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Climbing Asian Currency Reserves Will Revive Manipulation Debates


The Taiwanese dollar, Chinese yuan and Korean won are each up by around 6% against the dollar so far this year, climbing as the countries’ trade surpluses have ballooned during the pandemic. On Wednesday, the Chinese yuan briefly moved below 6.50 to the U.S. dollar for the first time in about 2½ years.

The rally is taking those Asian currencies to levels the countries’ exporters and governments are less comfortable with, raising the possibility of renewed tension with the U.S. Treasury Department if they try to damp the pace of appreciation.

In November, China recorded its largest month-on-month increase in foreign exchange reserves in seven years, South Korea the largest rise in 10 years, and Taiwan the largest increase ever. Foreign exchange reserves tend to rise when countries intervene to prevent appreciation by buying dollar-denominated assets.

Both South Korea and China are already on the Treasury Department’s monitoring list for being designated as currency manipulators, which means they fit at least one of the three criteria—significant current account surpluses, significant bilateral trade surpluses with the U.S., and persistent one-sided intervention in the foreign exchange markets.

The incoming U.S. administration is likely to have a different attitude to currency manipulation, but that won’t necessarily mean an easier ride for Seoul, Taipei or Beijing. As with trade-related issues, the incoming administration is expected to be more predictable and rules-oriented but not necessarily any more permissive.

For hints on some possibilities for what might come next there would be worse places to look than the publications of

Brad Setser,

a Council on Foreign Relations economist who is currently on leave and working on President-elect

Joe Biden’s

transition team.

Mr. Setser has written extensively on matters like Taiwan’s until-recently hidden foreign exchange position, and Beijing’s possible interventions in currency markets facilitated by China’s state banks.

The president-elect also plans to nominate

Katherine Tai,

a trade lawyer and expert on China-related issues, as U.S. Trade Representative. That suggests there will be a continued close focus on the region.

Though the movements of Asian currencies and reserves are less likely to spark the fire and fury that they have in recent years, the falling dollar now actually makes them a more pressing matter. The sharp rise in reserves last month bears keeping a close eye on.

Write to Mike Bird at Mike.Bird@wsj.com

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