Hostname: page-component-586b7cd67f-l7hp2 Total loading time: 0 Render date: 2024-11-22T00:06:15.292Z Has data issue: false hasContentIssue false
  • English
  • Français

‘Currency manipulation’ and world trade

Published online by Cambridge University Press:  24 August 2010

ROBERT W. STAIGER  and
ALAN O. SYKES
ROBERT W. STAIGER*
Affiliation:
Stanford University and NBER
ALAN O. SYKES
Affiliation:
Stanford University
*
*Email: [email protected]
Get access Rights & Permissions [Opens in a new window]

Abstract

Central bank intervention in foreign exchange markets may, under some conditions, stimulate exports and retard imports. In the past few years, this issue has moved to center stage because of the foreign exchange policies of China. Numerous public officials and commentators argue that China has engaged in impermissible ‘currency manipulation’, and various proposals for stiff action against China have been advanced. This paper considers the relationship between exchange rate policy and international trade, and addresses the questions of whether and how currency manipulation should be addressed by the international trading system. Our conclusions are at odds with much of what is currently being said by proponents of multilateral or unilateral actions against China. In particular, we question whether China's practices can be adjudicated to be ‘manipulation’ under international law, and doubt that their trade effects can be identified with the degree of confidence necessary to ascertain whether the practices ‘frustrate the intent’ of WTO/GATT commitments. The difficulty of identifying the trade effects of currency practices undermines the ability of the WTO dispute resolution system to address them, and calls into question the wisdom and legitimacy of unilateral countermeasures that have been proposed in various quarters.

Type
Review Article
Information
World Trade Review , Volume 9 , Issue 4 , October 2010 , pp. 583 - 627
Copyright
Copyright © Robert W. Staiger and Alan O. Sykes 2010

