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.

Macroeconomic Foreign Exchange Policies

Please consider the US Treasury report to Congress on Macroeconomic Foreign Exchange Policies

Countries Meeting the Criteria

  • Vietnam
  • Switzerland
  • Taiwan

Despite three countries meeting all the criteria, Yellen reversed the Trump administration’s designations of Switzerland and Vietnam as currency manipulators.

The Treasury 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. 

Apparently they are manipulators but not for the purpose of gaining any advantage. Yeah, right.

Trump labeled China as a currency manipulator even though it isn't and Biden does not label as currency manipulators countries that do meet the standard. 

This is how we regain credibility.

Monitoring List

The watch list includes China, Japan, Korea, Germany, Ireland, Italy, India, Malaysia, Singapore, Thailand, and Mexico. 

What About the US?

The Fed is hell bent on weakening the dollar to boost exports and goose the stock market. 

Interest rates are ridiculously low but at least they are not negative like Japan and Europe. 

We don't call what we do "manipulation" but what the hell is it if not manipulation?

Nearly every country in the worlds wants to increase exports but it's mathematically impossible. 

Question of the Day

Does it really matter if the manipulation is via interest rates, QE, and massive spending vs direct intervention, pegs, jawboning, etc.?

Every nation including the US is engaged in massive manipulations of some sort.


Comments (22)
No. 1-12

Physician, heal thyself. The Fed has been manipulating the currency for over a decade. This has led to insurance companies & pension funds wading into risky assets in a reach for yield, and -- of course -- they trust that the taxpayer will bail them out if/when something goes wrong.


Fiat currency was designed to be manipulated.


Every central bank manipulates its currency. The U.S. clearly is involved in the currency markets and conducts operations. Q.E. clearly had an impact on the U.S. dollar. This whole discussion is nonsense in that there is nothing free market about foreign exchange exchange rates and world governments. If the Renmmimbi is too cheap then the rational action should be to buy assets and products in Renmmimbi. When Amazon has a product that's too cheap I don't complain that they should raise it I buy it.




Of course the best way to pressure china and contain it would be for the u.s. to join TPP

2 Replies


No, it would be better for every country involved with international trade to be on a strict goods for goods exchange, rather than the use of currency exchange and government debt.


Go back to bartering for goods? That's insane. Never happen


"Every nation including the US is engaged in massive manipulations of some sort."

That is the bottom line. No one is on a gold standard. Any country calling another a currency manipulator is a pot calling a kettle, black.


It could only be credibly labeled manipulation if the Chinese were forcing consumers to buy their goods despite being more expensive. Until someone can credibly explain how it can possibly be a long-term advantage to subsidize production of export goods from national tax revenues, we should forget about the whole concept.

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