Thursday, June 14, 2007

Currency Conundrums

. Thursday, June 14, 2007

Here's a good political economy puzzle...

A bipartisan congressional bloc yesterday unveiled the latest effort to encourage change in China's exchange rate. "U.S. Senators Max Baucus (D-Mont.), Chuck Grassley (R-Iowa), Charles Schumer (D-N.Y.), and Lindsey Graham (R-S.C.) today introduced major legislation to deal with foreign currency concerns threatening the U.S. economy. The Currency Exchange Rate Oversight Reform Act of 2007 establishes a new approach to examining world currencies, requiring new consultations with offending nations and imposing new consequences for inaction. When currencies are so undervalued that they become fundamentally misaligned with the U.S. dollar, they can put American manufacturers and wage-earners at a significant disadvantage in the global economy. The bill unveiled today is the result of the four Senators’2006 commitment to draft new, vigorous, and WTO-consistent legislation to address currency misalignments."

Simultaneously (and not coincidentally so), the Treasury released its Semiannual Report in which it again declined the opportunity to label China a "currency manipulator."

The puzzle: How do we explain the fact that the two dominant policymaking branches of the US government have diametrically opposed China Currency policies?


Currency Conundrums
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