Currency manipulation occurs when countries sell their own currencies in the foreign exchange markets, usually against dollars, to keep their exchange rates weak and the dollar strong. These countries thereby subsidize their exports and raise the price of their imports, sometimes by as much as 30-40%. They strengthen their international competitive positions, increase their trade surpluses and generate domestic production and employment at the expense of others. It becomes competitive devaluation whcih is a form of ” Beggar , thy neighbour policy” in which those economies that can afford to devalue lose.
Currency manipulation extends throughout the Pacific Rim: in Japan, where Tokyo’s central bank has printed more yen to help its slumbering economy grow; in China, where the renminbi has long been fixed to the dollar rather than allowed to fluctuate in response to market forces; and in Malaysia, where the government has intervened to protect the ringgit against currency traders.The Swiss National Bank (SNB) undervalued swiss francs saying the high value of the franc is a threat to the economy. The SNB said it would enforce the minimum rate by buying foreign currency in unlimited quantities.
India is running a huge trade deficit with China and is becoming de-industrialised because of the undervaluation of Chinese renminbi through manipulation.
The U.S. trade deficit has been several hundred billion dollars a year higher as a result and lost several million additional jobs during the Great Recession. As a result, it joined the currency wars through QE. Currency manipulation is, by far, the world’s most protectionist international economic policy in the 21st century, but e International Monetary Fund and the World Trade Organization failed to check it.