuffey, whose books harped on sources like Shakespeare's 'Merchant of Venice.'" Robert Rockaway said, "Baldwin infers that Ford's phobia about Jews originated in his youth when, as a schoolboy, he fellunder the influence of theMcGuffey Readers." Carlin Romano reported that Ford "grew up reading McGuffey's Readers, fullof anti-Semitic stereotypes and the example of Shylock, Shakespeare's poster boy forJewish greed."6 At this point, it is hard to see how any work published after 2001 that addresses Ford's anti-Semitism or McGuffey could fail to note Baldwin's book. Unfortunately, however, Baldwin's arguments in his opening chapter are flawed and heavily dependent upon a selective, sometimes erroneous or forced reading of secondary sources. To support his thesis, Baldwin cites five readings fromMcGuffey. "Shylock, 4 John H. Westerhoff III, McGuffey and His Readers: Piety,Morality, and Education in Nineteenth-Century America (Nashville, Tenn.: Abingdon, 1978), 18. 5 Henry Steele Commager, "Foreword," inWilliam H. McGuffey, McGuffey s Fifth Eclectic Reader (1879; repr., New York: New American Library, 1962), xv-xvi. 6 Alison Leigh Cowan, "Off the Shelf: The Industrial Genius Who Hated Difference," New York Times, December 9, 2001, sec. 3, 6; Robert Rockaway (review), Henry Ford and the Jews: The Mass Production...

Congress, Treasury, and the Accountability of Exchange Rate Policy: How the 1988 Trade Act Should Be Reformed

The controversy within the United States over Chinese exchange rate policy has generated a series of legislative proposals to restrict the discretion of the Treasury Department in determining currency manipulation and to reform the department's accountability to Congress. This paper reviews Treasury's reports to Congress on exchange rate policy - introduced by the 1988 Trade Act and Congress's treatment of them. It finds that the accountability process has often not worked well in practice: The reports provide only a partial basis for effective congressional oversight. For its part, Congress held hearings on less than half of the reports and overlooked some important substantive issues. Several recommendations can improve guidance to the Treasury, standards for assessment, and congressional oversight. These include (1) refining the criteria used to determine currency manipulation and writing them into law, (2) explicitly harnessing US decisions on manipulation to the International Monetary Fund's rules on exchange rates, (3) clarifying the general objectives of US exchange rate policy, (4) reaffirming the mandate to seek international macroeconomic and currency cooperation, (5) requiring Treasury to lead an executivewide policy review, and (6) institutionalizing multicommittee oversight of exchange rate policy by Congress. Legislators should strengthen reporting and oversight of broader exchange rate policy in addition to strengthening the provisions targeting manipulation.