The Unfavorable Economics of Currency Manipulation Chapters in Trade Agreements
Green, Russell A.
As Congress resumes work this spring on a bill granting Trade Promotion Authority (TPA) to President Obama for completion of the Trans-Pacific Partnership trade pact, many members have sought inclusion of a chapter on currency manipulation. Currency manipulation is a legitimate concern. However, countermeasures require clear, objective identification of currency manipulation. Both the IMF and the US Treasury Department have mandates to identify currency manipulation, yet neither has done so in the past 20 years. If it can be done, why has it not happened more often? This issue brief reviews the difficulties of operationalizing a currency manipulation chapter. It first demonstrates that domestic policies and exchange rate policy can rarely be distinguished. It reviews the official IMF criteria for currency manipulation to highlight the degree of discretionary interpretation necessary for a determination. It argues that the difficulty of identifying currency manipulation suggests serious political obstacles to implementation.