Currency control sits uneasily in trade deal
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Congress is debating whether or not to attach some new rules about what countries can and can’t do with their currencies to a pending “fast track” trade bill, which would allow Congress to vote on free trade deals but not filibuster or amend them.
“What I think we’re trying to do here is to create a playing field on which international trade will take place now for years to come,” says Jared Bernstein, a senior fellow with the Center on Budget and Policy Priorities and a former member of President Obama’s economic team. “So you want labor standards, you want environmental standards and you also want currency standards.”
If countries are able to devalue their currencies to make their exports cheaper relative to other countries, Bernstein says that means the playing field isn’t level anymore.
However, the Obama administration has opposed adding currency rules to pending fast-track legislation or a 12-country trade deal in the works, the Trans-Pacific Partnership. Treasury Secretary Jack Lew warned Tuesday that adding these currency rules could open to door for other countries to challenge Federal Reserve policies.
“It’s a pretty fine line between actual intervention in the foreign exchange market and, alternatively, using monetary policy, that is printing more money or reducing interest rates, in order to make the currency cheaper in value,” says Eswar Prasad, a professor at Cornell University.
While Bernstein thinks spotting currency manipulators is straightforward, Alan Sykes, a professor at NYU School of Law, says countries always have other explanations for their actions.
“They’re promoting development, they’re maintaining a stable value of their currency, or in the case of the United States, we need low interest rates to stimulate the economy in the face of a serious recession,” he says. “So there’s always a story.”
The Senate is expected to vote on a fast-track bill later this week.
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