Taking A Peek At Yellen’s Foreign Exchange Agenda
ING Economic and Financial Analysis | Mar 24, 2021 05:07AM ET
While the new administration took early steps to distance themselves from a number of policies of the Trump-era, a continuation of the strict stance on foreign currency mis-practices with specific focus on China is widely expected.
The Treasury is responsible for the US foreign policy when it comes to currency practices, and Secretary Janet Yellen made clear in her confirmation speech that she intends to hold a tough line on currency manipulation and that she stands ready to “take on China’s abusive, unfair and illegal practices”. In this article we look at how the next Treasury FX Reports may look like to fit the new US trade agenda.h2 The starting point: addressing current manipulation tags/h2
The FX report aims at identifying those countries that engage in FX interventions to gain a trade advantage to the US. Three criteria must be simultaneously met to be labelled a currency manipulator and the Treasury must engage in one year of bilateral talks with the country named a manipulator to encourage more fair and transparent FX practices. Eventually, penalties or tariffs can be imposed.
Source: US Treasury, ING
The three criteria (shown in the picture above) have some quantitative thresholds that must be met. Those thresholds were lowered during Trump’s presidency, making it more likely for a country to exceed them.
Since the introduction of the report in 1988 and before the change in the criteria under Trump, only three countries had been labelled as currency manipulators (Japan in 1988, Taiwan in 1988 and 1992 and China from 1992 to 1994). In August 2019, at the peak of the US-China tension, China was named a manipulator despite meeting only one of the three criteria. The tag was then removed in January 2020, ahead of the Phase-one trade deal. In the very last report under Secretary Steve Mnuchin in December 2020, Read more
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