
The US Treasury has officially labeled China a currency manipulator, a move that's been a long time coming. This decision was made on August 5, 2019.
The Treasury's move is a response to China's practice of intervening in the foreign exchange market to keep the value of the yuan low. This makes Chinese exports cheaper and gives China a trade advantage.
China's currency manipulation has been a point of contention for years, with many arguing that it's unfair to US businesses and workers.
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Global Reactions
The COVID-19 pandemic has had a significant impact on U.S. trade deficits with countries like Switzerland and Vietnam.
In 2020, the Swiss National Bank continued to practice currency interventions to stop the influx of foreign money during economic crisis.
A senior U.S. treasury official said the US aimed "to resolve our issues" with Vietnam and Switzerland within a year.
The Biden administration had not been briefed on the issue, and they are not implicated in this.
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US treasury officials confirmed that the COVID-19 pandemic has caused massive trade and capital flow distortions, increasing the necessity for currency interventions in export-oriented countries.
Taiwanese and Vietnamese officials welcomed the move not to categorize them as currency manipulators, since US authorities understood their "special situation".
The State Bank of Vietnam and the Swiss National Bank would continue to practice currency interventions to contain inflation and ensure macro-economic stability.
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Country-Specific Analysis
China has been designated as a currency manipulator by the US Treasury, a move that's been years in the making. This decision marks the first time a country has been officially labeled as such since 1994 under Bill Clinton's administration.
The US Treasury has accused China of facilitating an undervalued currency through large-scale intervention in the foreign exchange market, a practice that's been going on for decades. China has a long history of this, and it's only recently taken concrete steps to devalue its currency.
The US Treasury's determination is based on Section 3004 of the Omnibus Trade and Competitiveness Act of 1988, which requires the Secretary of the Treasury to analyze exchange rate policies of other countries.
Treasury Designates China

The US Treasury has designated China as a currency manipulator, a move that's been in the works for a while. This decision was made after China's central bank allowed its currency to weaken, a move that's being seen as a retaliatory measure in the ongoing trade dispute.
China has a long history of facilitating an undervalued currency through protracted, large-scale intervention in the foreign exchange market. This is according to the US Treasury's analysis.
The last time the US labeled a country a currency manipulator was in the early 1990s, under President Bill Clinton. China was also the country that received the label back then.
Designating a country as a currency manipulator doesn't immediately trigger penalties, but it's seen as a provocation by other governments. This move is also a step towards further trade tensions between the US and China.
The US Treasury has repeatedly declined to label China a currency manipulator in the past, despite President Trump's pledge to do so during his 2016 campaign.
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What Did Switzerland and Vietnam Do?

Switzerland's trade surplus with the US surged over the 12 months through June, partly due to a rush of gold exports in the first half of 2020, as American investors bought up gold as a less risky asset.
The US said Switzerland intervened in currency markets to offset a spike in demand for the Swiss franc, a "safe haven currency", which accounted for 14% of the country's economic output.
This intervention was significantly larger than in previous periods, according to the US.
Switzerland's actions were deemed a threat to American businesses and workers by the US Treasury Secretary Steven Mnuchin.
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What Does the Label Signify?
The US rarely labels countries as currency manipulators, with the last time being in the early 1990s. This label is significant because it triggers talks mediated by the International Monetary Fund (IMF).
Designating a country as a currency manipulator allows the US to limit access to certain funds, such as procurement contracts. The US can use this label as a diplomatic tool to pressure countries to change their currency policies.
The US Treasury Department has previously declined to label China a currency manipulator, despite President Trump's pledge to do so. However, in 2019, the US Treasury did label China a currency manipulator, citing China's central bank's statement about its experience manipulating its currency.
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In-Depth Analysis

The US Treasury has labeled China a currency manipulator, a move that may seem like a big deal, but it's actually not a new development. The last time a country was officially named a currency manipulator by the US was in 1994, during Bill Clinton's administration.
The designation is significant because it opens the path for America to introduce tariffs, which is already happening as part of Mr Trump's 'America First' approach to trade. This means that the US can impose trade penalties on China, which could have a major impact on the global economy.
The decision may not change much technically, but it will have significant political ramifications. Nobody thinks this will increase the odds of a compromise by the Chinese side when it comes to trade.
Evaluation Criteria
The evaluation criteria for assessing countries' trade practices are quite specific. Countries with a goods surplus of over $20 billion USD are considered to have a strong trade position.
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To qualify for the monitoring list, a country must have a current account balance of at least 2% of its GDP. For example, in December 2020, Germany had a current account balance of 6.8% of its GDP.
FX intervention is another key factor, with countries that have made net purchases of over 2% of their GDP being considered for the monitoring list. In April 2021, Singapore had made net purchases of 28.3% of its GDP.
Some countries have been designated as currency manipulators, which means they have been found to be engaging in practices that artificially lower the value of their currency. For instance, Vietnam was designated as a currency manipulator in December 2020.
Here's a summary of the evaluation criteria:
It's worth noting that these criteria are subject to change and may be updated over time.
Analysis
The US Treasury has labeled China a currency manipulator, a move that's significant because no country has been officially named as such since 1994. This designation is a big deal, especially considering the already strained trade relations between the US and China.

The process of labeling China a currency manipulator typically involves negotiations between the two countries, but in this case, trade negotiations have been ongoing for over a year. This means the designation may not change much technically, but it will have significant political ramifications.
The US Treasury expects to work with the IMF to address its concerns, but it's unclear what that will yield. The designation also opens the path for America to introduce tariffs, which is already happening as part of the "America First" approach to trade.
The US Treasury's announcement stated that China has a long history of facilitating an undervalued currency through intervention in the foreign exchange market. In recent days, China has taken concrete steps to devalue its currency, while maintaining substantial foreign exchange reserves.
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Frequently Asked Questions
Who are the currency manipulators monitoring list?
The US Treasury's "Monitoring List" includes 7 major trading partners: China, Japan, Malaysia, Singapore, Taiwan, Vietnam, and Germany. These countries are being closely watched for potential currency manipulation and macroeconomic policy concerns.
What is the Currency Manipulation Act?
The Currency Manipulation Act refers to a provision in the Omnibus Trade and Competitiveness Act of 1988 that addresses currency manipulation by foreign countries. This legislation requires the Treasury Secretary to initiate negotiations with countries found to be manipulating their currencies.
Why does China manipulate currency?
China manipulates its currency to boost exports and drive economic growth by making its products cheaper for foreign buyers. This strategy has contributed to China's rapid economic expansion over the past few decades.
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