What does it mean to “manage” a currency?

Commenter Matthew McOsker made this attempt:

I think the definition is simple where one country consciously manages the value of their domestic country against a foreign country.

What does it mean to “manage” the value of a currency. If you mean “enact government policies that impact the exchange rate”, then all countries are guilty.  If you mean enact government policies with the intention of affecting the exchange rate, then does it matter if that’s the sole purpose, or just one of many channels?  Didn’t Bernanke mention exchange rates as one channel by which QE could affect the US economy?  Some people argue that Japan’s recent adoption of negative IOR was (among other things) aimed at depreciating the yen.  But they had no specific exchange rate peg, and the yen continues to move up and down each day.  It probably wasn’t aimed at boosting the current account balance, but rather boosting prices and GDP. Is that currency manipulation?

People are going to need to be much more specific if they intend to convince me that there is a coherent definition out there.



16 Responses to “What does it mean to “manage” a currency?”

  1. Gravatar of Matthew McOsker Matthew McOsker
    29. August 2017 at 12:09

    Maybe by manage I mean anything other than free-floating. Purposefully, and systematically purchasing or selling against another currency versus a byproduct of regular monetary policy.

    I believe there are some actual legal definitions of currency manipulation. There is a short St Louis Fed paper distinguishing between manipulation and monetary policy.

  2. Gravatar of Matthew McOsker Matthew McOsker
    29. August 2017 at 12:09

    Paper Link

  3. Gravatar of Michael Rulle Michael Rulle
    29. August 2017 at 12:21

    I have no idea, but I think I can provide an example. The Weimar Republic between 1921-1923 devalued its currency, through a policy of hyperinflation. By the end of 1923 it cost about 4 trillion marks to purchase a dollar. One could blame the Western powers for insisting on holding true to its reparations claims (in gold backed currencies), but I believe Germany tried to “get ahead of the curve” by buying as much gold backed foreign currency as possible before it became obvious what they were doing— printing money (literally). That obviously did not work.

    While I did not provide a definition of currency manipulation, if the above is not an example of it, then I obviously do not know what you mean by manipulation.

  4. Gravatar of Christian List Christian List
    29. August 2017 at 13:50

    Michael Rulle’s example looks good to me.

    Or what about the SNB pegging the Swiss franc at 1.2 per euro?

    But something tells me that you will disprove both examples.

  5. Gravatar of ssumner ssumner
    29. August 2017 at 17:30

    Matthew, The what is “free-floating”? And why is currency manipulation considered a problem? And why did the EU believe that a fixed exchange rate regime would bring an end to currency manipulation?

    Michael, No, hyperinflation is not what people have in mind when they speak of currency manipulation.

  6. Gravatar of Eversar Eversar
    29. August 2017 at 18:31

    What about managing a currency vs another currency with the an objective other than maintaining an equilibrium trade balance as would be dictated by domestic inputs?

  7. Gravatar of Matthew McOsker Matthew McOsker
    29. August 2017 at 18:38

    Free float is what US has right now. EU is free floating as well. The Central Banks in both those cases are targeting things other than currency rates. Personally, I don’t think manipulation is a problem. In fact, it probably does more harm as I have it defined above. I do think that is the central point here, in the average person’s mind the definition is simpleton, but the outcome of manipulation is often interpreted incorrectly.

  8. Gravatar of Scott Freelander Scott Freelander
    29. August 2017 at 18:41

    Unless I’m missing something, isn’t an example of currency manipulation a country that tries to peg its currency low against another currency by having its central bank buy that particular currency to achieve, for example, a given trade deficit target with said country?

    That said, I don’t know why we should want to complain about another country, like China, trying to peg their currency this way. It just means they’re subsidizing our consumption of their goods. It would be a really dumb thing to do.

  9. Gravatar of Matthew McOsker Matthew McOsker
    29. August 2017 at 18:46

    China is targeting the Yuan against the dollar, but I think people have it backwards, and the Yuan is overvalued. This Economist article is interesting:


    To me this definition convo is timely.

  10. Gravatar of Matthew McOsker Matthew McOsker
    29. August 2017 at 18:52

    But, let’s not confuse currency regimes like a monetary union (eg Euro) which is different than say a crawling peg.

  11. Gravatar of ssumner ssumner
    29. August 2017 at 19:35

    Matthew. My point was that the EU had a fixed exchange rate regime in the 1990s, with the goal of preventing currency manipulation.

    Scott, I don’t believe that countries ever do that sort of thing.

  12. Gravatar of Scott Freelander Scott Freelander
    29. August 2017 at 23:58


    Yes, China was accused by some of doing this to the US years ago, but I know you don’t buy that.

    There are other reasons for currency pegs. I know Argentina once pegged to the dollar in hopes of keeping inflation low. Didn’t end well. Countries pegged to the Euro typically do so for greater trade integration.

  13. Gravatar of Michael Rulle Michael Rulle
    30. August 2017 at 10:21


    I grant you that “hyperinflation is not what people think about when discussing currency manipulation”, but it is, none the less, manipulation. I used an extreme example to make a point. I am sure whatever point you are trying to get at is logical. I think by getting to that point through the prism of “manipulation” is clearly not optimal.

  14. Gravatar of ssumner ssumner
    30. August 2017 at 13:57

    Scott, People accused China of manipulating the currency, but who said they had a trade deficit target?

  15. Gravatar of Scott Freelander Scott Freelander
    31. August 2017 at 07:19


    I never heard anyone mention a trade deficit target, in any context.

  16. Gravatar of FSE FSE
    31. August 2017 at 23:34

    I posted something similar in the other thread:

    If a policy affects exchange rates intentionally, then one should expect similar changes in the future and should either prepare for them or try to change the policy.

    If a policy affects rates incidentally (ie predictably but not intentionally), then the same is true but it will be much easier to change the policy so that it avoids those changes.

    If a policy affects exchange rates only by happenstance, then there is much less need to intervene.

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