by C. Randall Henning, Peterson Institute for International Economics
The controversy within the United States over China’s exchange rate policy has generated a series of legislative proposals to restrict the discretion of the US Treasury Department in determining currency manipulation and to reform the department’s accountability to Congress.
Henning reviews Treasury’s reports to Congress on exchange rate policy and Congress’s treatment of them. He finds that the accountability process has often not worked well in practice: The reports provide only a partial basis for effective congressional oversight. For its part, Congress held hearings on less than half of the reports and overlooked some important substantive issues.
Henning recommends (1) refining the criteria used to determine currency manipulation and writing them into law, (2) explicitly harnessing US decisions on manipulation to the International Monetary Fund’s rules on exchange rates, (3) clarifying the general objectives of US exchange rate policy, (4) reaffirming the mandate to seek international macroeconomic and currency cooperation, (5) requiring Treasury to lead an executivewide policy review, and (6) institutionalizing multicommittee oversight of exchange rate policy by Congress. Legislators should strengthen reporting and oversight of broader exchange rate policy in addition to strengthening the provisions targeting manipulation.
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