Monday, February 25, 2013

Is currency undervaluation the next big protectionist game?

Are we in for some currency wars? Will currency manipulation or undervaluation undermine the delicate balance of international trade? While the subject has not yet made it to the centre stage of world trade negotiations or dispute settlement, the dangers of it becoming increasingly debilitating are increasingly being heard. Is currency undervaluation the next big protectionist game? The IELP blog a couple of years ago did not think it to be a serious trade issue.

Peterson Institute has come out with many papers on this subject. It recently had two interviews by Joseph Gagnon and William Cline that brought to the fore the issue of currency undervaluation but opined that the dangers are not that serious:

There is obviously much more to come on this complex topic in trade circles. The complexity of the area is in terms of what constitutes currency undervaluation, the impact it has on trade, the multiple purposes currency undervaluation may have as well as exercise of domestic regulatory space. Added to it is the jurisdictional issue with the IMF. A lot of people think this dispute is not going to knock on WTO's doorstep...

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