In a comment on one of Sungjoon's recent posts, I said the following in response to an earlier comment:
... while a WTO agreement on currencies would be difficult, I think some rules could be worked out on what constitutes "manipulation" or "misalignment." As to "what would determine when intervention is permissible and for what time duration" and "what level of intervention is considered to be 'manipulation?'", these are hard questions and I don't have a substantive answer other than: negotiation among the Members.
But a recent Economist "economics focus" article makes this task sound quite difficult.
... the awkward truth is that it is almost impossible to be sure when a currency is misaligned, let alone by how much. A recent Treasury research paper admitted that there was no fail-safe method to estimate the correct value of a currency. A study by two IMF economists, Steven Dunaway and Xiangming Li, examined eight different estimates of the yuan's supposed undervaluation: they ranged from zero to almost 50% depending on the methods and assumptions used.
...
The ... awkward conclusion is that the highly subjective nature of assessing currency misalignment will make it very hard for America or the IMF to agree on whether a currency is out of line.
I'm not giving up hope, but it does make the task sound quite difficult.
