Exchange rates and currency
Currency undervaluation and sovereign wealth funds: a new role for the World Trade Organization
Negotiating multilateral responses towards undervalued exchange rates and SWFs at the WTO
Authors:
A Mattoo; A Subramanian
Publisher:
Peterson Institute for International Economics, 2008
Undervalued exchange rates and sovereign wealth funds (SWFs) require a multilateral response. However, due to inadequate leverage and eroding legitimacy, the International Monetary Fund (IMF) has not been effective in dealing with them.
Given that undervalued exchange rates act as both import tariffs and export subsidies, the World Trade Organization (WTO) should be enabled to discipline cases of significant undervaluation that are clearly attributable to government action. The WTO’s enforcement mechanism is credible and effective, and WTO panels could seek the IMF’s assessment to judge whether government action was responsible for the observed exchange rate movements.
The WTO is also the natural place to strike a bargain between countries with SWFs, which want secure and liberal access for their capital, and capital-importing countries that have concerns about the objectives and operations of SWFs.
As an added advantage, placing exchange rates and SWFs on the trade negotiating agenda could revive the Doha Round.
