US Intervention Fails to Address Asia's Undervalued Currencies

Asian currencies have been at the center of international monetary economics debates again, with some arguing that the renminbi, yen, and won are undervalued. China, Japan, and South Korea all run trade and current-account surpluses while the US runs deficits.

Economists disagree on whether foreign-exchange intervention is warranted for these imbalances. Brad W. Setser argued that a weak renminbi led to China's export boom and urged major economies to press China to revalue its currency, but Gita Gopinath, Pierre-Olivier Gourinchas, and Hélène Rey disagree.

The US recently intervened in the foreign-exchange market with Japan to strengthen the yen, purchasing it while Japan sold dollars. South Korea reportedly participated in this coordinated intervention, which is rare for three countries to do together.

However, the motivations behind the US's actions may not be altruistic. The Trump administration wanted to prevent a selloff of US Treasuries by Japan that could put upward pressure on US interest rates. This action does not signal an end to US unilateralism.