I've said before on this blog (see, e.g. here) that WTO rules on exchange rate manipulation would be useful. I didn't have any detailed proposal in mind; it was my gut instinct plus some very basic arguments. Well, now I can cite to some top-notch economists who support the idea. In an op-ed piece, Arvind Subramanian writes:
India could work toward multilateralising the exchange rate issue. And here’s the punch line: this multilateralisation should be in the context of the WTO rather than the IMF. In a new paper, Aaditya Mattoo of the World Bank and I offer suggestions on how the exchange rate can be made into a multilateral trade issue. The WTO is the obvious alternative to the IMF since undervalued exchange rates have large and direct trade consequences. What is needed is a new rule in the WTO proscribing undervalued exchange rates, which are in effect a combination of export subsidies and tariffs, each of which is currently disciplined by the WTO.
I haven't seen the paper online yet, but I'll look for it, because it would be nice to have some support for my off-the-cuff blog post views. I agree with them in principle and I think something along these lines can be achieved. No doubt the details will be very tricky, though. I'm curious to see what they have to say in this regard.
