Exchange-Rate Management in East Asia: Words and Deeds
This chapter discusses the declared exchange-rate policies of East Asian central banks and compares these with the de facto policies. Central banks that officially proclaim a fixed or managed exchange rate tend to intervene more in foreign exchange market
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Exchange-Rate Management in East Asia: Words and Deeds Ulrich Volz
Abstract This chapter discusses the declared exchange-rate policies of East Asian central banks and compares these with the de facto policies. Central banks that officially proclaim a fixed or managed exchange rate tend to intervene more in foreign exchange markets than central banks which officially follow a floating regime. However, even central banks that have implemented inflation-targeting frameworks with floating rates appear to carry out interventions. Several countries that selfdescribe their exchange-rate regime as “managed floating” appear to have been heavily engaged in foreign exchange-market interventions. … other countries take advantage of us with their money and their money supply and devaluation. … We know nothing about devaluation. Every other country lives on devaluation. You look at what China is doing, you look at what Japan has done over the years. They play the money market, they play the devaluation market. And we sit there like a bunch of dummies. US President Donald Trump in a press conference on 31 January 2017.
4.1 Introduction As a global trade war is unfolding, exchange-rate policies are increasingly coming into focus. US President Donald Trump has persistently complained about the This chapter is based upon a presentation delivered at a conference on “Monetary Policy Execution in East Asia” at the East Asia Institute in Ludwigshafen. I thank Simon Dikau for providing excellent research assistance and conference participants for helpful feedback. I also thank the editors of this book for very helpful comments and suggestions as well as their patience. The usual disclaimer applies. U. Volz (B) SOAS University of London, London, UK e-mail: [email protected] German Development Institute, Bonn, Germany © Springer Nature Switzerland AG 2020 F. Rövekamp et al. (eds.), Monetary Policy Implementation in East Asia, Financial and Monetary Policy Studies 51, https://doi.org/10.1007/978-3-030-50298-0_4
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supposedly “unfair” exchange-rate practices of trading partners and accused them of artificially lowering the value of their currencies to boost the competitiveness of their export industries—supposedly to the harm of the US economy. The Trump administration even proposed punitive duties for countries that allegedly manipulate currencies.1 Unsurprisingly, China has been singled out as the main culprit, but other East Asian economies, including Japan, and the Republic of Korea (hereinafter Korea), have also become the targets of Trump’s accusations of currency manipulation, along with the Europeans, the Canadians and the Mexicans. US complaints about the alleged currency manipulations of trading partners are nothing new. Germany and Japan were heavily criticised by the US in the 1980s for supposedly undervaluing their currencies, giving way to the Plaza Accord in 1985,2 which caused a fall of the value of the dollar by 40% over the period 1985–87.3 Resembling the accusation faced by Japan since the 1980s, China has b
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