It's going on right now, and it's fascinating. There's so much being said that it's hard to summarize. Not sure I'll be able to, at least not right now. You can watch it here [ADDED: Now that it's over, the video link seems to have disappeared, but I'll add a link again if I can find one]. Some brief excerpts from the written testimony:
It is for these reasons that I would urge the United States to pursue currency realignment on a multilateral rather than solely on a bilateral basis, using the G20 rather than just a Sino-American “G2” as the appropriate forum. After all, we should not fetishize the renminbi-dollar exchange rate.6 The U.S. trade deficit is growing again not only because of China but also because of relatively high oil prices. The rise of China as an exporter of manufacturers has probably hurt other Asian exporters as much as, if not more than, it has hurt the United States. And if China were to increase its imports, the United States would not be the principal beneficiary.
Many of the policies currently under discussion would, in fact, be harmful. Other policies that stand a reasonable chance of doing good are likely to take a frustrating amount of time. We would be wise to show patience and pursue an approach that relies upon multilateral diplomacy.
Negotiations similar to those of the Plaza Agreement of 1985 should be launched immediately to coordinate a substantial (40 to 50 percent) revaluation of a number of managed Asian currencies versus the dollar and the euro over the next two to three years. This would also have to entail an agreement to halt strategic currency management activities. A second longer term objective of the deal would be a reversal of savings and consumption patterns in the United States and Asia.
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If starting such discussions proves difficult, the United States in concert with other affected countries could initiate unfair trade actions under their domestic laws and also under the anti-subsidy and nullification and impairment provisions of the WTO. It could also formally call for official consultations by the IMF with certain of its members regarding their currency management practices. This, of course, would be strong medicine, but it would surely stimulate discussion, and it is all perfectly legal and in keeping with both the rules and spirit of open, rules based trade.
Hence I would recommend that the Administration adopt a new three-part strategy to promote early and substantial appreciation of the exchange rate of the RMB:
1. Label China as a “currency manipulator” in its next foreign exchange report to the Congress on April 15 and, as required by law, then enter into negotiations with China to resolve the currency problem.9
2. Hopefully with the support of the European countries, and as many emerging market and developing economies as possible, seek a decision by the IMF (by a 51 percent majority of the weighted votes of member countries) to launch a “special” or “ad hoc” consultation to pursue Chinese agreement to remedy the situation promptly. If the consultation fails to produce results, the United States should ask the Executive Board to decide (by a 70% majority of the weighted votes) to publish a report criticizing China’s exchange rate policy.10
3. Hopefully with a similarly broad coalition, the United States should exercise its right to ask the World Trade Organization to constitute a dispute settlement panel to determine whether China has violated its obligations under Article XV (“frustration of the intent of the agreement by exchange action”) of the WTO charter and to recommend remedial action that other member countries could take in response. The WTO under its rules would ask the IMF whether the RMB is undervalued, another reason why it is essential to engage the IMF centrally in the new initiative from the outset.
