US examines Swiss currency practices

WASHINGTON — The Treasury Department said Friday it was concerned that some of the United States’ trading partners were taking steps to weaken their currencies and gain unfair trade advantages against the United States, but declined to label any country a currency manipulator.

In its semi-annual foreign exchange report, the Treasury Department singled out Switzerland, which in 2020 was considered a manipulator, as the worst offender and said it was closely watching the foreign exchange practices of Taiwan and Vietnam. Treasury Department officials have been engaged in “enhanced bilateral engagement” with the three countries in recent months.

“The administration continues to strongly advocate that our major trading partners carefully calibrate policy tools to support a strong and sustainable global recovery,” Treasury Secretary Janet L. Yellen said in a statement. “An uneven global recovery is not a resilient recovery.”

The United States has three sets of thresholds that it uses to determine if a country is weakening the value of its currency. It has wide discretion to determine whether a country is manipulating the exchange rate between its currency and the dollar to gain a competitive advantage in international trade.

A government can suppress the value of its currency by selling it on the foreign exchange markets and hoarding dollars. By depressing the value of its own currency, a country can make its exports cheaper and more competitive to sell on global markets.

The Trump administration labeled Switzerland and Vietnam as currency manipulators in 2020, but the Biden administration, seeking a more diplomatic approach, removed the designation.

A Treasury official said the United States has had constructive talks with Switzerland over the past year, noting that its economy faces unusual factors because it is a small, open European economy with a currency, the franc, that is considered a safe haven.

Currency manipulation tags are supposed to trigger talks with the United States and may include input from the International Monetary Fund. If the Treasury Department’s concerns are not resolved, the United States could impose a series of sanctions, including tariffs.

Mark Sobel, president of the Official Forum of Monetary and Financial Institutions, pointed out that the most pressing problem in world currency markets was the strength of the dollar.

“The real problem these days is the strong appreciation of the dollar, which has clearly been caused by divergences in monetary policy between a more restrictive Fed and others that are less aggressive,” Sobel said. “It would be difficult to blame others.”

The United States has added Vietnam and Taiwan to its currency “watch lists,” a count that includes China, Japan, Korea, Germany, Italy, India, Malaysia, Singapore, Thailand and Mexico.

The Treasury Department said it was closely watching the foreign exchange activities of China’s state-owned banks. He criticized China for providing “very limited transparency” about how it manages its currency.

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