currency manipulators

U.S. Department of the Treasury Semi-Annual Report on Trading Partner Currency Practices — a change from the December 2020 Report

· April 16, 2021 · currency manipulators · , , , , , , , , , , , , , , , , · No Comments

Today (April 16, 2021), the U.S. Department of the Treasury released its semi-annual report on trading partner currency practices. See U.S. Department of the Treasury Office of International Affairs, Report to Congress, Macroeconomic and
Foreign Exchange Policies of Major Trading Partners of the United States, April 2021, https://home.treasury.gov/system/files/206/April_2021_FX_Report_FINAL.pdf.

The press release from Treasury found three countries/territories to have problematic currency practices — Switzerland, Vietnam and Taiwan — but didn’t find any them to be currency manipulators. This constituted a change of position on Switzerland and Vietnam which had been found to be currency manipulators in the December 2020 report. All three countries are subject to increased scrutiny and interface with Treasury. A number of other countries remain on the monitoring list for currency practices with Mexico and Ireland being added to that list in this report. China was separately identified for transparency concerns. See U.S. Department of the Treasury Press Release, Treasury Releases Report on Macroeconomic and Foreign Exchange Policies of Major Trading Partners of the United States, April 16, 2021, https://home.treasury.gov/news/press-releases/jy0131. The press release is copied below and the April 2021 Report is embedded after that.

“WASHINGTON – The U.S. Department of the Treasury today delivered to Congress the semiannual Report on Macroeconomic and Foreign Exchange Policies of Major Trading Partners of the United States. In this Report, Treasury reviewed and assessed the policies of 20 major U.S. trading partners during the four quarters through December 2020.

“The Report concluded that both Vietnam and Switzerland continue to meet all three criteria under the Trade Facilitation and Trade Enforcement Act of 2015 (the 2015 Act) during the period under review.  Additionally, the report finds that Taiwan met all three of the 2015 Act criteria for the period under review.  Treasury has conducted enhanced analysis of Vietnam, Switzerland, and Taiwan’s macroeconomic and foreign exchange policies, as reflected in the Report.  Treasury will continue its enhanced engagement with Vietnam and Switzerland, and Treasury will commence enhanced engagement with Taiwan.  This engagement includes urging the development of a plan with specific actions to address the underlying causes of currency undervaluation and external imbalances.

“Under the Omnibus Trade and Competitiveness Act of 1988 (the 1988 Act), Treasury has determined that there is insufficient evidence to make a finding that Vietnam, Switzerland, or Taiwan manipulates its exchange rate for either of the purposes referenced in the 1988 Act.  Nevertheless, consistent with the 1988 Act, Treasury considers that its continued enhanced engagements with Switzerland and Vietnam, as well as a more thorough assessment of developments in the global economy as a result of the COVID-19 pandemic, will enable Treasury to better determine whether either of these economies intervened in currency markets in 2020 to prevent effective balance of payments adjustment or gain an unfair competitive advantage in trade.  For Taiwan, Treasury will initiate enhanced engagement in accordance with the 2015 Act and expects that engagement will help Treasury to make the determination required under the 1988 Act for the period of review. 

“No other major U.S. trading partner met the relevant 1988 or 2015 legislative criteria for currency manipulation or enhanced analysis during the review period.  Treasury urged China to improve transparency regarding its foreign exchange intervention activities, the policy objectives of its exchange rate management regime, the relationship between the central bank and foreign exchange activities of the state-owned banks, and its activities in the offshore RMB market. 

“’Treasury is working tirelessly to address efforts by foreign economies to artificially manipulate their currency values that put American workers at an unfair disadvantage,’ Secretary of the Treasury Janet L. Yellen said today.

“Treasury found that eleven economies warrant placement on Treasury’s ‘Monitoring List’ of major trading partners that merit close attention to their currency practices: China, Japan, Korea, Germany, Ireland, Italy, India, Malaysia, Singapore, Thailand, and Mexico.  All except Ireland and Mexico were included in the December 2020 Report.

