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The Mystery of Foreign Exchange Policy: What Makes Currency Manipulation Difficult to Identify?
The U.S. government's regulatory policy on currency manipulation dates back to 1988, when the government began labeling some countries as "currency manipulators," a designation usually associated with unfair monetary policies, such as gaining trade advantages by intervening in foreign exchange markets. Such manipulations are usually led by central banks, who may sell or buy foreign currencies to influence exchange rates and, in turn, a country's commercial policies. As a result, the intentions and reasons behind each country’s monetary policies have become increasingly complex and difficult to discern.
Countries may intervene in their currencies for a variety of reasons, such as to control inflation, maintain international competitiveness, or ensure financial stability.
Under the Omnibus Foreign Trade and Competitiveness Act of 1988, the U.S. Treasury Secretary must regularly analyze the exchange rate policies of other countries and consider whether there is manipulation, a task that demonstrates the profound impact of monetary policy on international trade. If a country is designated as a currency manipulator, it will face sanctions from the United States, including being excluded from U.S. government procurement contracts. At the same time, the Trade Promotion and Trade Enforcement Act also requires the Treasury Department to publish a report outlining developments in international economic and exchange rate policies.
However, the quantification and identification criteria of currency manipulation have always been controversial. On the one hand, since the law was implemented in 1988, the United States has repeatedly included South Korea, Taiwan, China, India and other countries on the currency manipulator list. On the other hand, the United States’ own monetary policy, especially quantitative easing after the 2008 financial crisis, is often criticized as implicit monetary manipulation.
Some people believe that the concept of "currency manipulation" is false, after all, the United States itself already has the privilege of being the world's main reserve currency.
Many experts point out that currency manipulation has a particularly significant impact on the manufacturing industry. With the turmoil in the global economy and dramatic changes in policies of various countries, the US trade deficit has further exacerbated during the epidemic, making foreign exchange policies in various regions receive greater attention. According to a 2013 study, lawmakers in a country are more likely to label China a currency manipulator if the manufacturing workforce in that country accounts for a larger share of its congressional districts.
Faced with external pressure, some countries that were once listed as currency manipulators are now trying to adjust their policies to avoid sanctions. For example, in 2021, monetary policy in Vietnam and Switzerland came under review by the U.S. Treasury, while their officials stressed that their foreign exchange policies were aimed at ensuring economic stability rather than seeking trade advantages.
The State Bank of Vietnam said its foreign exchange policy is aimed at controlling inflation and ensuring macroeconomic stability, rather than creating an unfair trade advantage.
Trade issues with Vietnam and Switzerland are reportedly being resolved quickly, signaling a shift in the new administration's approach to international economic relations. Compared with the tough measures in the past, today's policies are more inclined to establish dialogue and cooperation.
However, there are still many uncertainties behind these operations. The volatility of the foreign exchange market, the domestic considerations of various countries and changes in the global economy make the phenomenon of currency manipulation more complicated. In the future, how will these factors affect the international trade pattern? It is worth our further thinking and attention.
