How to Fight Currency Manipulation

Currency manipulation is a real problem that causes significant damage. The Trans-Pacific Partnership – the mega-regional free-trade agreement involving the US, Japan, and ten other countries in Latin America and Asia – may offer the best chance to fix it.

WASHINGTON, DC – Is it appropriate to use trade agreements to discourage countries from using large-scale intervention in the foreign-exchange market to hold down their currencies’ value? That is the question of the day in American economic-policy circles.

In recent years, Japan, South Korea, and China have manipulated their currencies to keep them undervalued. This boosted their exports, limited imports, and led to large current-account surpluses. But such intervention adversely affects trading partners and is barred under existing international rules. Unfortunately, those rules have proved completely ineffective.

Now a new opportunity to address the issue has emerged: The Trans-Pacific Partnership – the mega-regional free-trade agreement involving the United States, Japan, and ten other countries in Latin America and Asia. With the TPP close to being finalized, South Korea and China are watching intently, and other countries may want to join.

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