Bergsten and Gagnon require net official assets greater than three months of imports and also greater than 100 percent of short-term external debt, recognizing that countries have a legitimate need for a moderate amount of foreign exchange reserves to cushion against unexpected shocks. The third column displays an economy’s net official foreign assets as a percent of GDP at year-end 2019. All countries in the table had surpluses greater than 3 percent of GDP in 2019. Treasury lowered its criterion from 3 to 2 percent in 2019, raising the chances of a country violating the threshold for a minor and transient imbalance. Bergsten and Gagnon require a current account surplus of at least 3 percent of GDP to be considered a manipulator. The first two columns display the current account balance, the broadest measure of a country’s trade balance. The table below presents relevant information on selected economies for 2019. Their public debts and deficits are low, and most were running fiscal surpluses prior to the COVID-19 pandemic. As I discuss in a recent Policy Brief, Korea, Singapore, Switzerland, Taiwan, and Thailand have considerable scope to use expansionary fiscal policy to maintain growth through domestic spending while narrowing their trade surpluses. Manipulation is especially harmful when global economic activity is weak and interest rates in trading partners are already near zero, limiting their ability to stimulate economic activity. Vietnam does not meet the Bergsten-Gagnon criteria.Ĭurrency manipulation is the excessive purchase of foreign currencies to hold down one’s own currency in order to gain an unfair advantage in international trade. A more defensible set of criteria, which I proposed with Fred Bergsten in 2017, would identify Singapore and Switzerland as currency manipulators today, with Korea, Taiwan, and Thailand on the margin of being so classified. Treasury plans to consult with the newly named manipulators on ways they can grow without large trade surpluses, but Treasury’s leverage to change their policies is meager.Īs I have written elsewhere, there are serious economic flaws in the criteria that the Treasury currently uses for identifying manipulators. China and nine other economies were put on a monitoring list for enhanced surveillance. Treasury named Switzerland and Vietnam as currency manipulators. Today the US Treasury Department released its semiannual Report on Macroeconomic and Foreign Exchange Policies of Major Trading Partners of the United States, also known as the Foreign Exchange Report.
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