Chinese citizen sues the US Fed over devaluation!

Currency devaluation is often seen by countries as a tool to boost one's exports by undervaluing one's own currency. While this has not yet reached the doorsteps of the dispute settlement mechanism of the WTO as some have suggested it should, an abnormal case of a Chinese intending to sue the US Federal Reserve (the US Central Bank) for the fall in the value of the US dollar due to monetary easing made for some interesting reading!

The case was reported here and here.

Currency undervaluation does have it's challenges!

Currency undervaluation - Simmering tensions

I have blogged about the issue of currency undervaluation and international trade here and here. 

Robert Zoellick in a recent piece titled "A New US International Economic Strategy" outlining what he thinks should be the international economic strategy of the US brought to the fore the increasing possibility of currency misalignment as one of the most contentious issues in the coming years for international trade.

"...the extraordinary monetary policies of late, led by the Federal Reserve's continued near-zero interest-rate policy, are taking us into uncharted territory. Central banks have tried most every tool to stimulate growth; if Japan is any warning, the next tactic is competitive devaluation, which risks a new protectionism. "Currency manipulation" could become a danger that reaches far beyond the debate about Chinese policies. The world economy will need at some point to withdraw the drug of cheap money and negative real interest rates. The United States should anticipate these dangers. 

The International Monetary Fund (IMF) also could help set standards about exchange-rate policies and serve as a referee that blows a whistle, even if it cannot penalize. The IMF and the World Trade Organization (WTO) should anticipate this risk and give effect to the existing WTO agreement that economies must "avoid manipulating exchange rates... to gain an unfair competitive advantage."

How can the existing WTO agreement be given "effect" to? Probably by a dispute settlement proceeding? Are we increasingly looking at such a possibility?

Global trade pie, new disputes and the WTO

(Courtesy: LA Times)

Los Angeles Times has this interesting piece on the possible reason for increasing trade disputes in the context of growing pressure on the global trade pie.The currency undervaluation issue is slowly gaining prominence in the international trade arena - are we going to see a dispute soon? While Brazil is taking it up at the WTO Committees, voices from the EU against the Chinese currency marks a move towards growing unease with currency misalignment as a trade policy tool. WIll undervalued currencies be challenged as being WTO incompatible? While the sustainability of a legal claim on this issue is an entirely debatable matter (and requires a separate post or posts!), the possibility of a legal dispute being initiated cannot be ruled out. Is the WTO the right forum for it?