U.S. stops short of declaring Vietnam, Switzerland, Taiwan currency manipulators

U.S. stops short of declaring Vietnam, Switzerland, Taiwan currency manipulators

WASHINGTON (Reuters) -The U.S. Treasury Department on Friday said Vietnam, Switzerland and Taiwan tripped its thresholds for possible currency manipulation under a 2015 U.S. trade law, but refrained from formally branding them as manipulators under a separate law.

In the first semi-annual foreign exchange report issued by Treasury Secretary Janet Yellen, the Treasury said it will commence “enhanced engagement” with Taiwan and continue such talks with Vietnam and Switzerland after the Trump administration labeled the latter two as manipulators in December.

Treasury said Taiwan, Vietnam and Switzerland exceeded its 2015 currency thresholds during 2020 – a more than $20 billion bilateral trade surplus with the United States, foreign currency intervention exceeding 2% of gross domestic product and a global current account surplus exceeding 2% of GDP.

Despite this finding, Treasury said there is insufficient evidence under an earlier 1988 law to conclude that Vietnam, Switzerland, or Taiwan are manipulating their exchange rates to gain a trade advantage or prevent balance of payments adjustments.

“For calendar year 2020, we have not made a finding regarding the manipulation designation,” a Treasury official told reporters, adding: “We don’t view this as a mixed message.”

A Treasury official said it was possible for countries to meet the tests under the “mechanical” 2015 law and not be manipulating their currency to boost exports.

He said the report’s findings take into account the massive trade and capital flow distortions of the COVID-19 pandemic and the fiscal and monetary policy choices governments took to respond to it.

Without the pandemic, the “results would have likely been quite a bit different,” including for the three economies that hit the engagement triggers, the official added.

Treasury’s report also said the COVID-19 crisis was likely to continue to affect current account positions over the next year as recoveries accelerated in some economies and lagged in others, adding that these changes were cause for concern.


The enhanced engagement includes formal talks to urge Vietnam, Switzerland and Taiwan to develop plans with specific actions to address underlying causes of currency undervaluation and external imbalances, Treasury said in a statement.

The talks also will help Treasury determine the reasons for the three trading partners to make substantial currency market interventions.

For Taiwan, Treasury said it would initiate enhanced engagement in line with the Trade Facilitation and Trade Enforcement Act of 2015. It expects those talks to help determine if Taiwan manipulated its currency under the 1988 law.

Switzerland rejected Treasury’s assessment and denied that it engaged in any form of currency manipulation.

An official with Taiwan’s central bank said the U.S. decision showed that there was continued good communication between Taipei and Washington on the issue and that U.S. authorities understood Taiwan’s “special situation.”

No immediate reaction was available from Vietnam.


Treasury said no other major U.S. trading partner met the relevant 1988 or 2015 legislative criteria for currency manipulation or enhanced analysis during the review period.

Treasury urged China to improve transparency regarding its foreign exchange intervention activities, the policy objectives of its exchange rate management regime, the relationship between the central bank and foreign exchange activities of the state-owned banks, and its activities in the offshore yuan market.

Treasury said it found that 11 economies warrant placement on Treasury’s “Monitoring List” of major trading partners that merit close attention to their currency practices: China, Japan, South Korea, Germany, Ireland, Italy, India, Malaysia, Singapore, Thailand, and Mexico. All except Ireland and Mexico were included in the December 2020 report to Congress.

Reaction in the foreign exchange market was muted, with the Swiss franc modestly stronger and the Mexican peso only slightly weaker.

Analysts said the report may take some pressure off Vietnam and Switzerland and would not deter the Swiss National Bank’s ultra-expansive monetary policy.

“This strikes me as a political decision, not a rules-based decision,” said Thierry Wizman, global interest rates and currencies strategist at Macquarie Group (OTC:MQBKY), adding that the Treasury appeared to be trying to determine the intent of foreign exchange policies.

“It sounds like the administration is trying not to offend allies here … those allies that are going to be most important in containing China,” Wizman said.

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