No Major Trading Partners Named as Currency Manipulators by US Treasury; China and Others Being Monitored

A Chinese bank worker counts stacks of 100-yuan notes at a bank in Huaibei, in eastern China's Anhui Province in this file photo taken on Aug. 4, 2010. (STR/AFP/Getty Images)

The U.S. Treasury Department confirmed in a new foreign-exchange report that no major trading partner met the criteria to be labeled a currency manipulator in the four quarters through December 2022.

The Treasury regularly publishes a report that reviews and assesses the policies of major trading partners to determine if they are attempting to influence the exchange rate between the U.S. dollar and another currency, or weaken their currency to obtain an unfair competitive advantage in global trade.

Officials use three criteria to determine if a nation is a currency manipulator: a substantial bilateral trade surplus with the United States, a notable current account surplus, and “persistent, one-sided intervention” in foreign exchange (FX) markets.

Most actions that were taken by foreign governments involved selling U.S. dollars to strengthen their currencies, Treasury Secretary Janet Yellen noted.

Currency global macroeconomic conditions, monetary tightening, dollar appreciation, and rampant inflation have mitigated concerns surrounding current account surpluses, the report states. However, the Treasury will still pay close attention to other nations’ currency practices.

“Differing growth and inflation outlooks have led to a range of policy actions across countries, which, coupled with fundamentals including interest rate differentials, terms of trade shocks, and longer-term growth expectations, have had large impacts on currencies,” Yellen said in a statement.

“Most foreign exchange intervention by U.S. trading partners last year was in the form of selling dollars, actions that served to strengthen their currencies. However, Treasury remains vigilant to countries’ currency practices and policy settings and their consistency with strong sustainable and balanced global growth.”

Secretary of the Treasury Janet Yellen participates in a Multilateral Development Bank (MDB) Evolution Roundtable during the annual Spring Meetings of the World Bank Group and the International Monetary Fund (IMF) at IMF headquarters in Washington on April 12, 2023. (Alex Wong/Getty Images)

Despite the greenback’s moderation in November, when the Federal Reserve signaled that it was nearing the end of its quantitative tightening cycle, the dollar finished 2022 stronger than many other currencies.

The Monitoring List

According to the semi-annual report, seven economies were added to the Treasury’s monitoring list of major trading partners whose currency and economic policies require additional observation and closer scrutiny. Officials want to watch for countries’ external balances and determine if their production and domestic consumption are aligned.

China, Germany, Malaysia, Singapore, South Korea, Switzerland, and Taiwan were added to the list while Japan was removed after making the list in November. Switzerland, which was slapped with an “enhanced analysis” label in November, made a return.

Critics have long asserted that China should be labeled as a currency manipulator, as it was in 2019.

Under then-Secretary Steven Mnuchin, the Treasury accused Beijing of “protracted, large-scale intervention in the foreign exchange market” to devalue the yuan “while maintaining substantial foreign exchange reserves despite active use of such tools in the past.”

After then-President Donald Trump imposed tariffs on China, the world’s second-largest economy responded by altering the daily reference rate—an interest rate used to establish other interest rates—and selling dollars. The purpose of China’s manipulation was to sell its goods overseas at a cheaper price.

However, in January 2020, the Trump administration removed China’s designation as a currency manipulator as part of efforts to improve trade relations. The White House claimed at the time that Beijing reassured Washington that it would refrain from competitive devaluation and foster accountability and transparency.

But the latest FX report suggests that the paucity of clarity makes it harder to determine if China is manipulating the yuan, repeating a similar statement in 2021.

“China’s lack of transparency and use of a wide array of tools complicate Treasury’s ability to assess the degree to which official actions are designed to impact the exchange rate,” the report stated.

“Treasury will continue to closely monitor China’s use of exchange rate management, capital flow, and regulatory measures and their potential impact on the exchange rate.”

Chinese 100 yuan notes and U.S. $1 notes in Beijing on Jan. 6, 2017. (Fred Dufour/AFP via Getty Images)

Mark Sabel, the U.S. chair of the Official Monetary and Financial Institutions Forum (OMFIF), wrote in a September 2022 report that the yuan’s latest bout of depreciation is much ado about nothing.

“Is China misbehaving? Should President Joe Biden’s administration work itself into a lather? The answer is no. There is much less here than meets the eye. Indeed, far less attention is being paid so far to recent renminbi depreciation than in past episodes of downward pressure,” he said.

The Chinese yuan recently tumbled to a six-month low against the U.S. dollar after the People’s Bank of China (PBoC) unexpectedly slashed interest rates to boost the post-pandemic economy. The yuan has slumped more than 7 percent against the buck over the past 12 months.

Back and Forth in Switzerland

In December 2020, the Treasury called Switzerland a currency manipulator for intervening in currency markets to limit the franc’s appreciation.

But the Swiss National Bank (SNB) insisted that its interventions were necessary to limit the franc’s value as it would have significantly harmed Switzerland’s economy. The central bank had vowed to continue interfering in the forex market.

“The SNB’s monetary policy approach remains unchanged by the report,” the SNB said in a statement. “In light of the economic situation and the fact that the Swiss franc is still highly valued, the SNB remains willing to intervene more strongly in the foreign exchange market.”

The Treasury downgraded Switzerland in 2021, but confirmed that it would maintain its in-depth analysis of Switzerland until it no longer meets all three criteria.

The Swiss franc has gained roughly 2.8 percent year-to-date against its U.S. counterpart.