Currency Undervaluation and Sovereign Wealth Funds : A New Role for the World Trade Organization

Two aspects of global imbalances - undervalued exchange rates and sovereign wealth funds - require a multilateral response. For reasons of inadequate leverage and eroding legitimacy, the International Monetary Fund has not been effective in dealin...

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Bibliographic Details
Main Authors:	Mattoo, Aaditya, Subramanian, Arvind
Format:	Policy Research Working Paper
Language:	English
Published:	World Bank, Washington, DC 2012
Subjects:	AGREEMENT ON SUBSIDIES AGRICULTURE ARBITRATION ASSET MANAGERS ASSET PRICES BALANCE OF PAYMENTS CAPITAL FLOWS CAPITAL IMPORTERS CAPITAL INFLOWS CAPITAL STOCK CENTRAL BANK CENTRAL BANKS CODE OF CONDUCT COLLATERAL COMMODITY COMMODITY PRICES COMPARATIVE ADVANTAGE COMPETITIVE ADVANTAGE COMPETITIVENESS CONSUMER GOODS CONTRACTING PARTIES CORPORATE GOVERNANCE COUNTERVAILING ACTION COUNTERVAILING MEASURES CREDIBILITY CREDITOR CREDITORS CROSS-BORDER FLOWS CURRENCY CURRENCY APPRECIATION CURRENT ACCOUNT SURPLUS CURRENT ACCOUNT SURPLUSES DEBT DEBTOR DEBTOR COUNTRIES DEVELOPING COUNTRIES DEVELOPING WORLD DISCLOSURE REQUIREMENTS DISPUTE SETTLEMENT DISPUTE SETTLEMENT MECHANISM DISPUTE SETTLEMENT PANEL DISPUTE SETTLEMENT SYSTEM DOMESTIC DEBT DOMESTIC SUPPORT ECONOMIC COOPERATION ECONOMIC DEVELOPMENT ECONOMIC INTEGRATION ECONOMIC POWERS ECONOMIC RESEARCH EMERGING MARKET EMERGING MARKET ECONOMIES EMERGING MARKETS EMERGING-MARKET ENFORCEMENT MECHANISM ENFORCEMENT PROCESS ENVIRONMENTAL STANDARDS EUROPEAN UNION EXCHANGE RATE EXCHANGE RATE REGIMES EXCHANGE RATES EXPORT GROWTH EXPORT SUBSIDIES EXPORT SUBSIDY EXPORTERS EXPORTING COUNTRIES EXPORTS EXTERNAL TRADE FINANCIAL ARRANGEMENTS FINANCIAL CONTRIBUTION FINANCIAL CRISIS FINANCIAL SERVICES FISCAL POLICY FIXED EXCHANGE RATE FLEXIBLE EXCHANGE RATE FLEXIBLE EXCHANGE RATE REGIMES FLOW OF CAPITAL FOREIGN ASSETS FOREIGN CAPITAL FOREIGN CURRENCY FOREIGN DIRECT INVESTMENT FOREIGN DIRECT INVESTMENTS FOREIGN EXCHANGE FOREIGN EXCHANGE MARKETS FOREIGN EXCHANGE RESERVES FOREIGN GOVERNMENT FOREIGN GOVERNMENTS FOREIGN INVESTMENT FOREIGN INVESTMENTS FOREIGN OWNERSHIP FOREIGN SALES CORPORATION FORWARD MARKET FREE TRADE FREE TRADE AGREEMENT FREE TRADE AGREEMENTS FULL EMPLOYMENT GDP GENERAL AGREEMENT ON TRADE IN SERVICES GEOGRAPHICAL INDICATIONS GLOBALIZATION GOVERNMENT ACTION GOVERNMENT BONDS GOVERNMENT OWNERSHIP HOLDING HOLDINGS IMPORT RESTRICTIONS IMPORTING COUNTRIES INCOME INCOME LEVEL INCOMES INDUSTRIAL COUNTRIES INDUSTRIALIZATION INSTRUMENT INSURANCE INSURANCE COMPANIES INTELLECTUAL PROPERTY INTERNAL MARKET INTERNATIONAL BANK INTERNATIONAL CAPITAL INTERNATIONAL COOPERATION INTERNATIONAL ECONOMICS INTERNATIONAL TRADE INVESTMENT FUNDS INVESTMENT OPPORTUNITIES INVESTMENT STRATEGY JURISDICTION LEGAL MECHANISM LENDER LENDER OF LAST RESORT LEVEL OF CONFIDENCE LIBERALIZATION LIBERALIZATION OF TRADE MARKET ACCESS MARKET CAPITALIZATION MARKET COUNTRIES MARKET ECONOMY MARKET SHARE MARKET SIZE MERCANTILISM MONETARY FUND MONETARY POLICIES MONETARY POLICY MULTILATERAL ACTION MULTILATERAL APPROACH MULTILATERAL RULES MULTILATERAL TRADE NATIONAL INVESTMENT NATIONAL SECURITY OIL PRICE OIL PRICES PENSION PENSION FUND PENSION FUNDS PER CAPITA INCOME POLICY RESEARCH POLITICAL REASONS POLITICAL RISKS POOLS OF CAPITAL PORTFOLIO PORTFOLIO INVESTMENTS PRIVATE CAPITAL PRIVATE CAPITAL FLOWS PRIVATE EQUITY PUBLIC POLICY QUANTITATIVE RESTRICTIONS REAL EXCHANGE RATE REAL EXCHANGE RATES REGULATORS REINSURANCE REMEDIES REPUTATION RESERVE RESERVE BANK RESERVES RETURN RETURNS SAFEGUARD ACTION SECURITY CONCERNS SETTLEMENT SETTLEMENT SYSTEM SMALL COUNTRIES STOCKS SURVEILLANCE FUNCTION SYSTEM OF PREFERENCES TAKEOVER TAX TAXATION TELECOMMUNICATIONS TRADE BARRIERS TRADE COMMISSIONER TRADE DISPUTES TRADE LIBERALIZATION TRADE MINISTRIES TRADE NEGOTIATIONS TRADE NEGOTIATORS TRADE POLICIES TRADE POLICY TRADE RESTRICTIONS TRADING TRADING SYSTEM TRANSPARENCY TREASURY TREATIES TREATY UNDERVALUATION UNILATERAL ACTIONS URUGUAY ROUND WEALTH WORLD ECONOMY WORLD INVESTMENT REPORT WORLD MARKET WORLD TRADE WORLD TRADE ORGANIZATION WTO
Online Access:	http://documents.worldbank.org/curated/en/2008/07/9670289/currency-undervaluation-sovereign-wealth-funds-new-role-world-trade-organization http://hdl.handle.net/10986/6846

