Currency wars - When will the bell toll?

Currency manipulation has been a subject of this blog for sometime. I have written about it here, here and here.

For those following the currency wars debate in international economic law and policy, this lecture by Fred Bergsten is quite illuminating. Giving an exhaustive account of an US perception of the currency undervaluation issue "Currency Wars, the Economy of the United States and reform of the International Monetary System" offers, inter alia, some approaches to address the issue:

"Two changes should also be made in the rules of the WTO. The simpler would be to explicitly add “manipulated currency undervaluation” to the list of proscribed export subsidies against which countervailing duties can be levied by member countries. This could be quite potent if a “coalition of the injured” then used the new authorization to countervail in a variety of their sectors that are injured by the manipulation. 

The second, and potentially even more significant, change would be to amend or re- interpret Article 15(4) to clarify that manipulated undervaluation by individual countries justifies the erection of across-the-board barriers against their exports by all members of the organization that choose to do so (Mattoo and Subramanian 2008). As under its current rules, the WTO would under both remedies first ask the IMF for a judgment as to whether a currency is “undervalued” and “manipulated” and then apply its own standards to the trade measures that were proposed in response.  

These changes could be made either through amendment of the charter or (more likely) via developing a consensus on the issue.The latter approach, following standard WTO practice, could be achieved initially by a plurilateral group that fell short of the full membership of the organization as laid out in detail by my colleagues Gary Hufbauer and Jeffrey Schott. Another tactic would be to begin including such mechanisms in bilateral or regional trade agreements, rather than or in addition to the WTO itself, that would suspend the benefits of the agreement to countries that were found to be manipulating their currencies; the United States should seek to add such chapters to the TransPacific Partnership, which already includes several current and former manipulators, and the Transatlantic Trade and Investment Partnership, where the negotiating agenda is still to be determined and the participating countries are more like- minded."

Are we seeing a trend of increasing calls to address the currency issue within the WTO framework? Are we going to see this discussion more in bilateral or regional trade agreement negotiations?

Thank you Vera Thorstensen for bringing this piece to my notice.

 

 

"Currency Wars"

I have blogged about the issue of currency undervaluation and potential of a trade law dispute here.The G-20 recently spoke about it here.

Just finished a book called "Currency Wars: The Making of the next Global Crisis" by James Rickards that provides an overview of the history of currency undervaluation as a tool to boost one's economy and the significance it has on the international economy. Scary scenarios have been suggested. The interesting part of the book is that currency misalignment and manipulation are seen as tools of economic warfare that need to be recognized by countries as part of their national strategy.

As  have said, is 2013 the year of the big current war or trade dispute?

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:

1. Is the World on the Binge of Devaluation? Part I

2. Is the World on the Binge of Devaluation? Part II

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...