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Thursday, February 3, 2011

Currency Manipulation: The IMF and WTO

Jonathan E. Sanford
Specialist in International Trade and Finance

Congress has been concerned, for many years, with the possible impact that currency manipulation has on international trade. The International Monetary Fund (IMF) has jurisdiction for exchange rate questions. The World Trade Organization (WTO) is responsible for the rules governing international trade. The two organizations approach the issue of “currency manipulation” differently. The IMF Articles of Agreement prohibit countries from manipulating their currency for the purpose of gaining unfair trade advantage, but the IMF cannot force a country to change its exchange rate policies. The WTO has rules against subsidies, but these are very narrow and specific and do not seem to encompass currency manipulation. Recently, some have argued that an earlier ruling by a WTO dispute resolution panel might be a way that currency issues could be included in the WTO prohibition against export subsidies. Congress is currently considering legislation to amend U.S. countervailing duty law, based on this precedent, that the proponents believe is consistent with WTO rules. Others disagree as to whether the previous case is a sufficient precedent.

Several options might be considered for addressing this matter in the future, if policymakers deem this a wise course of action. The Articles of Agreement of the IMF or the WTO Agreements could be amended in order to make their treatment of currency manipulation more consistent. Negotiations might be pursued, on a multilateral as well as a bilateral basis, to resolve currency manipulation disputes on a country-by-country basis without changing the IMF or WTO treatment of this concern. Some countries might argue that the actions of another violate WTO rules and seek a favorable decision by a WTO dispute resolution panel. Finally, the IMF and WTO could use their interagency agreement to promote better coordination in their treatment of this concern.

Date of Report: January 28, 2011
Number of Pages: 12
Order Number: RS22658
Price: $29.95

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