MEDIA ADVISORY: Currency Manipulation is Responsible for Millions of Lost Jobs in the United States and the Euro Area

Media Advisory

Currency Manipulation is Responsible for Millions of Lost Jobs in the United States and the Euro Area

Currency manipulation by other countries is responsible for millions of lost jobs in the United States and the euro area. In a new Policy Brief, Joseph E. Gagnon identifies the most egregious currency manipulators and explains why manipulation is difficult to curtail.

In an attempt to hold down the values of their currencies, governments are distorting capital flows by around $1.5 trillion per year. The result is a net drain on aggregate demand in the United States and the euro area by an amount roughly equal to the large output gaps in the two economies. In other words, millions more Americans and Europeans would be employed if other countries did not manipulate their currencies and instead achieved sustainable growth through higher domestic demand.

Four groups of countries stand out: (1) longstanding advanced economies such as Japan and Switzerland; (2) newly industrialized economies such as Israel, Singapore, and Taiwan; (3) developing Asian economies such as China, Malaysia, and Thailand; and (4) oil exporters such as Algeria, Russia, and Saudi Arabia.

Although currency manipulation to boost trade balances is a violation of the Articles of Agreement of the International Monetary Fund (IMF), there is currently no procedure to punish or curtail it. The best forum for sanctions against currency manipulators is the World Trade Organization, operating in consultation with the IMF. Countries affected by currency manipulation would be authorized to impose tariffs on imports from manipulators. In order to get manipulators to agree to this change in international rules, the main targets of currency manipulation?the United States and the euro area?may have to play tough. Gagnon suggests one strategy would be to tax or otherwise restrict purchases of US and euro area financial assets by currency manipulators.

You can view a PDF of the Policy Brief [pdf] online. If you would like to speak with Joseph E. Gagnon, please contact Brian Reil at 202-454-1334 or media@piie.com.

Brian Reil
Media Liaison
Peterson Institute for International Economics
1750 Massachusetts Avenue, NW
Washington, DC 20036
media@piie.com
www.piie.com
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