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handle is hein.crs/govbacv0001 and id is 1 raw text is: Debates over Currency Manipulation Updated June 24, 2019 Overview Some Members of Congress and policy experts argue that U.S. companies and jobs have been adversely affected by the exchange rate policies adopted by other countries. They allege that these countries use policies to manipulate the value of their currency in order to gain an unfair trade advantage against other countries, including the United States. Other analysts are more skeptical about currency manipulation being a significant problem. They raise questions about whether government policies have long- term effects on exchange rates, whether it is possible to differentiate between manipulation and legitimate central bank activities, and the net effect of currency manipulation on the U.S. economy. Background What is currency manipulation? At the heart of current debates is whether or not other countries are using policies to intentionally weaken the value of their currency, or sustain a weak currency, to gain a trade advantage. A weak currency makes exports less expensive to foreigners, which can spur exports and job creation in the export sector. Can governments weaken their currencies? Economists disagree about whether government policies have long-term effects on exchange rates, particularly for countries with floating exchange rates. However, some economists believe that, at least in the short run, some government policies can impact the value of currencies. One policy is buying and selling domestic and foreign currencies (intervening) in foreign exchange markets. A number of economic policies, including monetary, fiscal, and structural policies, may also affect exchange rate levels but they may be pursued for policy goals unrelated to trade. For example, a central bank may adopt expansionary monetary policies to combat a domestic recession, while having the simultaneous effect of depreciating the currency. What is the impact on the United States? If another country weakens its currency relative to the dollar, U.S. exports to the country may be more expensive and U.S. imports from the country may be less expensive. As a result, U.S. exports to the country may be negatively affected, and U.S. producers of import-sensitive goods may find it hard to compete with imports from the country. On the other hand, U.S. consumers who buy imports and U.S. businesses that rely on inputs from overseas may benefit, because goods from the country may be less expensive. Which countries are accused of currency manipulation? There is debate over which countries, if any, are manipulating their exchange rates. Part of the debate is which, if any, government policies should count as currency https://crsrepo manipulation. Economists have also developed a number of models to estimate whether the actual value of a currency differs from what it should be according to economic fundamentals. Various models produce different results. According to a 2017 study by economists at the Peterson Institute for International Economics, currency manipulation has largely been in remission since 2014. The Treasury Department since President Trump took office has not formally found any country to be manipulating its currency in its semiannual report to Congress. China's interventions in foreign exchange markets to limit appreciation of its currency largely occurred between 2003 and 2014. However, recent depreciation of China's currency, as well as a relatively strong U.S. dollar (Figure 1), may be fueling Administration concerns. A strong dollar makes it more difficult for some U.S. firms to compete against foreign producers. Figure I. Nominal Broad Dollar Index 105 100 90 85 8G o 1- N M t U 0 0 C) N q N N N~ N N N N Source: Federal Reserve. Notes: An increase on the graph represents an appreciation of the U.S. dollar against other currencies. Existing Policy Frameworks Multilaterally, members of the International Monetary Fund (IMF) have committed to refraining from manipulating their exchange rates to gain an unfair trade advantage. Violators could face loss of IMF funding, suspension of voting rights or, ultimately, expulsion from the IMF. The IMF has never publicly labeled a country as a currency manipulator. Some argue that commitments made in the context of the World Trade Organization (WTO) are relevant to disagreements over exchange rates, although this view is debated. Exchange rates are also discussed by the G-7 and the G-20, where commitments to refrain from currency manipulation are now routinely emphasized. Provisions in U.S. law also address currency manipulation. The 1988 Trade Act (P.L. 100-418) requires the Treasury Department to analyze semiannually the exchange rate policies of major U.S. trading partners. If some countries rts.congressgov

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