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No Currency Manipulators Named in Semiannual Treasury Report

Thursday, April 17, 2014
Sandler, Travis & Rosenberg Trade Report

In its semiannual report on foreign exchange rate policies released April 15, the Treasury Department again determined that none of the United States’ major trading partners is manipulating its exchange rate to gain an unfair trade advantage. Reviewing the policies of ten economies accounting for 71% of U.S. foreign trade, the report finds that during the second half of 2013 progress on rebalancing global demand may have worsened and foreign exchange intervention and reserve accumulation in some countries increased notably. The report therefore highlights the need for greater exchange rate flexibility, particularly in China, and emphasizes the need for greater transparency on exchange rate management, much less official intervention in foreign exchange markets, and stronger restraints on actual and verbal intervention.

The report’s findings include the following.

- China’s currency appreciated by 2.9% against the dollar in 2013 but has depreciated by 2.68% so far in 2014. A variety of factors indicate an exchange rate for the yuan that “remains significantly undervalued.” China has resumed “large-scale intervention” in managing the exchange rate, and recent developments “would raise particularly serious concerns if they presage renewed resistance to currency appreciation and a retreat from China’s announced policy of reducing intervention and allowing the exchange rate to reflect market forces.”

- Japan has not intervened in foreign exchange markets in almost two years and Japanese officials have clearly ruled out purchases of foreign assets as a monetary policy tool. In August 2013 the International Monetary Fund assessed the yen’s real effective exchange rate to be moderately undervalued.

- The South Korean won appreciated 1.4% against the dollar in 2013 but its real effective exchange rate remains about 11% weaker than in 2007. During the second half of 2013 Korean authorities are believed to have intervened to limit the pace of won appreciation, but unlike many other major emerging markets and industrialized economies Korea does not publicly report foreign exchange market interventions.

- Taiwan maintains a managed float exchange rate regime but should move toward a more fully market-determined exchange rate. The new Taiwan dollar appreciated 1.1% against the U.S. dollar in the second half of 2013 but depreciated 1.9% during the first three months of 2014.

- Brazil maintains a floating exchange rate regime but over the past several years there have been occasional increased official efforts to manage the currency, which fell 17.3% against the dollar in nominal terms over the past year. In July 2013 the IMF assessed the real to be 10-15% overvalued.

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