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Central Banks Shouldn't Be Penalized For Monetary Policies That Weaken Its Currency -- Yellen

This article is more than 9 years old.

(Kitco News) - Central banks should not be penalized in government trade agreements for adjusting monetary policies that would impact foreign exchange markets, says Fed Chair Janet Yellen, which she adds is not currency manipulation.

Yellen made the statement during the question and answer portion of her testimony before the Senate Committee on Banking Housing and Urban Affairs, Tuesday. However, her comments come at an interesting time as global central banks line up to loosen their monetary policies to stimulate growth.

Some analysts have said the lowering and introduction of negative global interest rates is creating a currency war in the process.

During the hearing, Senator Bob Corker (R-Tenn) asked Yellen if she thought it was appropriate to include a currency manipulation provision as part of the negotiations of the Asian Pacific Trade Deal, where countries could challenge future monetary policies by the Federal Reserve.

“I think currency manipulation that is undertaken to alter the competitive landscape and give one country an advantage in international trade is inappropriate and needs to be address,” he said. “But that said there are many factors that influence the value of currencies including differences in economic growth and capital flows and … monetary policy...”

Looking specifically at monetary policy, Yellen said that she would be concerned about a trade agreement that would hamper or hobble monetary policy.

“Monetary policies the Federal Reserve has undertaken over the last number of years have been designed for valid domestic objectives, of price stability and maximum employment,” she said. “That certainly isn’t currency manipulation.”

By Neils Christensen of Kitco News; nchristensen@kitco.com