“Today’s Report is submitted to Congress pursuant to the Omnibus Trade and Competitiveness Act of 1988, 22 U.S.C. § 5305, and Section 701 of the Trade Facilitation and Trade Enforcement Act of 2015, 19 U.S.C. § 4421.”

April_2021_FX_Report_FINAL

In prior posts, I have reviewed how Vietnam’s currency practices had resulted in a 301 investigation initiated by USTR (one of two, the other dealing with using illegally harvested timber) with a report issued in mid-January 2021, in the Commerce Department preliminarily finding currency practices of Vietnam were countervailable and in the December 2020 Treasury finding that Vietnam was manipulating its currency. See October 12, 2020, U.S. commences two investigations into Vietnam under Sec. 301 of the Trade Act of 1974, as amended – on currency and on use of illegally harvested timber, https://currentthoughtsontrade.com/2020/10/12/u-s-commences-two-investigations-into-vietnam-under-sec-301-of-the-trade-act-of-1974-as-amended-on-currency-and-on-use-of-illegally-harvested-timber/; December 21, 2020, Vietnam and Switzerland found to be “currency manipulators” in latest U.S. Treasury semiannual report, https://currentthoughtsontrade.com/2020/12/21/vietnam-and-switzerland-found-to-be-currency-manipulators-in-latest-u-s-treasury-semiannual-report/; January 15, 2021, USTR releases report from Section 301 investigation on Vietnam’s currency valuation, https://currentthoughtsontrade.com/2021/01/15/ustr-releases-report-from-section-301-investigation-on-vietnams-currency-valuation/.

The current Treasury report (pages 3-4) flags the elements examined and what is different in this report versus the prior one for Switzerland and Vietnam.

“In this Report, Treasury has reviewed 20 major U.S. trading partners with bilateral goods trade with the United States of at least $40 billion annually against the thresholds Treasury has established for the three criteria in the 2015 Act:

“(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

“(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.3

“In accordance with the 1988 Act, Treasury has also evaluated in this Report whether trading partners have manipulated the rate of exchange between their currency and the United States dollar for purposes of preventing effective balance of payments adjustments or gaining unfair competitive advantage in international trade.

“Because the standards and criteria in the 1988 Act and the 2015 Act are distinct, a trading partner could be found to meet the standards identified in one of the statutes without necessarily being found to meet the standards identified in the other. Section 2 provides further discussion of the distinctions between the 1988 Act and the 2015 Act.

“Treasury Conclusions Related to the 2015 Act

“Vietnam again exceeded the thresholds for all three criteria under the 2015 Act over the four quarters through December 2020. Treasury has updated its enhanced analysis of Vietnam in this Report. In early 2021, Treasury commenced enhanced bilateral engagement with Vietnam and is working with the Vietnamese authorities to develop a plan with specific actions to address the underlying causes of Vietnam’s currency undervaluation.
Switzerland again exceeded the thresholds for all three criteria under the 2015 Act over the four quarters through December 2020. Treasury has updated its enhanced analysis of Switzerland in this report. In early 2021, Treasury commenced enhanced bilateral engagement with Switzerland and is discussing with the Swiss authorities options to address the underlying causes of Switzerland’s external imbalances.

“Taiwan exceeded the thresholds for all three criteria under the 2015 Act over the four quarters through December 2020. Treasury has conducted enhanced analysis of Taiwan in this Report and will also commence enhanced bilateral engagement with Taiwan in accordance with the 2015 Act. The bilateral engagement will include urging the development of a plan with specific actions to address the underlying causes of Taiwan’s currency undervaluation.

