Currency Manipulation versus Current Account Manipulation
AbstractIt is said that a country’s currency peg can become currency manipulation representing protracted government intervention in the foreign exchange market that gives it unfair competitive advantage in international trade yet prevents effective balance of payments in its trade partners. Regarding this widespread fallacy, this paper explains why currency peg is not currency manipulation even when it keeps a country’s currency undervalued. We clarify that 1) government is inherently a major player in the financial market and hence “no protracted intervention” is a meaningless guideline for designating currency manipulation; 2) exchange rate flexibility is neither a sufficient nor a necessary condition for fixing current account imbalance and hence currency peg would not prevent effective current account adjustments; and 3) as far as causing “unfair” trade advantage is concerned, currency peg is less guilty than the attempt to prevent or fix current account imbalance; and obligating a country to adjust its currency to accommodate its trade partners’ current account management would unfairly impair this country’s trade advantage.
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Bibliographic InfoPaper provided by EconWPA in its series International Finance with number 0510023.
Length: 59 pages
Date of creation: 24 Oct 2005
Date of revision:
Note: Type of Document - pdf; pages: 59
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currency manipulation; current account; exchange rate; RMB controversies;
Find related papers by JEL classification:
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
- F31 - International Economics - - International Finance - - - Foreign Exchange
- F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-10-29 (All new papers)
- NEP-FMK-2005-10-29 (Financial Markets)
- NEP-IFN-2005-10-29 (International Finance)
- NEP-MAC-2005-10-29 (Macroeconomics)
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