© Reuters. FILE PHOTO: Treasury Department in Washington, US, April 25, 2021. (Reuters)/Al Drago
By David Lauder
WASHINGTON (Reuters) – The U.S. Treasury Department said on Friday it found that no major U.S. trading partners manipulated their currencies for an export advantage, adding that it had completed “enhanced analysis” of Switzerland after the country met only one of three manipulation criteria.
In its semi-annual currency report, the Treasury said Switzerland remains on a “watch list” for close attention to foreign exchange and economic policies, along with six other trading partners: China, Taiwan, South Korea, Germany, Malaysia and Singapore.
The report covers foreign exchange activity for the four quarters ending December 31, 2022: a period of extraordinary dollar strength that prompted many countries to intervene to prevent their currencies from depreciating in an effort to tame inflation.
Under the laws governing the report, the Treasury Department is only concerned with the deliberate weakening of currencies for commercial advantage.
“Most of the United States’ trading partners’ intervention in foreign exchange last year was in the form of selling dollars, actions that served to strengthen their currencies,” U.S. Treasury Secretary Janet Yellen said in a statement.
“Nevertheless, the Treasury Department remains vigilant of currency practices and countries’ policies and their consistency with strong, sustainable, and balanced global growth,” Yellen said.
In its previous report in November 2022, the Treasury found that Switzerland had crossed three thresholds for potential manipulation, but refrained from labeling it a manipulator.
But in the latest report, Switzerland no longer exceeded the thresholds for sustained foreign exchange purchases and a trade surplus with the US of more than $15 billion, and the Treasury Department ended its “enhanced analysis” of Switzerland’s practices.
However, a US Treasury official said the department has concerns about Switzerland’s global current account surplus of 10.1% of GDP – well above the 3% threshold. The official said the Treasury would discuss policy options with their Swiss counterparts to reduce the surplus.
The report had little impact on the forex markets, as the dollar posted slight gains against the Swiss franc after its release.
Singapore is an outside party
Most of the countries on the Watch List met two of the three criteria in the past two reports, particularly high trade surpluses and a high current account surplus. But where most countries sold dollars, the Treasury said Singapore was far from intrusive, making net purchases of foreign exchange worth $73 billion in 2022, or about 15.6% of GDP – well above the 2% threshold.
Japan was dropped from the watch list because it only met one of three criteria for two consecutive terms. Japan, which had previously intervened to preserve the value of the Japanese yen, intervened last October in the currency market to prevent the yen from depreciating against the dollar.
The Treasury Department said China remained on the watch list because of its $400 billion trade surplus with the United States, persistent lack of transparency in its foreign currency dealings, and failure to publish data on currency intervention. However, the Treasury official said the department does not believe China intervened on a large scale to weaken the yuan last year.