“Taiwan has maintained a tightly managed floating exchange rate regime since the late 1970s. Although Taiwan has liberalized capital controls in recent decades, the central bank continues to actively intervene in the foreign exchange market. Over many years, these practices have resulted in a structurally undervalued exchange rate that has failed to adjust in the face of Taiwan’s persistently large current account surpluses. Although the New Taiwan Dollar (TWD) has appreciated modestly in nominal and real effective exchange rate terms over the past decade, the authorities’ foreign exchange purchases and other, less formal exchange rate management practices have slowed the pace and scale of external adjustment, preventing the TWD from fully reflecting macroeconomic fundamentals.

“Treasury Conclusions Related to the 1988 Act

“The 1988 Act requires Treasury to consider whether any economy manipulates the rate of exchange between its currency and the U.S. dollar for purposes of preventing effective balance of payments adjustments or gaining unfair competitive advantage in international trade. In the December 2020 Report, Treasury found that Switzerland and Vietnam each met the standards for currency manipulation for the four quarters through June 2020. For the four quarters ending in 2020, based on initial enhanced engagements with Vietnam and Switzerland under the 2015 Act, further analysis, and data, Treasury has determined that there is insufficient evidence to make a finding that either economy (or any other economy covered in the Report) manipulates its exchange rate for either of the purposes referenced in the 1988 Act. Nevertheless, consistent with the 1988 Act, Treasury considers that its continued enhanced engagements with Switzerland and Vietnam, as well as a more thorough assessment of developments in the global economy as a result of the COVID-19 pandemic, will enable Treasury to better determine whether either of these economies intervened in currency markets in 2020 to prevent effective balance of payments adjustment or gain an unfair competitive advantage in trade. For Taiwan, Treasury will initiate enhanced engagement in accordance with the 2015 Act and expects that engagement will help Treasury to make the determination required under the 1988 Act for the period of review. Meaningful actions to address policy distortions and increase data transparency will be critical for making progress under these engagements. Treasury will also continue to consider whether economies that do not trigger enhanced engagement manipulate their currencies for the purposes referenced in the 1988 Act

“2 The Report covers data from the 12-month period ending in December 2020. These quantitative thresholds for the scale and persistence of intervention are considered sufficient on their own to meet this criterion. Other patterns of intervention, with lesser amounts or less frequent interventions, might also meet this criterion depending on the circumstances of the intervention.

“3 Treasury focuses in this Report on trade in goods only, as it has done in past Reports. The United States has a surplus in services trade with many economies in this Report, including China, Japan, Korea, Singapore, and Switzerland, and to a lesser extent, Taiwan and Vietnam. Taking into account services trade would reduce the bilateral trade surplus of these economies with the United States.”

The Trump Administration did not impose tariffs on Vietnam following the release of the Section 301 report in January leaving the decision on what action to take to the Biden Administration. President Biden’s U.S. Trade Representative, Ambassador Katherine Tai, met virtually with Vietnam Minister of Industry and Trade Tran Tuan Anh on April 1, 2021 and reviewed concerns re China’s currency practice as reviewed in the 301 investigation as well as illegal logging and other issues. See USTR Press Release, Readout of Ambassador Katherine Tai’s virtual meeting with Vietnam Minister of Industry and Trade Tran Tuan Anh. April 1, 2021, https://ustr.gov/about-us/policy-offices/press-office/press-releases/2021/april/readout-ambassador-katherine-tais-virtual-meeting-vietnam-minister-industry-and-trade-tran-tuan-anh (“Ambassador Tai highlighted the Biden Administration’s concerns about currency practices covered in the ongoing Section 301 investigation.  The ministers also discussed U.S. concerns on illegal timber practices, digital trade and agriculture.”). Thus, it is likely that the U.S. and Vietnam will work out bilaterally U.S. concerns on Vietnam’s currency versus imposing additional duties following the Section 301 report, at least at this time.

