Congress, Treasury, and the Accountability of Exchange Rate Policy: How the 1988 Trade Act Should Be Reformed

67 Pages Posted: 12 Sep 2007

See all articles by C. Randall Henning

C. Randall Henning

Peter G. Peterson Institute for International Economics

Date Written: September 2007

Abstract

The controversy within the United States over Chinese exchange rate policy has generated a series of legislative proposals to restrict the discretion of the Treasury Department in determining currency manipulation and to reform the department's accountability to Congress. This paper reviews Treasury's reports to Congress on exchange rate policy - introduced by the 1988 Trade Act and Congress's treatment of them. It 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. Several recommendations can improve guidance to the Treasury, standards for assessment, and congressional oversight. These include (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.

Keywords: Exchange rate policy, currency manipulation, accountability, congressional oversight, China,Treasury, International Monetary Fund

JEL Classification: F31, F33, F42, F51, F53

Suggested Citation

Henning, C. Randall, Congress, Treasury, and the Accountability of Exchange Rate Policy: How the 1988 Trade Act Should Be Reformed (September 2007). Peterson Institute for International Economics Working Paper No. 07-8, Available at SSRN: https://ssrn.com/abstract=1012640 or http://dx.doi.org/10.2139/ssrn.1012640

C. Randall Henning (Contact Author)

Peter G. Peterson Institute for International Economics ( email )

1750 Massachusetts Avenue, NW
Washington, DC 20036
United States

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