US Treasury Secretary says currency devaluations are unacceptable

Countries devaluing their currency so as to gain a competitive advantage was “completely unacceptable”, US Treasury Secretary Jack Lew said.

In a piece published in the on-line version of Foreign Affairs, and posted to the Treasury's website, Lew also said it was critical the US sustain its economic leadership – by adapting to the challenges of the present – to secure future US and global stability and prosperity.

He called attention to how the US had pressed for reforms at the International Monetary Fund, including via increased financial resources to deal with crises and by giving emerging-market nations a greater voice.

However, those reforms had just gone into effect, in February 2016, despite having been negotiated in 2010. Why?, he asked rhetorically.

For Lew, the reason for the delay was the “historical ambivalence” of the US towards global engagement. It was also a result of the backdrop then, characterised by decades of stagnant wages for lowered-skilled workers and rising income inequality.

However, the IMF, World and the General Agreement on Tariffs and Trade (the precursor to the World Trade Organisation) had been the underpinnings for the wave of prosperity in the wake of the Second World War which created a global middle class and lifted hundreds of millions of people out of poverty.

“U.S. influence in a changing world will increase as the United States shares with emerging economies such as China both the benefits and the responsibilities of managing the global economic and financial system,” he argued.

“Clear rules for global economic relations create opportunities and incentives to innovate, invest, and work — the critical drivers of economic progress.”

With greater representation in the international system come greater responsibilities for those other countries, the Secretary said.

“When the values of currencies are allowed to move according to market forces, the global economy can better adapt to changes in relative economic performance among countries. What is unacceptable, however, is intervention in foreign exchange markets in order to gain a competitive advantage in trade or impede adjustments in the balance of payments.”

Nevertheless, Lew argued that US efforts to sustain the necessary US economic leadership “must begin at home”.

In that regard, he specifically referenced the need to rebuild aging infrastructure, reform the broken business tax code, and pass immigration reform.