The first Department of Commerce investigation to look at currency as a countervailable subsidy for Vietnam made a preliminary affirmative determination. The final determination is not due until late May. See Department of Commerce, International Trade Administration, C–552–829, Passenger Vehicle and Light Truck Tires From the Socialist Republic of Vietnam: Preliminary Affirmative Countervailing Duty Determination and Alignment of Final Determination With Final Antidumping Duty Determination, 85 FR 71,607 (Nov. 10, 2020); Department of Commerce, International Trade Administration, A–552–828, Passenger Vehicle and Light Truck Tires From the Socialist Republic of Vietnam: Preliminary Affirmative Determination of Sales at Less Than Fair Value, Postponement of Final Determination, and Extension of Provisional Measures, 86 FR 504 (January 6, 2021)(final due within 135 days of the preliminary Federal Register). It is unclear what, if any, modification will be made to the countervailability of Vietnam’s currency in the context of the ongoing investigation based on the change in view of Vietnam by Treasury.

Conclusion

Currency misalignment whether intentional or not can have significant effects on trade flows. The U.S. has historically been quite concerned about misaligned currencies although Treasury historically preferred to work with other countries than label them currency manipulators. Early signals from the Biden Administration are that Treasury is reverting to a preference to work bilaterally with countries who actively intervene in currency markets and have an undervalued currency and large trade surplus in goods with the U.S. If so, Treasury will, as it did in the current report, find “insufficient evidence” for countries who satisfy the factual criteria under U.S. law to conclude such actions were for the purpose “of preventing effective balance of payments adjustments or gaining unfair competitive advantage in international trade.” While trading partners will undoubtedly prefer the Biden Administration’s apparent approach, the approach will be problematic for many U.S. industries and their workers and remove leverage to get correction of foreign government practices.

USTR releases report from Section 301 investigation on Vietnam’s currency valuation

· January 15, 2021 · currency manipulators · , , · No Comments

USTR started two 301 investigations on actions by Vietnam, one of which dealt with Vietnam’s currency valuation and whether Vietnam’s actions violate Section 301. On January 15, 2021, USTR released a press release announcing the results of the investigation.

“The U.S. Trade Representative has issued findings in the Section 301 investigation of Vietnam’s acts, policies, and practices related to currency valuation, concluding that Vietnam ’s acts, policies, and practices including excessive foreign exchange market interventions and other related actions, taken in their totality, are unreasonable and burden or restrict U.S. commerce. In making these findings, USTR has consulted with the Department of the Treasury as to matters of currency valuation and Vietnam’s exchange rate policy. The findings in this investigation are supported by a comprehensive report, which is being published today on USTR’s website.

“‘Unfair acts, policies and practices that contribute to currency undervaluation harm U.S. workers and businesses, and need to be addressed,’ stated U.S. Trade Representative Robert E. Lighthizer. ‘I hope that the United States and Vietnam can find a path for addressing our concerns.’”

USTR press release, USTR Releases Findings in Section 301 Investigation of Vietnam’s Acts, Policies, and Practices Related to Currency Valuation, January 15, 2021, https://ustr.gov/about-us/policy-offices/press-office/press-releases/2021/january/ustr-releases-findings-section-301-investigation-vietnams-acts-policies-and-practices-related.

The report and notice sent to the Federal Register are embedded below. USTR has not recommended action at this point, leaving resolution to the next Administration.

Vietnamcurrency301report

VietnamCurrencyFRN

As reviewed in a prior post, Vietnam’s currency practices have been found countervailable by the U.S. Department of Commerce, and Vietnam has been found to be a currency manipulator by the Department of the Treasury in the most recent semi-annual report. See December 21, 2020, Vietnam and Switzerland found to be “currency manipulators” in latest U.S. Treasury semiannual report, https://currentthoughtsontrade.com/2020/12/21/vietnam-and-switzerland-found-to-be-currency-manipulators-in-latest-u-s-treasury-semiannual-report/.

