Combating Widespread Currency Manipulation
AbstractWidespread currency manipulation, mainly in developing and newly industrialized economies, is the most important development of the past decade in international financial markets. In an attempt to hold down the values of their currencies, governments are distorting capital flows by around $1.5 trillion per year. The result is a net drain on aggregate demand in the United States and the euro area by an amount roughly equal to the large output gaps in the two economies. In other words, millions more Americans and Europeans would be employed if other countries did not manipulate their currencies and instead achieved sustainable growth through higher domestic demand. Gagnon identifies the 20 most egregious currency manipulators over the past 11 years. Four groups of countries stand out: (1) longstanding advanced economies such as Japan and Switzerland; (2) newly industrialized economies such as Israel, Singapore, and Taiwan; (3) developing Asian economies such as China, Malaysia, and Thailand; and (4) oil exporters such as Algeria, Russia, and Saudi Arabia. Although currency manipulation to boost trade balances is a violation of the Articles of Agreement of the International Monetary Fund (IMF), there is currently no procedure to punish or curtail it. The best forum for sanctions against currency manipulators is the World Trade Organization, operating in consultation with the IMF. Countries affected by currency manipulation would be authorized to impose tariffs on imports from manipulators. In order to get manipulators to agree to this change in international rules, the main targets of currency manipulation—the United States and the euro area—may have to play tough. One strategy would be to tax or otherwise restrict purchases of US and euro area financial assets by currency manipulators.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Peterson Institute for International Economics in its series Policy Briefs with number PB12-19.
Date of creation: Jul 2012
Date of revision:
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-07-23 (All new papers)
- NEP-MON-2012-07-23 (Monetary Economics)
- NEP-OPM-2012-07-23 (Open Economy Macroeconomics)
- NEP-SEA-2012-07-23 (South East Asia)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Edwin M. Truman, 2010. "Strengthening IMF Surveillance: A Comprehensive Proposal," Policy Briefs, Peterson Institute for International Economics PB10-29, Peterson Institute for International Economics.
- Edwin M. Truman, 2011. "Sovereign Wealth Funds: Is Asia Different?," Working Paper Series, Peterson Institute for International Economics WP11-12, Peterson Institute for International Economics.
- Gary Clyde Hufbauer & Jeffrey J. Schott, 2012. "Will the World Trade Organization Enjoy a Bright Future?," Policy Briefs, Peterson Institute for International Economics PB12-11, Peterson Institute for International Economics.
- Olivier Jeanne & Arvind Subramanian & John Williamson, 2012. "Who Needs to Open the Capital Account?," Peterson Institute Press: All Books, Peterson Institute for International Economics, Peterson Institute for International Economics, number 5119, July.
- Jaewoo Lee & Jonathan David Ostry & Alessandro Prati & Luca Antonio Ricci & Gian-Maria Milesi-Ferretti, 2008. "Exchange Rate Assessments," IMF Occasional Papers, International Monetary Fund 261, International Monetary Fund.
- Gros, Daniel & Mayer, Thomas, 2012. "A Sovereign Wealth Fund to Lift Germany’s Curse of Excess Savings," CEPS Papers, Centre for European Policy Studies 7229, Centre for European Policy Studies.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Peterson Institute webmaster).
If references are entirely missing, you can add them using this form.