Yellen Struggles To Rebuild Currency Manipulation Credibility, Why Bother?


The Trump administration briefly labeled China a currency manipulator despite not meeting targets.

Currency Manipulation Criteria 

  1. Persistent, one-sided intervention in the foreign exchange market occurs when net purchases of foreign currency are conducted repeatedly, in at least 6 out of 12 months, and these net purchases total at least 2% of an economy’s gross domestic product (GDP) over a 12-month period.
  2. A material current account surplus is one that is at least 2% of GDP over a 12-month period.
  3. A significant bilateral trade surplus with the United States is one that is at least $20 billion over a 12-month period

Despite meeting only one of the criteria, Trump labeled China a currency manipulator, then removed the label in negotiations with China that produces no results, only tariff misery.

Rebuilding Credibility

The report is out but first let's discuss Rebuilding Credibility.

During her confirmation hearing in January, Yellen told lawmakers that the U.S. “should oppose” attempts by other nations to game their currencies.

She also hinted at changing the criteria of the currency report, saying that bilateral trade deficits shouldn’t be seen as “a single catch-all metric.”

‘Rebuild Credibility’

Under the Trump administration there was an “ad hoc” interpretation of the manipulation criteria, according to Eswar Prasad, an economist at Cornell University who formerly worked in the International Monetary Fund’s China division.

In 2017, Mnuchin placed China on its so-called watch list of countries receiving heightened scrutiny for triggering one out of three of the criteria, rather than the two that is the standard laid out in the report.

Now Treasury needs to “rebuild credibility for the report by using a more sensible set of criteria and applying them in a consistent manner across countries rather than change the process to specifically target a certain country,” Prasad said.

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