The End of Currency Manipulation? Global Production Networks and Exchange Rate Outcomes

Between 2000 and 2017, eight major exporting countries engaged in currency manipulation in order to increase their trade surpluses with the rest of the world. As of 2018, however, no currency manipulators remained. This change in policy is puzzling given the past successes of this export-led growth model. I argue that the state-level decision to stop depreciating its exchange rate stems from the reduced benefits and increased costs of currency manipulation. As production becomes more global, an increase in tradable inputs decreases the traditional benefits of a depreciated currency, in particular, an increase in exports. Utilizing panel data across 63 countries between 2000 and 2018, I demonstrate that global production networks moderate the traditional relationship between export-dependence and currency manipulation. I further discuss how this relationship may reverse given the reshoring of production networks in response to the novel coronavirus pandemic.