Factbox: U.S. current, proposed law on currency manipulation

(BestGrowthStock) – China’s central bank said it will gradually make the yuan’s exchange rate more flexible, signaling a resumption of its rise in value and an end to a nearly 2-year-old peg to the dollar.

The move seemed intended to deflect growing criticism of Beijing’s currency policies before a G20 leaders summit in Canada. But it did little to placate key members of Congress, who still threatened to push ahead with new legislation that would impose punitive duties on China if the yuan fails to rise.

Senator Charles Schumer called the People’s Bank of China’s announcement a “vague and limited statement of intentions” and Congress would have no choice but to proceed with the legislation without more specific details and action from Beijing. He is hoping for a vote in the next two weeks.

The bill proposed by Schumer, fellow Democratic Senator Debbie Stabenow and Republican Senator Lindsey Graham, would repeal a 1988 law to curb currency manipulation and lower the threshold for punitive action on currencies found to be “fundamentally misaligned.

Following are details of the existing law and the proposed Schumer-Stabenow-Graham Currency Exchange Rate Oversight Act of 2010:

CURRENT LAW

— The U.S. Treasury Department, in consultation with the International Monetary Fund, shall analyze the exchange rate policies of foreign countries on an annual basis.

— Semiannual reports are due April 15 and October 15.

— The reports examine whether countries are manipulating their currency’s exchange rate with the U.S. dollar “for purposes of preventing effective balance of payments adjustments or gaining unfair competitive advantage in international trade.”

— If manipulation is found, the Treasury secretary shall “initiate negotiations with such foreign countries on an expedited basis, in the International Monetary Fund or bilaterally, for the purpose of ensuring that such countries regularly and promptly adjust the rate of exchange between their currencies and the United States dollar.”

— The secretary “shall not be required to initiate negotiations in cases where such negotiations would have a serious detrimental impact on vital national economic and security interests.”

— In such cases, the secretary must notify leaders of the Senate Banking Committee and the House of Representatives’ Financial Services Committee of his decision.

The authorizing statute: http://www.treasury.gov/offices/international-affairs/economic-exchange-rates/authorizing-statute.pdf

LATEST PROPOSAL

— Treasury under the Schumer-Stabenow-Graham bill would be required to drop its “manipulation” criteria in favor of determining whether a currency is “fundamentally misaligned” based on objective criteria or clear policy action from the relevant government.

— The latter designation would trigger a priority investigation from the U.S. Commerce Department as to whether the undervaluation is an unfair subsidy for that country’s exports at the expense of U.S. industry. It must then impose import duties to counteract the subsidy.

— Treasury would be required to immediately consult with all countries with misaligned currencies and engage the International Monetary Fund in priority cases. In the case of China, the IMF said on March 1 that the yuan was “substantially undervalued” from a medium-term perspective.

— After 90 days of the designated country’s failure to make appropriate policies, the U.S. must incorporate the currency undervaluation into its dumping calculations for products from that country. Federal purchases of goods and services from the country would be prohibited unless the country is a member of the World Trade Organization’s Government Procurement Agreement — a provision aimed squarely at China. It would forbid Overseas Private Investment Corp financing and oppose multilateral development bank financing for projects in the designated country.

— After 360 days of failure to adopt appropriate policies, the U.S. Trade Representative must request WTO dispute settlement consultations with the designated country. The U.S. Treasury would be required to consult with the Federal Reserve and other central banks to consider remedial intervention in currency markets.

— The U.S. president could put the process on hold after the initial 90 days of inaction if he determined that it would harm national security or the economic interests of the United States, but this must be explained and could be overridden by a congressional disapproval resolution.

— The bill would create a new body that the Treasury must consult while developing its report. Eight of the nine members would be chosen by Congress.

PREVIOUS CONGRESSIONAL EFFORTS AT REVAMP

— Many U.S. lawmakers have called for changes because Treasury has historically been reluctant to label countries currency manipulators, particularly China. However, there has not been a serious push to revamp the law since 2007.

— Some lawmakers have proposed giving Treasury less discretion in citing countries when certain conditions are met; others wanted the U.S. government to adopt what they consider more neutral language in its semi-annual reports.

— The Senate Finance Committee passed legislation in 2007 that would have required Treasury to identify countries with “fundamentally misaligned” currencies but action on the bill stalled, partly because of a jurisdictional battle with the Senate Banking Committee.

Stock Market Research

(Reporting by David Lawder, Doug Palmer and Nick Olivari; Editing by Doina Chiacu)

Factbox: U.S. current, proposed law on currency manipulation