Global exchange rates for the first half of 2013 have not met the standard required by the Omnibus Trade and Competitiveness Act of 1988, according to the U.S. Department of the Treasury.
In the Semi-Annual Report to Congress on International Economic and Exchange Rate Policies, released to Congress Wednesday, Treasury considered the manipulation of exchange rates between local currencies and U.S. dollar as a means to prevent the effective balance of payments adjustments and thus gain unfair competitive advantage. Treasury has concluded that the standard identified in Section 3004 of the Act has not been met with respect to any of the countries covered in this Report for the period evaluated.
According to the report, there has been some progress on the goal of achieving strong, sustainable and balanced growth and the necessary exchange rate adjustments, but the record is mixed, and further progress is needed.
For example, the RMB is appreciating, but not as fast or by as much as is needed. According to Treasury, “From June 2010, when China moved off its peg against the dollar, through mid-October 2013, the RMB has appreciated by a total of 12 percent against the dollar and 16 percent in inflation-adjusted terms. China’s current account surplus has fallen from over 10 percent at its peak to 2.5 percent today. On the other hand, the evidence that China has resumed large-scale purchases of foreign exchange this year, despite having accumulated reserves that are more than sufficient by any measure, suggests actions that are impeding market determination, and a currency that is significantly undervalued.”
The U.S. is monitoring Japan regarding policies to support the growth of domestic demand. In Europe, Treasury is encouraging nations with surpluses to boost domestic demand and reduce surpluses to facilitate growth and rebalancing. The department also is urging Korea “to limit its foreign exchange interventions to the exceptional circumstances of disorderly market conditions and to commit to transparency with respect to foreign exchange intervention.”
Treasury says it will push for comprehensive adherence to recent G-7 and G-20 commitments to move toward more market determined exchange rates, avoid persistent misalignment and refrain from targeting exchange rates for competitive purposes.