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Zhu Jun: Recognition of Exchange Rate Manipulation
Published:8/12/2019 4:19:21 PMViews: 67
On August 6, the US Treasury Department, at the request of US President Trump, labeled China as "exchange rate manipulation", which caused shock and heated discussion among all parties. It is concluded that China's "exchange rate manipulation" is not only contrary to the basic economic knowledge and the consensus of the international community, but also inconsistent with the quantitative indicators set by the United States'own laws, seriously undermining international rules. We have sorted out the relevant laws and regulations and the common practices of international organizations in identifying "exchange rate manipulation", mainly in the following situations.
1. American Recognition of Exchange Rate Manipulation
Since the early 1980s, the United States has gradually shifted its trade balance from surplus to deficit. It attaches great importance to the foreign sector and has enacted two bills to evaluate the exchange rate policies of its trading partners. The recognition and treatment of "exchange rate manipulation" in the two laws are not entirely consistent. As long as the assessed economy meets the criteria set by one of the laws, it can be recognized as a country of exchange rate manipulation.
The first part is the Comprehensive Trade and Competition Act 1988. The bill aims to strengthen the international position of the United States in trade. Section 3004 (b) stipulates that the US Treasury Secretary should analyze foreign exchange rate policies every year and update them every six months to determine whether other countries manipulate exchange rates to hinder the effective adjustment of the balance of payments or obtain unfair advantages in international trade (i.e., the US Treasury Department now). "Macroeconomic and Exchange Rate Policy Report of Major U.S. Trade Partners" published every six months. The bill does not specify the standard of "exchange rate manipulation", so the US Treasury Department has great discretion and flexibility in assessing foreign exchange rate policies. The U.S. Treasury Department decided that China's "exchange rate manipulation" was mainly based on the invocation of the bill.
The bill does not specify corrective or punitive measures. If the U.S. Treasury Secretary determines that a country has manipulated its exchange rate, he only requires the U.S. government to take prompt action to initiate bilateral negotiations or consultations on the International Monetary Fund (IMF) platform.
The second part is the Trade Facilitation and Enhancement Act of 2015. Amendment to Article 701 of the Act stipulates that the U.S. Treasury Department should consider three key indicators when analyzing the macroeconomic and exchange rate policies of major trading partners based on the Comprehensive Trade and Competition Act 1988: a significant bilateral trade surplus with the United States; a large current account surplus; and a foreign exchange surplus. The market continues to carry out one-way intervention. If a country triggers the above three indicators at the same time, it will be recognized as a "currency manipulator". If two items are met or a larger share of the U.S. trade deficit is met, it will be placed on the monitoring list. The U.S. Treasury further developed quantitative evaluation criteria for these indicators: first, bilateral trade surplus in goods with the United States exceeded $20 billion; second, current account surplus exceeded 3% of GDP; and third, net foreign exchange purchases were implemented at least eight months in the past 12 months and the total amount exceeded 2% of GDP. The U.S. Treasury will also target the top 12 U.S. trading partners.