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

By C. Randall Henning

The dispute over chinese language trade expense coverage in the usa has generated a sequence of legislative proposals to limit the discretion of the U.S. Treasury division in choosing foreign money manipulation and to reform the department's responsibility to the Congress. This learn experiences the Treasury's reviews to the Congress on alternate price coverage brought by way of the 1988 alternate act and Congress's therapy of them. It unearths that the responsibility strategy has usually now not labored good in perform: The assurance of the studies has occasionally been incomplete and never supplied a enough foundation for congressional oversight. Nor has Congress regularly played its personal position good, keeping hearings on under 1/2 the reviews and overlooking very important noticeable matters. numerous concepts can enhance suggestions to the Treasury, criteria for evaluate, and congressional oversight. those comprise (1) refining the factors used to figure out foreign money manipulation and writing them into legislations; (2) explicitly harnessing US judgements on manipulation to the IMF's ideas on trade premiums; (3) clarifying the final goals folks alternate fee coverage; (4) reaffirming the mandate to hunt overseas macroeconomic and forex cooperation; and (5) institutionalizing multicommittee oversight of trade expense coverage by way of Congress. As they increase laws focusing on manipulation, additionally, legislators aren't lose sight of the wider reasons of the 1988 act with regards to the powerful valuation of the greenback, the present account, and their ramifications for the USA economic system total.

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3 percent to just over 3 percent of GDP from 1983 to 1988 and duly reported the advice of the IMF in the Article IV consultations to reduce the deficit further (US Treasury report, October 1988, 4, 36). The reports that followed noted deficit reduction agreements between the president and Congress and argued that these agreements would contribute to macroeconomic policy coordination in the G-7, the relevant sections of whose communiqués were summarized. 5 percent of GDP at the close of the Bush administration.

They do not specifically test the explanatory power of the maintenance of exchange controls. Finally, it is worth noting that, at least with respect to exchange rate manipulation on the part of the NIEs, Treasury embraced the spirit and letter of the 1988 Act during these early years. Treasury officials appeared pleased to testify on their progress before the banking committees. Undersecretary David C. Mulford, who had opposed stronger versions of the Act before passage, praised the reporting process and stressed the importance of cooperation with Congress.

In the final analysis, Treasury’s financial support for Mexico was a success, and the D’Amato restrictions were counterproductive (Henning 1999, 66–70). But the backlash against Treasury policy highlights the political consequences of presenting Congress with unpleasant surprises. This episode generates several observations. First, the manipulation provisions of the 1988 Act do not mandate negotiations in cases of overvaluation; they are asymmetrical. Second, the peso crisis demonstrates that overvalued currencies can pose as much risk to the US economy as undervalued currencies.

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