What is currency manipulation?

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What is currency manipulation?

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What is currency manipulation?

Explanation & AnswerSolution by a verified expert

Explanation

Some countries engage in unfair currency practices to get trade advantage over other countries. Such practices may include currency intervention, or adopting a monetary policy in which the central bank buys or sells foreign currency in exchange for domestic currency, generally with the intention of influencing the exchange rate and commercial policy. Indulging in these unfair practices known as currency manipulation. The countries following such practices are termed as "Currency manipulators" by Country U's department of the treasury. To decide if the nation is manipulating currency, three criteria are checked, which are

If the country is having a very large quantum of trade surplus with a particular foreign country.
If the country has a large current account balance with a particular country. Current account balance refers to the trade surplus in addition to the net foreign income generated by a country's foreign companies and citizens.
If there is continuous currency intervention to constantly appreciate (or depreciate) the currency.

Verified Answer

Currency manipulation refers to conducting unfair practices in order to direct the exchange rate in an upward (or downward) direction.

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