Book Description

Conflicts over currency valuations are a recurrent feature of the modern global economy. To strengthen their international competitiveness, many countries resort to buying foreign currencies to make their exports cheaper and their imports more expensive. In the first decade of the 21st century, for example, China's currency manipulation practices were so flagrant that they produced a backlash in the United States and other trading partners, prompting threats of retaliation. How damaging is the practice of currency manipulation—and how extensive is the problem? This book by C. Fred Bergsten and Joseph E. Gagnon—two leading experts on trade, investment, and the effects of currency manipulation—traces the history, causes, and effects of currency manipulation and analyzes a range of policy responses that the United States could adopt. The book is an indispensable guide to a complex and serious problem and what might be done to solve it.

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Editorial Reviews

Bergsten and Gagnon have written a very interesting and provocative book about currency manipulation and what the United States should do about it.

—Ben Bernanke, former chairman of the Federal Reserve Board

Based on rigorous analysis and their deep understanding of the dynamics of real-world international trade, Bergsten and Gagnon forcefully explain why understanding and resolving currency conflicts is essential to the future of globalization. They not only document the problem of currency conflicts in today’s international trading system but also offer detailed, workable solutions. For those of us who recognize the benefits and costs of international trade, this is required reading.

—Jared Bernstein, former chief economist to Vice President Joseph Biden

“Currency conflict” and “manipulation” have bedeviled policymakers, political leaders, and publics since the beginning of the modern era of floating exchange rates. Bergsten and Gagnon offer a principled basis for assessing manipulation and recommend a practical tool to counter exchange rate distortions. In doing so, they have identified the missing link between IMF rules on exchange rates and WTO strictures on barriers to trade.

—Robert Zoellick, former president of the World Bank and US Trade Representative

Bergsten and Gagnon are long-time trusted authorities serving as thought leaders on the critically important issues of international financial and exchange rate policies. In this comprehensive study, they describe the “Decade of Manipulation” from 2003 to 2013 and its significant contribution to US job loss and to the financial crisis and recession. They leave no doubt that we must act to prevent it from happening again. We need structural reform to address not only the problem of currency manipulation but also the problem of inadequate efforts to address it. This book outlines a number of thoughtful proposals and should spark a serious dialogue about how best to move forward.

—Rep. Sander Levin (D-MI)

In recent years, Fred Bergsten and Joseph Gagnon literally defined the terms of the policy debate over how countries should and should not manage their exchange rates. Their views directly influenced the pathbreaking macroeconomic policy declaration that the Obama administration negotiated alongside the Trans-Pacific Partnership. Going forward, it is hard to imagine the United States entering any new trade agreements that do not explicitly prohibit currency manipulation.

—Rory MacFarquhar, former special assistant to President Barack Obama for international economics, and visiting fellow, Peterson Institute for International Economics

Bergsten and Gagnon provide a thorough examination of the economic implications of currency manipulation and possible policy responses. In particular, they help us understand how foreign official reserve accumulation has significant implications for international financial flows and current account balances. This timely book is sure to stimulate debate and reflection.

—Douglas Irwin, Dartmouth College

This book is well worth reading for its detailed descriptions of the many ways in which sustained trade imbalances and currency manipulation can damage the global economy….

—Kathryn Dominguez, University of Michigan

Data Disclosure

The data underlying this analysis are available for download here [zip].





1 Introduction

2 Key Conceptual Issues

3 Norms for Current Account Balances

4 The "Decade of Manipulation" (2003–13)

5 Policy Options 

6 Conclusions and Recommendations

Appendix A Data Sources and Annual Data on Currency Manipulation



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