As international trade broadens, foreign currency exchanges play a greater role in the world economy. It is necessary to have exchange rates at fair market value in order for transaction costs of international trade to become more efficient.
For the past several weeks, Congress has been debating to include a provision in the Trans-Pacific Partnership agreement (TPP) that will allow the US to retaliate against China’s seemingly ongoing currency manipulation (Syracus.com 5/6/2015). While the TPP does not explicitly center on China, some in Congress wanted to use this trade agreement in a more aggressive means to keep China’s trade influence in check. Already, by excluding China from this grand trade agreement, the US wants to increase its economic influence in the Pacific region against the rising China’s global influence.
The US should continue keep a check on China’s rising influence, whether it be on trade or military might. However, on the issue of currency manipulation, US lawmakers ought to focus on a different set of actors, especially given that the IMF is planning to announce that the Chinese currency is just about fairly valued (Wall Street Journal 5/3/2015).
The LA Times reported recently that the Justice Department has announced a $5.7 billion settlement against Citi, Chase, Barclays, Royal Bank of Scotland Plc, and UBS AG (5/20/2015). The banks are accused of colluding to manipulate the foreign exchange market. Given that roughly $5 trillion is exchanged in the foreign currency market, there should be a public outcry on the meager $5.7 billion total settlement that is split among the five banks.
China has a history of depreciating its currency to gain advantages over the export markets, and US politicians rightly have called national attention on this issue. The recent settlement ought to be brought to public scrutiny, given the propensity of the crime and the disappointing settlement that favors the banks. While the Justice Department announced the settlement in a celebratory manner, the lackluster penalties imposed by the bank brings up the question to why the Justice Department did not push harder.
In the LA Times article, it is noted as the following: “‘I think it's a facade of justice,’ said Jimmy Gurulé, a University of Notre Dame law professor and former federal prosecutor and Treasury Department official. ‘It's an attempt to make it appear that the Department of Justice is really doing something serious about the culture of corruption in banks. But the actual perpetrators, the architects of the criminal scheme, are not held accountable.’”
Hopefully, someone in Congress can call attention on not only the issue of some banks being currency manipulators but also the Justice Department for setting a low bar of calling it a settlement successful.
