By Simon Johnson
As Congress debates the trade promotion authority, TPA, the issue of currency manipulation remains firmly on the table. The administration and Republican leadership insist that language discouraging currency manipulation should not be included in the TPA (and also not in the Trans-Pacific Partnership, TPP, a trade agreement currently under negotiation). Many Democrats and Republicans continue to argue in favor of prohibiting currency manipulation.
On Tuesday, the Treasury Department and White House claimed that the amendment proposed by Senators Rob Portman (R., Ohio) and Deborah Stabenow (D., Michigan) would actually impede the ability of the Federal Reserve to conduct monetary policy. This is absurd. The Portman-Stabenow amendment clearly and precisely addresses protracted one-way intervention in foreign exchange markets, i.e., large-scale purchases of foreign assets by a central bank. The Federal Reserve does not engage in such activities – nor will it engage in this kind of intervention in the foreseeable future. US monetary policy involves buying and selling domestic assets. The Fed does not buy foreign assets on any significant scale. There is nothing in this amendment that would impede the workings of US monetary policy. To suggest otherwise is to mischaracterize the nature of this amendment.
There are instead three main issues of substance worth further consideration. Continue reading