China's Current Exchange Rate System An International Law Perspective

During the past years, there has been considerable debate about, and much international criticism of, China's exchange rate and its currency regime. The United States have argued that China deliberately undervalues its currency by means of protracted large-scale intervention in currency markets, and manipulates its exchange-rate for purposes of gaining an unfair competitive advantage in international trade, which is contrary to International Monetary Fund rules of the game and meets all three WTO tests for a prohibited export subsidy. Thus China is hoped to initiate soon an appreciation of the RMB, otherwise an ad valorem duty would be imposed on all imported Chinese products by a bill which has been authorized by the Congress, or the United States will complain to the WTO.The above problem has been temporarily solved after China's monetary authorities taking the reform about the exchange rate. However, we will be faced the similar allegations possibly, thus it is necessary to respond positively and do the further research on the legal issues of the disputes.The paper is organized as follows.Section I First introduces the conceptions and developments of the international currency system and the exchange rate system, then incorporates the provisions concerning the exchange rate involved in the Agreement of IMF. The paper wants to be clear that the"exchange rate action"is distinguished from the"exchange action", thus there isn't any binding obligations about the exchange rate in the WTO agreement. In addition, the development of China's exchange rate system is introduced.Section II Talks about the jurisdiction over exchange rate policies. There is out of question that the supervision on exchange rate is the key role of IMF, so IMF absolutely can exercise authority and give binding judgment to the parties concerned. Besides, when talks about whether the exchange rate policies constitute a subsidy under WTO Subsidies and Countervailing Measures Agreement (SCMA), WTO is considered to have the jurisdiction also. Moreover, the paper discusses the reasons why the United State tries to seek the relives from WTO.Section III Takes up the thorny issue of what does and does not constitute an unfair"currency manipulation"and relates those principles to China's exchange market intervention.Section IV Considers the technical requirements for designation as an subsidy under SCMA. The paper argues that China's floating exchange rate system does not meet those above requirements.Section V Discusses what kind of reform of the exchange rate system and what kind of measures would be most suitable for China from an international law perspective. And contains some brief concluding remarks.