What is Currency Manipulation?

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Currency manipulation was enshrined into U.S. law in 1988, requiring the United States Department of the Treasury to monitor and annually report on the exchange rate practices of major trading partners of the United States.

Criteria for Determining a Currency Manipulator

The U.S. Treasury Secretary is required to conduct an annual analysis of the exchange rate policies of other countries and assess whether they are manipulating their currency to gain an unfair competitive trade advantage.

The criteria for identifying a currency manipulator include:

1. A bilateral goods trade surplus with the U.S. of at least $20 billion.
2. A current account surplus equivalent to at least 2% of GDP.
3. Prolonged and unilateral intervention in the foreign exchange market, evidenced by net foreign currency purchases lasting at least six months over a 12-month period, with net foreign currency purchases totaling at least 2% of GDP over 12 months.

If a country is found to be manipulating its currency, the law requires the Treasury Secretary to negotiate the removal of such manipulation to eliminate any unfair trade advantage against the U.S.

A country labeled as a currency manipulator can be removed from the list through negotiations and appropriate remedial actions.

Countries Previously Designated as Currency Manipulators

• South Korea: 1988
• Taiwan: 1988 and again in 1992
• China: 1992 – 1994, 2019
• India: 2017
• Vietnam, Switzerland: 2020

Case Studies

• India: Increased its foreign exchange purchases in the last three quarters of 2017 despite the Rupee appreciating. India’s net foreign exchange purchases in 2017 amounted to $56 billion (2.2% of GDP). Subsequently, due to significant changes in the bilateral trade surplus, India was removed from the list.
• China: In August 2019, under pressure from President Donald Trump amid the China-U.S. trade war, the U.S. Treasury labeled China as a currency manipulator. This label was withdrawn in January 2020 when China agreed not to devalue its currency to make its goods cheaper. The two countries soon signed the “U.S.-China Phase One Trade Agreement,” which included a provision to prevent China from manipulating its currency for trade advantages.

In December 2020, the U.S. officially labeled Switzerland and Vietnam as currency manipulators and added India, Thailand, and Taiwan to the monitoring list. China, Japan, South Korea, Germany, Italy, Singapore, and Malaysia remained on the list.