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 Semi-Annual Report to Congress on International Economic and Exchange Rate Policies



WASHINGTON - The U.S. Department of the Treasury today released the Semi-Annual Report to Congress on International Economic and Exchange Rate Policies, pursuant to Section 3004 and 3005 of the Omnibus Trade and Competitiveness Act of 1988.  The Report covers international economic and foreign exchange developments in the first half of 2014 and, where pertinent and available, data through end-September 2014.

Section 3004 requires the Treasury Department to consider whether countries manipulate the rate of exchange between their currency and the United States dollar for purposes of preventing effective balance of payments adjustments or gaining unfair competitive advantage in international trade. Based on the analysis in this report, the Treasury Department has concluded that the standard identified in Section 3004 of the Act has not been met with respect to any of the countries covered in this Report for the period evaluated.

While the U.S. recovery continues to strengthen, the report concludes that global growth and job creation continue to disappoint, due principally to chronically weak global demand.   Policies to boost demand in surplus economies would be particularly powerful in driving the global adjustment process.

The report states that demand growth in the euro area has been persistently weak throughout the post-crisis recovery period, and large output gaps have left unemployment far too high and inflation in the euro area dramatically below the European Central Bank’s target level.  With policy rates near zero, the sustained decline in inflation to very low levels has raised real interest rates and is a further impediment to recovery, particularly in the euro area periphery where the debt overhang is largest. In Japan, growth also has become more uncertain, with setbacks highlighted by a large, tax-induced contraction in the second quarter.

In China, the gradual appreciation of the RMB this summer and low apparent levels of intervention indicate some renewed willingness by the authorities to allow a stronger domestic currency and to reduce intervention in line with Strategic & Economic Dialogue commitments.  Even so, important metrics continue to indicate that the RMB exchange rate remains significantly undervalued, highlighting the need for sustained progress toward a market-determined exchange rate. 

In Korea, net exports have accounted for all of growth in 2014, highlighting the economy’s continued dependence on external demand and the weakness of domestic demand. Analysts believe Korea intervened heavily in the foreign exchange market between May and July 2014.  Given Korea’s sizeable current account surplus, large reserves, and undervalued currency, the won should be allowed to appreciate further.

Treasury continues to push for comprehensive adherence to all G-7 and G-20 commitments. These include the recent G-7 commitments to orient fiscal and monetary policies towards domestic objectives using domestic instruments and to not target exchange rates. They also include the G-20 commitments to move more rapidly toward market-determined exchange rate systems and exchange rate flexibility, to avoid persistent exchange rate misalignments, to refrain from competitive devaluation, and to not target exchange rates for competitive purposes. 

The Report, along with past Reports, can be found at


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