Morning Commentary: The Biden Administration’s First Currency Report Card
A daily summary and commentary of events and factors that affect the global markets, with a particular emphasis on the foreign exchange markets.
The Biden Administration’s First Currency Report Card
Share this story:
Andrew Kositkun Senior FX Advisor
The first semiannual “Macroeconomic and Foreign Exchange Policies of Major Trading Partners of the United States” report under the Biden administration was published last week. Traditionally, this report has been the cornerstone of U.S. currency policymaking but became less central under the previous administration.
Under a Janet Yellen Treasury and a Joe Biden administration, this report should resume its traditional role as a central mechanism to articulate currency policy. Specifically, a rigorous systematic approach to assessment, emphasis on diplomatic engagement and involvement of international institutions aligns with President Biden’s desire to return to more conventional patterns of policymaking.
The details of this first report confirm expectations that Biden and Yellen would take a proactive stance against currency manipulation but that they would do so through rigorous analysis and the uses of remedies through bilateral and multilateral engagement through international institutions. Notably, the Treasury kept the criteria thresholds unchanged, which, given the data, led to Taiwan being flagged for the remedy process. This is a significant result, as geopolitical concerns argued for tweaks to allow Taiwan a more favorable result.
Additionally, this first report re-established the separation of the three-criteria process from being labeled a currency manipulator. This distinction was highlighted by the Treasury department removing the currency manipulator label from Switzerland and Vietnam, even though they continue to breach all three criteria and are still in the remedy process. Additionally, the Treasury held off on labeling Taiwan a currency manipulator in the latest report despite the country meeting the three-criteria standard that triggers the start of enhanced bilateral negotiations. By separating the three-criteria process and being labeled a currency manipulator, the Treasury department is creating more granularity and flexibility in the process as well as adding incentives for trade partners to engage in constructive negotiations.
Regarding China, the county has not met the three-criteria standard for some time now. Nevertheless, the country was criticized for the opaqueness of its state-sector currency intervention. It is important to remember that the U.S.–China conflict has moved beyond a simple mercantilist issue to a more complex conflict. The Biden administration is expected to put its focus on these deeper and more difficult trade and technology issues rather than simply the currency.
As a last point, the Treasury’s focus on global imbalances has re-emerged. In the past, this has led to debates between U.S. and European officials on the sources of European trade surpluses with the U.S. and on the role of government policy in reducing excess savings in certain European countries.
Want to learn more about international finance, economics, and global events? Sign up for our other Foreign Exchange emails and videos!
Follow City National Bank on social media:
Non-deposit investment products:
Are not FDIC insured,
Are not deposits or other obligations of City National Bank and are not guaranteed by City National Bank, and
Are subject to investment risks, including possible loss of the principal invested.
This report is for general information and education only and was compiled from data and sources believed to be reliable. City National Bank does not warrant that it is accurate or complete. Opinions expressed and estimates or projections given are those of the authors as of the date of the report with no obligation to update or notify of inaccuracy or change. This report is not a recommendation or an offer or solicitation to buy or sell any financial instrument discussed. It is not specific investment advice. Financial instruments discussed may not be suitable for the reader. Readers must make independent investment decisions based on their own investment objectives and financial situations. Prices and financial instruments discussed are subject to change without notice. Instruments denominated in a foreign currency are subject to exchange rate and other risks. City National Bank (and its clients or associated persons) may engage in transactions inconsistent with this report and may buy from or sell to clients or others the financial instruments discussed on a principal basis. Past performance is not an indication of future results. This report may not be reproduced, distributed or further published by any person without the written consent of City National Bank. Please cite source when quoting.
Here's what this indicator is saying about US stocks right now. ACTIVE INVESTOR WEEKLY EDITION: January 21, 2022 View in a browser FIDELITY VIEWPOINTS ® WEEKLY EDITION: January 21, 2022 Bollinger band stock signal Here's what this indicator is saying about US stocks right now. Read more CHART OF THE WEEK Inflation and corporate consolidation US industries have become
Learn how to keep all your accounts—not just the ones at Fidelity—secure. November 18, 2021 View in a browser FIDELITY VIEWPOINTS ® WEEKLY EDITION: November 18, 2021 What to do after a data breach Learn how to keep all your accounts—not just the ones at Fidelity—secure. Read more What's ahead for your RMDs Make sure to take your required withdrawals this year, then start to plan ahead.