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Summary:	Two aspects of global imbalances - undervalued exchange rates and sovereign wealth funds - require a multilateral response. For reasons of inadequate leverage and eroding legitimacy, the International Monetary Fund has not been effective in dealing with undervalued exchange rates. This paper proposes new rules in the World Trade Organization to discipline cases of significant undervaluation that are clearly attributable to government action. The rationale for WTO involvement is that there are large trade consequences of undervalued exchange rates, which act as both import tariffs and export subsidies, and that the WTO's enforcement mechanism is credible and effective. The World Trade Organization would not be involved in exchange rate management, and would not displace the International Monetary Fund. Rather, the authors suggest ways to harness the comparative advantage of the two institutions, with the International Monetary Fund providing the essential technical expertise in the World Trade Organization's enforcement process. There is a bargain to be struck between countries with sovereign wealth funds, which want secure and liberal access for their capital, and capital-importing countries, which have concerns about the objectives and operations of sovereign wealth funds. The World Trade Organization is the natural place to strike this bargain. Its General Agreement on Trade in Services, already covers investments by sovereign wealth funds, and other agreements offer a precedent for designing disciplines for these funds. Placing exchange rates and sovereign wealth funds on the trade negotiating agenda may help revive the Doha Round by rekindling the interest of a wide variety of groups.

Currency Undervaluation and Sovereign Wealth Funds : A New Role for the World Trade Organization

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