Vietnam has had rapid export growth to the United States and through 11 months of 2020 had the third largest trade surplus with the U.S. at $63.68 billion, trailing only China and Mexico. The U.S. trade deficit with Vietnam has surged from a 2017 deficit of $38.34 billion (full year). Thus, problems of currency valuation to the extent it supports an artificially undervalued currency encourages exports to the U.S. and limits U.S. exports to Vietnam. U.S. imports for consumption for the first eleven months of 2020 from Vietnam were $71.21 billion, with sixteen 4-digit HS categories showing imports from Vietnam of more than $1 billion in 2020 (the largest being over $11 billion). Failure to resolve the matter bilaterally to the satisfaction of the U.S. could result in additional duties being applied to all imported goods from Vietnam.

While U.S. importers who have shifted supply from China to Vietnam for products are assuming additional duties will be imposed, the current USTR is taking no action, meaning whatever action occurs will be left to the incoming Biden team. Unlike many press releases, USTR Lighthizer has indicated that he hopes “that the United States and Vietnam can find a path for addressing our concerns.’” Considering the stakes, look for a resolution without additional duties during the first quarter of 2021.

Vietnam and Switzerland found to be “currency manipulators” in latest U.S. Treasury semiannual report

· December 21, 2020 · currency manipulators · , , , , , · No Comments

In the United States, there has long been a concern that trading partners not generate an artificial advantage in international trade by taking steps to undervalue their currencies. The United States Department of the Treasury issues a semiannual report which now examines major trading partners against two U.S. laws to see if consultations are appropriate with particular trading partners. The latest report was issued earlier this month on December 16th. See U.S. Department of the Treasury, Office of International Affairs, R E P O R T T O C O N G R E S S, Macroeconomic and Foreign Exchange Policies of Major Trading Partners of the United States, December 2020, https://home.treasury.gov/system/files/206/December-2020-FX-Report-FINAL.pdf. The press release that accompanied the release of the report is copied below.

“Treasury Releases Report on Macroeconomic and Foreign Exchange Policies of Major Trading Partners of the United States

“December 16, 2020

“WASHINGTON – The U.S. Department of the Treasury today delivered to Congress the semiannual Report on Macroeconomic and Foreign Exchange Policies of Major Trading Partners of the United States. In this Report, Treasury reviewed and assessed the policies of 20 major U.S. trading partners during the four quarters ending June 2020.

“The Report concluded that both Vietnam and Switzerland met all three criteria under the Trade Facilitation and Trade Enforcement Act of 2015 (the 2015 Act) during the period under review. Treasury consequently conducted enhanced analysis of Vietnam and Switzerland in the Report and will also commence enhanced bilateral engagement with each country in accordance with the 2015 Act. This engagement will include urging the development of a plan with specific policy actions to address the underlying causes of currency undervaluation and external imbalances.

“Treasury also determined that, under the Omnibus Trade and Competitiveness Act of 1988 (the1988 Act), both Vietnam and Switzerland are currency manipulators. For each country, Treasury assessed, based on a range of evidence and circumstances, that at least part of its exchange rate management over the four quarters through June 2020, and particularly foreign exchange intervention, was for purposes of preventing effective balance of payments adjustments and, in the case of Vietnam, for gaining unfair competitive advantage in international trade as well. Consistent with the 1988 Act, Treasury will press for the adoption of policies that will permit effective balance of payments adjustments and eliminate the unfair advantages in trade that result from their actions.”

The Socialist Republic of Vietnam

Vietnam in particular is under pressure from the United States to clean up its currency practices.

First, the U.S. Department of Commerce has preliminarily found that its currency practices are countervailable subsidies in the passenger vehicle and light truck tire investigation. See U.S. Department of Commerce, International Trade Administration, C-552-829, Passenger Vehicle and Light Truck Tires From the Socialist Republic of Vietnam: Preliminary Affirmative Countervailing Duty Determination and Alignment of Final Determination With Final Antidumping Duty Determination, 85 Fed. Reg. 71607-71610 (November 10, 2020); U.S. Department of Commerce Issues Affirmative Preliminary Countervailing Duty Determination for Passenger Vehicles and Light Truck Tires from Vietnam, November 4, 2020,ihttps://www.commerce.gov/news/press-releases/2020/11/us-department-commerce-issues-affirmative-preliminary-countervailing (“Among the subsidies preliminarily countervailed is Vietnam’s undervalued currency – making this the first time that Commerce has ever made an affirmative CVD determination regarding a foreign currency with a unitary exchange rate.”).

