Levin TPP Currency Proposal

“[P]reventing currency manipulation through the I.M.F. and other multilateral forums has not been successful, and this potentially matters a great deal for the United States economy. … [T]he issue is cheating within the system, with governments’ getting away with actions that distort markets on a grand scale. … [Mr. Levin’s proposal to address this in TPP] is a targeted and responsible proposal.  It should get support from both sides of the aisle on Capitol Hill.” 

Simon Johnson
M.I.T. Professor / Former IMF Chief Economist

Core Obligation to Avoid Exchange Rate Manipulation.  Each TPP Party shall avoid manipulating exchange rates to gain an unfair competitive advantage over other TPP Parties.  In determining whether a Party has manipulated an exchange rate, a panel would consider the same evidence the IMF considers pursuant to Article IV of the IMF Articles of Agreement (see 2012 and 2007 Executive Board Decisions, paras. 22 and 15, respectively).  These include:

  • Protracted, large-scale intervention in one direction in the exchange market;
  • Excessive and prolonged official or quasi-official accumulation of foreign assets; and
  • Large and prolonged global current account surpluses.

As part of the agreement, the TPP parties will establish specific benchmarks by which to determine whether the obligation has been breached (e.g., foreign asset accumulation may be excessive if it exceeds all of the Party’s external debt coming due within the next year, the so-called “Greenspan-Guidotti rule”). 

  • Consultations regarding Other Actions that Weaken an Exchange Rate.  The TPP Parties agree to consultations where a Party believes another Party has taken action with the purpose and the effect of weakening its currency (e.g., official statements from the other Party’s that its currency is overvalued; the use of fiscal or monetary policy to achieve a particular exchange rate target), particularly where the Party has a significant current account surplus or a history of exchange rate interventions.
  • Manipulation by Non-Parties.  The TPP Parties agree to take coordinated action to address currency manipulation by non-parties.
  • Transparency.  Each TPP Party agrees to transparency in its exchange rate practices.  This commitment includes obligations: to disclose data on its foreign exchange interventions and on its accumulation of official and quasi-official assets; to subscribe to the IMF’s Special Data Dissemination Standard on reserve transparency; and to report to the IMF’s Currency Composition of Official Foreign Exchange Reserves database. 

The core obligation to avoid exchange rate manipulation, and the transparency obligation, would be subject to the normal dispute settlement mechanism of the TPP agreement, with two modifications for exchange rate disputes: (1) the panelists would be required to have expertise concerning exchange rate issues; and (2) the timeline for resolution of the dispute would be expedited.[1]


[1]   U.S. FTAs generally provide for the reinstatement of MFN tariffs in the event of a breach of the agreement.  That same remedy would apply in the case of currency manipulation.  However, with respect to trade in motor vehicles, if the U.S. tariff has not yet been eliminated, the period of time before the tariff is eliminated would be extended.