Limitations to States’ Sovereignty and Dispute Settlement
Chapter 7: Exchange Rate Manipulation in International Economic Law
INTRODUCTION The post-war period witnessed several episodes of currency turmoil. In studying their causes and consequences, the economic literature usually distinguishes among several ‘generation models’ of currency crises.1 Without going into details, it has been suggested that the next generation of crises will be triggered by global imbalances and undervalued currencies.2 In particular, ‘Concern has been growing [. . .] that large-scale, prolonged, one-way intervention in exchange markets to limit or to preclude currency appreciation – primarily in China but also in some other Asian economies [. . .] – has been both thwarting global payments adjustment and violating the rules of the international monetary system’.3 In recent years, the issue of the Chinese renminbi undervaluation has been causing increasing tension between the United States and the People’s Republic of China and is impairing the G20’s ability to achieve 1 See Burnside, Craig, Martin Eichenbaum and Sergio Rebelo (2008), ‘Currency Crises Models’, in Steven N. Durlauf and Lawrence E. Blume (eds.), The New Palgrave Dictionary of Economics, Second Edition, Basingstoke: Palgrave Macmillan. 2 Global imbalances are characterized, on the one hand, by large and persistent current account deficits in a group of systemically important countries (notably the United States) and, on the other hand, by surpluses in another group of countries which includes emerging economies (China and India) and the oil exporters. As prolonged and ultimately unsustainable current account imbalances are susceptible to unwind in a very disorderly way, they have attracted the attention of the international community. The causal link between the Chinese current account surplus and...
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