Second, the U.S. Trade Representative earlier this year commenced two Section 301 investigations on practices of Vietnam, one of which involves its undervalued currency. See Office of the United States Trade Representative, Docket No USTR-2020-0037, Initiation of Section 301 Investigation: Vietnam’s Acts, Policies, and Practices Related to Currency Valuation, 85 Fed. Reg. 63637-63638 (October 8, 2020); Office of the United States Trade Representative, Notice of Public Hearing in Section301 Investigation of Vietnam’s Acts, Policies and Practices Related to Currency Valuation, 85 Fed. Reg. 75397-98 (November 25, 2020). The notice of initiation contained the following description of the currency practices of concern to the U.S.:

“The Government of Vietnam, through the State Bank of Vietnam (SBV), tightly manages the value of its currency—the dong. The SBV’s management of Vietnam’s currency is closely tied to the U.S. dollar. Available analysis indicates that Vietnam’s currency has been undervalued over the past three years. Specifically, analysis indicates that the dong was undervalued on a real effective basis by approximately 7 percent in 2017 and by approximately 8.4 percent in 2018. Furthermore, analysis indicates that the dong’s real effective exchange rate was undervalued in 2019 as well.

“Available evidence also indicates that the Government of Vietnam, through the SBV, actively intervened in the exchange market, which contributed to the dong’s undervaluation in 2019. Specifically, the evidence indicates that in 2019, the SBV undertook net purchases of foreign exchange totaling approximately $22 billion, which had the effect of undervaluing the dong’s exchange rate with the U.S. dollar during that year. Analysis suggests that Vietnam’s action on the exchange rate in 2019 caused the average nominal bilateral exchange rate against the dollar over the year, 23,224 dong per dollar, to be undervalued by approximately 1,090 dong per dollar relative to the level consistent the equilibrium real effective exchange rate.” (85 FR 63637-38).

Third, are the Treasury Department findings under both statutes in its semi-annual report, findings which support USTR concerns being explored in the ongoing Section 301 investigation.

Thus, the pressure for Vietnam to address U.S. concerns on its currency practices is mounting.

Switzerland

For Switzerland, the pressure to date is arising only under the Treasury Department semiannual report. Treasury’s concerns as laid out in the Executive Summary of the semiannual report are copied below.

“Treasury Conclusions Related to Switzerland

“Switzerland met all three criteria under the 2015 Act over the four quarters through June 2020. Treasury has conducted enhanced analysis of Switzerland in this Report and will also commence enhanced bilateral engagement with Switzerland in accordance with the Act. The bilateral engagement will include urging the development of a plan with specific policy actions to address the underlying causes of Switzerland’s external imbalances.

“The Swiss franc has long been considered a safe haven currency that investors acquire during periods when global risk appetite recedes or financial volatility accelerates. These large safe haven flows pose challenges for Swiss macroeconomic policymakers, particularly in a period of negative interest rates and deflation. The Swiss National Bank (SNB) over the years has employed a range of tools to try to offset appreciation pressure on the franc and limit any associated negative impacts on inflation and domestic growth. Over the second
half of 2019 and particularly in the first six months of 2020, Switzerland conducted largescale one-sided intervention, significantly larger than in previous periods, to resist appreciation of the franc and reduce risks of deflation, as the SNB’s policy interest rates were significantly negative. While we recognize the extraordinary financial volatility in the first half of 2020 resulting from the COVID-19 crisis, the intervention was taken in the context of an extremely large current account surplus along with a growing bilateral trade
surplus with the United States and contributed to stemming the appreciation of the franc on a real, trade-weighted basis. Further franc appreciation would help facilitate gradual adjustment of Switzerland’s excessive current account surplus. Treasury therefore assesses, based on a range of evidence and circumstances, that at least part of Switzerland’s exchange rate management over the four quarters through June 2020, and particularly its foreign exchange intervention, was for purposes of preventing effective balance of payments adjustments. Hence, Treasury has determined under the 1988 Act that Switzerland is a currency manipulator. In the context of forthcoming negotiations with the Swiss authorities, Treasury will press for the adoption of policies that will permit effective balance of payments adjustments.

