Even as U.S. President Donald Trump continues to ramp up pressure on the Federal Reserve, the International Monetary Fund on Aug. 21 warned governments and central banks against resorting to monetary policy easing and market intervention to weaken their currencies and make exports cheaper and more competitive.
In a blog post, top IMF researchers said proposals aimed at directly devaluing a country's currency are "cumbersome to implement and likely to be ineffective" and may damage the international monetary system.
"[O]ne should not put too much stock in the view that easing monetary policy can weaken a country's currency enough to bring a lasting improvement in its trade balance through expenditure switching," the IMF researchers wrote in the blog post. "Monetary policy alone is unlikely to induce the large and persistent devaluations that are needed to bring that result."
The researchers, led by IMF economic counselor and research department director Gita Gopinath, also said higher bilateral tariffs are unlikely to reduce trade imbalances because they mainly divert trade to other countries.
"Instead, they are likely to harm both domestic and global growth by sapping business confidence and investment and disrupting global supply chains, while raising costs for producers and consumers," the IMF researchers said.
Trump earlier renewed his attacks on the Fed and called for interest rate cuts to drive economic growth amid the country's ongoing trade conflict with China, which the Treasury Department has labeled a currency manipulator.
"We are competing with many countries that have a far lower interest rate, and we should be lower than them," Trump wrote on Twitter.
