This report describes how the International Monetary Fund (IMF) and World Trade Organization (WTO) deal with the issue of currency manipulation. The IMF can exercise "firm surveillance" but it cannot compel a country to change its exchange rate. Unique among the major international trade and finance organizations, the WTO has a mechanism for enforcing its rules. Countries are entitled, under WTO rules, to levy countervailing duties on imported products that receive subsidies from their national government. WTO dispute settlement panels are specifically excluded from this agreement to communicate, but the agreement says that the IMF shall inform the WTO (specifically including its dispute settlement panels) when the WTO is "considering exchange measures within the Fund's jurisdiction [in order to determine] whether such measures are consistent with the Articles of Agreement of the Fund." As noted before, the IMF Articles of Agreement prohibit this currency manipulation for the purpose of gaining unfair trade advantage, but the Fund has no capacity to enforce that prohibition. If policymakers want to address this situation, several options might be considered. Amend the WTO Agreements

Another possibility might be a formal change in the WTO agreements that would define currency manipulation as a prohibited form of export subsidy. Countries that manipulate their currencies could easily block the approval of the amendment. It seems more likely that any such change in the WTO rules will be the result of discussions during multilateral trade negotiations, in which restrictions on currency manipulation will be balanced by other changes desired by the countries that believe currency manipulation is an acceptable trade practice. Arguably, resolving the U.S.- China disagreement about exchange rates is a desirable objective. However, one might argue, a bilateral settlement of this dispute would be of only limited value. Congress is considering legislation ( H.R. No official action has been taken by the IMF on this issue. Adjusting the terms of the inter-agency agreement between the IMF and WTO, or re-interpreting the meaning of that agreement in the light of current practices, might be one option policy makers could use to address the trade implications of currency manipulation.
Congress has been concerned, for many years, with the possible impact that currency manipulation has on international trade. The International Monetary Fund (IMF) has jurisdiction for exchange rate questions. The World Trade Organization (WTO) is responsible for the rules governing international trade. The two organizations approach the issue of "currency manipulation" differently. The IMF Articles of Agreement prohibit countries from manipulating their currency for the purpose of gaining unfair trade advantage, but the IMF cannot force a country to change its exchange rate policies. The WTO has rules against subsidies, but these are very narrow and specific and do not seem to encompass currency manipulation. Recently, some have argued that an earlier ruling by a WTO dispute resolution panel might be a way that currency issues could be included in the WTO prohibition against export subsidies. Congress is currently considering legislation to amend U.S. countervailing duty law, based on this precedent, that the proponents believe is consistent with WTO rules. Others disagree as to whether the previous case is a sufficient precedent.
Several options might be considered for addressing this matter in the future, if policymakers deem this a wise course of action. The Articles of Agreement of the IMF or the WTO Agreements could be amended in order to make their treatment of currency manipulation more consistent. Negotiations might be pursued, on a multilateral as well as a bilateral basis, to resolve currency manipulation disputes on a country-by-country basis without changing the IMF or WTO treatment of this concern. Some countries might argue that the actions of another violate WTO rules and seek a favorable decision by a WTO dispute resolution panel. Finally, the IMF and WTO could use their interagency agreement to promote better coordination in their treatment of this concern.
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