“• Switzerland was one of the countries in Europe hit early and hard by COVID-19, leading the government to declare a national state of emergency in mid-March. The number of active and new cases declined sharply from mid-to-late April but started rising again from mid-June as the authorities eased public health and mobility restrictions. Since mid-October, the number of new COVID-19 cases has surged, with new infections significantly above spring 2020 highs, leading the Swiss Federal Council to re-introduce several containment measures.

“Switzerland has for many years run extremely large current account surpluses, with the surplus reaching 10.9% of GDP in 2019. The current account surplus declined marginally, but remained elevated, at 8.8% of GDP over the four quarters through June 2020. The United States’ goods trade deficit with Switzerland widened notably over the last year, reaching $49 billion over the four quarters through June 2020, due partially to an increase in Swiss gold exports in the first half of 2020. The SNB disclosed that it spent $93 billion (90 billion francs) on currency interventions in the first half of 2020. Between July 2019 and June 2020, Treasury estimates that SNB net foreign purchases have totaled $103 billion (or 14% of GDP).

“Switzerland should employ a more balanced macroeconomic policy mix. Monetary policy continues to be relied on heavily despite the reduced effectiveness of unconventional tools, especially against a backdrop of persistent deflationary risks. We urge the SNB to deploy a broader and more balanced mix of monetary policy instruments, including domestic quantitative easing. Central to this recommended recalibration of monetary policy, we continue to urge the SNB to limit foreign exchange intervention to lean against large appreciation surges and allow real appreciation in line with the long-term trend. Treasury welcomes the SNB’s recent step to disclose foreign exchange intervention on a quarterly basis. Increased frequency of these disclosures – such as on a monthly basis – will help further improve transparency of the SNB’s actions. Fiscal policy should be deployed to reduce the economy’s reliance on the SNB’s policy measures, rebalance its external sector, and boost potential growth. The authorities should also take steps to raise potential growth by raising labor force participation rates and productivity growth, actions that would reduce Switzerland’s external imbalances and reliance on unconventional monetary policy.” (pages 5-6)

Conclusion

As exchange rates can move by large amounts in short periods of time, whether currencies are properly aligned can be critical to achieving the benefits of liberalized trade and not seeing trade distorted because of over- or undervaluation of one or more currencies. In its recent semiannual report, Treasury notes that the IMF views the U.S. dollar as significantly overvalued which by itself reduces U.S. exports and expands U.S. imports. If the overvaluation is created in part by trading partners deliberately undervaluing their currencies, there is a significant cost to Americans in terms of jobs and performance of companies. Indeed, many industries and workers have been concerned for decades that misaligned currencies were costing the U.S. jobs and manufacturing production and capacity. Congress was pressured for the last several decades to require Treasury to better analyze whether currencies were artificially valued by government action and to call out those countries who were engaged in such activities and to consult to achieve a correction. Last week’s semiannual report reflects the Congressional demand for a more fact-based analysis.

Beside Treasury, under the Trump Administration, there is greater ability of other U.S. agencies or entities to address problems posed by currency misalignment that is caused, at least in part, by government actions. Thus, Vietnam is having to deal with the U.S. Commerce Department, the U.S. Trade Representative and the U.S. Treasury Department.

It is to be hoped that the U.S. focus on important trading partners who have undervalued currencies caused in part by government interventions will be continued by the incoming Biden Administration. Currency misalignment can cause significant distortions in trade flows. A multipronged approach to addressing such problems has been and continues to be needed.