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No Currency Manipulators Named in Treasury Report

Friday, November 01, 2013
Sandler, Travis & Rosenberg Trade Report

In its semiannual report on foreign exchange rate policies released Oct. 30, 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 72% of U.S. foreign trade, the report finds that “there has been some progress on the goal of achieving strong, sustainable and balanced growth and the necessary exchange rate adjustments” but that “the record is mixed, and further progress is needed.” Treasury says it will push for comprehensive adherence to recent G-7 and G-20 commitments to move toward more market determined exchange rates, avoid persistent misalignment and refrain from targeting exchange rates for competitive purposes.

The report’s findings include the following.

- China’s currency continues to appreciate “but not as fast or by as much as is needed.” From June 2010, when China moved off its peg against the dollar, through mid-October 2013, the yuan appreciated by a total of 12% against the dollar and 16% in inflation-adjusted terms. However, the former figure stands at only 2.2% for the year to date, “with very little appreciation for several months.” The report also cites “evidence that China has resumed large-scale purchases of foreign exchange this year” as being suggestive of a currency that is “significantly undervalued” but gives no specific figure. By contrast, the International Monetary Fund concluded in July that the yuan is only “moderately undervalued” at a rate of 5-10%.

- Japan has not intervened in foreign exchange markets in almost two years, but Treasury will closely monitor Japan's policies and the extent to which they support the growth of domestic demand.

- The Korean won depreciated at a moderate pace against the dollar in the first half of 2013 and the IMF estimated in July that the won is 2-8% undervalued. The Korean government is believed to have intervened in currency markets several times this year, at least in part to maintain competitiveness with Japan. Treasury plans to urge Korea to limit its interventions to the exceptional circumstances of disorderly market conditions and to disclose such interventions shortly after they take place, similar to Japan and emerging markets such as Brazil, India and Russia.

- Taiwan maintains a managed float exchange rate regime, and authorities are believed to have intervened regularly this year to resist appreciation of the currency. Treasury will continue to press Taiwan to limit these interventions to the exceptional circumstances of disorderly market conditions and to commit to greater foreign exchange market transparency.

- Brazil maintains a floating exchange rate regime but over the past two years there have been occasional increased official efforts to manage the currency, which has fallen 8.1% on a nominal basis against the dollar this year.

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