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Bagwell, K. and Staiger, R. W. (1999), ‘An Economic Theory of GATT’, American Economic Review, March.CrossRefGoogle Scholar
Bagwell, K. and Staiger, R. W. (2002), The Economics of the World Trading System, MIT Press.Google Scholar
Bacchetta, P. and van Wincoop, E. (2005), ‘A theory of the currency denomination of international trade’, Journal of International Economics, 67: 295–319.CrossRefGoogle Scholar
Bergsten, C. F. (2007), ‘The Global Imbalances and the US Economy’, Testimony before the Subcom-mittees on Trade, Ways and Means Committee: Commerce, Trade and Consumer Protection, Energy and Commerce Committee; and Domestic and International Monetary Policy, Trade and Technology, Financial Services Committee of the House of Representatives, 9 May.Google Scholar
Betts, C. and Devereux, M. B. (2000), ‘Exchange Rate Dynamics in a Model of Pricing-to-Market’, Journal of International Economics, 50(1): 215–244.CrossRefGoogle Scholar
Blanchard, E. J. (2009), ‘Trade taxes and international investment’, Canadian Journal of Economics, 50(3): 882–899.CrossRefGoogle Scholar
Broda, C. and Weinstein, D. E. (2007), ‘Understanding International Price Differences Using Barcode Data’, mimeo, November.Google Scholar
Canzoneri, M. and Henderson, D. (1991), Monetary Policy in Interdependent Economies, Cambridge, MA: MIT Press.Google Scholar
Caves, R., Frankel, J., and Jones, R. (2005), World Trade And Payments: An Introduction, Ninth Edition, Addison-Wesley.Google Scholar
Chipman, J. S. (2006), ‘Protection and Exchange Rates in a Small Open Economy’, Review of Devel-opment Economics, 10(4).Google Scholar
Cline, W. (2005), The United States as a Debtor Nation, Washington, DC: Institute for International Economics.Google Scholar
Corden, M. (1985), Protection, Growth and Trade: Essays in International Economics, Oxford: Blackwell.Google Scholar
Corsetti, G. and Pesenti, P. (2007), ‘The Simple Geometry of Transmission and Stabilization in Closed and Open Economies’, European University Institute mimeo, September.Google Scholar
Dam, K. W. (1982). The Rules of the Game, Chicago: University of Chicago Press.Google Scholar
Devereux, M. B., Kang, S. and Xu, Juanyi (2007), ‘Global Monetary Policy under a Dollar Standard’, Journal of International Economics, 71(1): 113–132.Google Scholar
Engel, C. (2002), ‘Expenditure Switching and Exchange Rate Policy’, NBER Macroeconomics Annual, 17: 231–272.Google Scholar
Feenstra, R. C. (1985), ‘Anticipated Devaluations, Currency Flight, and Direct Trade Controls in a Monetary Economy’, American Economic Review, 75(3): 386–401.Google Scholar
Goldberg, L. and Tille, C. (2006), ‘The International Role of the Dollar and Trade Balance Adjustment’, Group of 30 Occasional Paper No. 71, Washington, DC.Google Scholar
Goldberg, L. and Tille, C. (2009), ‘Micro, Macro, and Strategic Forces in International Trade Invoicing’, NBER Working Paper No. 15470, November.Google Scholar
Goldstein, M. and Lardy, N. R. (eds.) (2008), Debating China's Exchange Rate Policy, Washington, DC: Peterson Institute for International Economics.Google Scholar
Gopinath, G., Itskhoki, O., and Rigobon, R. (forthcoming), ‘Currency Choice and Exchange Rate Pass-through’, Quarterly Journal of Economics.Google Scholar
Hudec, R. E. (1990), The GATT Legal System and World Trade Diplomacy. Salem, NH: Butterworth Legal Publishers.Google Scholar
Hufbauer, G. C., Wong, Yee, and Sheth, K. (2006), US – China Trade Disputes: Rising Tide, Rising Stakes, Policy Analyses in International Economics, 78. Washington: Institute for International Economics.Google Scholar
IMF (2006a), ‘Article IV of the Fund's Articles of Agreement: An Overview of the Legal Framework’, 28 June.CrossRefGoogle Scholar
IMF (2006b), ‘Treatment of Exchange Rate Issues in Bilateral Surveillance – A Stocktaking’, 30 August.CrossRefGoogle Scholar
IMF (2007a), ‘Surveillance Guidelines: Landmark Framework for IMF Surveillance’, IMF Survey Online, 21 June, at http://www.imf.org/external/pubs/ft/survey/so/2007/POL0621B.htm.Google Scholar
IMF (2007b), ‘Bilateral Surveillance over Member's Policies’, Executive Board Decision, 15 June.Google Scholar
IMF (2007c), ‘Review of the 1997 Decision – Proposal for a New Decision’ Supplement, 13 June.Google Scholar
Jackson, J. H., Davey, W. J., and Sykes, A. O. (2008), International Economic Relations, 5th edn, Minneapolis: Thompson West.Google Scholar
Helpman, E. and Krugman, P. R. (1989), Trade Policy and Market Structure, Cambridge, MA: MIT Press.Google Scholar
Keynes, J. M. (1931), Addendum I to: Great Britain, Committee on Finance and Industry, Report. London: His Majesty's Stationery Office, pp. 190–209.Google Scholar
Krugman, P. R. and Obstfeld, M. (2007), International Economics, 7th edn, Boston: Addison Wesley.Google Scholar
Lerner, A. (1936), ‘The Symmetry between Import and Export Taxes’, Economica, NS, 3 (August) 306–313.Google Scholar
Ma, G. and McCauley, R. N. (2008), ‘Efficacy of China's Capital Controls: Evidence from Price and Flow Data’, Pacific Economic Review, 13(1): 104–123.Google Scholar
Mattoo, A. and Subramanian, A. (2009), ‘Currency Undervaluation and Sovereign Wealth Funds: A New Role for the World Trade Organization’, The World Economy, 32: 1135–1164.CrossRefGoogle Scholar
Mayer, W. (1981), ‘Theoretical considerations on negotiated tariff adjustments’, Oxford Economic Papers, 33: 135–153.CrossRefGoogle Scholar
McKinnon, R. (2006), ‘Why China Should Keep Its Exchange Rate Pegged to the Dollar: A Historical Perspective from Japan’, mimeo.Google Scholar
McKinnon, R. (2009), ‘China's Exchange Rate Policy and Fiscal Expansion’, SIEPR Policy Brief, March.Google Scholar
McCown, A. T., Pollard, P., and Weeks, J. (2007), ‘Equilibrium Exchange Rate Models and Misalignments’, US Department of Treasury, Office of International Affairs, Occasional Paper No. 7, March.Google Scholar
Mussa, M. (1974), ‘A Monetary Approach to Balance-of-Payments Analysis’, Journal of Money, Credit and Banking, 6(3): 333–351.Google Scholar
Mussa, M. (1985), ‘The Real Exchange Rate as a Tool of Commercial Policy’, NBER Working Paper No. 1577, March.Google Scholar
Mussa, M. (2007), ‘IMF Surveillance over China's Exchange Rate Policy’, Peterson Institute of International Economics Working Paper.Google Scholar
Obstfeld, M. (2007), ‘The Renminbi's Dollar Peg at the Crossroads’, Monetary and Economic Studies (special edition), Bank of Japan, December.Google Scholar
Obstfeld, M. and Rogoff, K. (1995), ‘Exchange Rate Dynamics Redux’, Journal of Political Economy, 103: 624–660.CrossRefGoogle Scholar
Obstfeld, M. and Rogoff, K. (1996), Foundations of International Macroeconomics, Cambridge, MA: MIT Press.Google Scholar
Obstfeld, M. and Rogoff, K. (2002), ‘Global Implications of Self-Oriented National Monetary Rules’, Quarterly Journal of Economics, 117: 503–536.Google Scholar
O'Connell, S. A. (1989), ‘Uniform Trade Taxes, Devaluation, and the Real Exchange Rate: A Theoretical Analysis’, Policy Planning and Research Working Paper Series, No. 185, The World Bank, April.Google Scholar
Pesenti, P. (2008), ‘The Global Economy Model (GEM): Theoretical Framework’, IMF Staff Papers, 55(2): 243–284.Google Scholar
Razin, A. and Svensson, L. E. O. (1983), ‘Trade Taxes and the Current Account’, Economics Letters, 13: 55–57.Google Scholar
Rogoff, K. (2006), ‘Global Imbalances and Exchange Rate Adjustment’, Journal of Policy Modeling, 28: 695–699.Google Scholar
Sarno, L. and Taylor, M. P. (2001), ‘Official Intervention in the Foreign Exchange Market: Is it Effective and, If So, How Does It Work?’, Journal of Economic Literature, 39 (September): 839–868.CrossRefGoogle Scholar
Subramanian, A. (2008), ‘Imbalances and undervalued exchange rates: Rehabilitating Keynes’, FT.com, 9 November.Google Scholar
Tchakarov, I. (2004), ‘The Gains from International Monetary Cooperation Revisited’, IMF Working Paper WP/01/1, January.CrossRefGoogle Scholar
Torres, H. R. (2007), ‘Reforming the International Monetary Fund – Why Its Legitimacy is at Stake’, Journal of International Economic Law, 10: 443–460.CrossRefGoogle Scholar