Accountability and Oversight of US Exchange Rate Policy by C. Randall Henning

By C. Randall Henning

The dispute over chinese language alternate price coverage in the usa has generated a chain of legislative proposals to limit the discretion of the USA Treasury division in deciding upon forex manipulation and to reform the department's responsibility to the Congress. This learn reports the Treasury's studies to the Congress on trade cost coverage brought through the 1988 alternate act and Congress's therapy of them. It reveals that the responsibility procedure has frequently now not labored good in perform: The insurance of the reviews has occasionally been incomplete and never supplied a adequate foundation for congressional oversight. Nor has Congress continually played its personal position good, conserving hearings on under half the experiences and overlooking vital great matters. numerous thoughts can enhance information to the Treasury, criteria for overview, and congressional oversight. those comprise (1) refining the factors used to figure out forex manipulation and writing them into legislation; (2) explicitly harnessing US judgements on manipulation to the IMF's ideas on trade premiums; (3) clarifying the final targets folks trade expense coverage; (4) reaffirming the mandate to hunt foreign macroeconomic and foreign money cooperation; and (5) institutionalizing multicommittee oversight of alternate expense coverage by means of Congress. As they increase laws focusing on manipulation, additionally, legislators will not be lose sight of the wider reasons of the 1988 act on the subject of the potent valuation of the buck, the present account, and their ramifications for the USA economic system total.

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It is worth noting that congressional oversight hearings directly linked the exchange rate and Super 301 negotiations (US Senate 1989). Pressure on trade policy strengthened Treasury’s bargaining position on exchange rate matters. Both countries also had an unusual relationship with the United States on military security, and neither could afford to jeopardize those ties. 5b). When citing Taiwan, Treasury also noted capital and exchange controls, particularly on capital inflows, 1. In testimony to the Senate Finance Committee in the spring of 1989, Bergsten and Williamson criticized the manipulation designation, arguing that by then the appreciation of the New Taiwan dollar and the Korean won had been sufficient to produce adjustment.

Europe’s Monetary Union The creation of Europe’s monetary union in January 1999 was the most momentous shift in the structure of the international monetary system in at least a generation. The new currency, the euro, replaced 11 national currencies (now 15), creating a monetary bloc three-quarters the size of 38 ACCOUNTABILITY AND OVERSIGHT OF US EXCHANGE RATES ch04_15047_Peterson_Henning 6/3/08 9:00 PM Page 39 the United States by GDP and a potential competitor to the dollar as an international currency.

During the early part of that decade, the United States pursued a combination of loose fiscal policy and tight monetary policy that came to be called the “Reagan-Volcker” policy mix. The mix produced an appreciation of the dollar and trade and current account deficits that set new records. Rather than alter domestic macroeconomic policy in light of these external consequences, the first Reagan administration actively encouraged capital inflows to finance the fiscal and current account deficits.

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