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

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  • C. Randall Henning

    () (Peterson Institute for International Economics)

Abstract

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.

Suggested Citation

  • C. Randall Henning, 2007. "Congress, Treasury, and the Accountability of Exchange Rate Policy: How the 1988 Trade Act Should Be Reformed," Working Paper Series WP07-8, Peterson Institute for International Economics.
  • Handle: RePEc:iie:wpaper:wp07-8
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    References listed on IDEAS

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    1. Michael P. Dooley & David Folkerts-Landau & Peter M. Garber, 2005. "An essay on the revived Bretton Woods system," Proceedings, Federal Reserve Bank of San Francisco, issue Feb.
    2. Nicholas R. Lardy, 2006. "China: Toward a Consumption-Driven Growth Path," Policy Briefs PB06-6, Peterson Institute for International Economics.
    3. John Williamson, 2007. "Reference Rates and the International Monetary System," Peterson Institute Press: All Books, Peterson Institute for International Economics, number pa82.
    4. C. Randall Henning, 1994. "Currencies and Politics in the United States, Germany, and Japan," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 15.
    5. Noland, Marcus, 1997. "Chasing Phantoms: The Political Economy of USTR," International Organization, Cambridge University Press, vol. 51(03), pages 365-387, June.
    6. C. Randall Henning, 1999. "Exchange Stabilization Fund: Slush Fund or War Chest?, The," Peterson Institute Press: Policy Analyses in International Economics, Peterson Institute for International Economics, number pa57, October.
    7. Barry Eichengreen, 2010. "Global Imbalances and the Lessons of Bretton Woods," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262514141, January.
    8. Gary Clyde Hufbauer & Yee Wong & Ketki Sheth, 2006. "US-China Trade Disputes: Rising Tides Rising Stakes," Peterson Institute Press: All Books, Peterson Institute for International Economics, number pa78.
    9. C. Randall Henning, 2006. "The External Policy of the Euro Area: Organizing for Foreign Exchange Intervention," Working Paper Series WP06-4, Peterson Institute for International Economics.
    10. repec:cup:apsrev:v:99:y:2005:i:01:p:29-43_05 is not listed on IDEAS
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    12. I. M. Destler, 2007. "American Trade Politics in 2007: Building Bipartisan Compromise," Policy Briefs PB07-5, Peterson Institute for International Economics.
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    Cited by:

    1. Scott Andrew Urban, 2009. "The Name of the Rose: Classifying 1930s Exchange-Rate Regimes," Economics Series Working Papers Paper 76, University of Oxford, Department of Economics.
    2. C. Fred Bergsten, 2014. "Addressing Currency Manipulation Through Trade Agreements," Policy Briefs PB14-2, Peterson Institute for International Economics.
    3. Scott Andrew Urban, 2009. "The Name of the Rose: Classifying 1930s Exchange-Rate Regimes," Oxford University Economic and Social History Series _076, Economics Group, Nuffield College, University of Oxford.

    More about this item

    Keywords

    Exchange rate policy; currency manipulation; accountability; congressional oversight; China; Treasury; International Monetary Fund;

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission
    • F51 - International Economics - - International Relations, National Security, and International Political Economy - - - International Conflicts; Negotiations; Sanctions
    • F53 - International Economics - - International Relations, National Security, and International Political Economy - - - International Agreements and Observance; International Organizations

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