Beijing can only dig its head in the sand for so long. Powerful economic forces will compel China to take a different approach to renminbi valuation sooner or later. A prudent policy for the United States might be to wait it out and focus its diplomatic energies on more fruitful directions, such as addressing China's objectionable policies on intellectual property and investment. But patience and prudence can be in short supply amid a sour economy and fractious politics. If there is a political imperative to apply international pressure to accelerate appreciation of the renminbi, what do the different institutional vehicles have to offer?
The International Monetary Fund (IMF) has the most obvious jurisdiction. It was created to help resolve problems with currencies and imbalances. IMF chiefs have spoken publicly of renminbi undervaluation. But there are two big obstacles to moving beyond pure talk. First, the IMF leadership acts only with the consent of its governing board. Recent restructuring moves have aimed to augment China's power on that board, in recognition of its growing economic stature, which obviously puts constraints on how confrontational the organization is likely to be. Second, the IMF's leverage comes primarily through threatening to withhold loans from wayward countries. China is making loans, not seeking them. The IMF can do little more than scold.
What about the World Trade Organization (WTO), which has jurisdiction over trade concerns? Indeed, critics of Chinese exchange rate policies mostly care because of the distortions a cheap renminbi causes in trade flows. And language in the WTO agreements warns against using exchange rate policies to negate promises of trade openness. Further, the WTO has one of the more effective dispute resolution schemes on the global scene. So why not press a case? It only looks like the right place. The organization has little competency on currency matters, and the language in the agreements is exceedingly vague. If presented with a case, the WTO would be faced with an unappealing choice: It could side with China and appear ineffectual, or it could side with the United States and make up critical new rules in a thoroughly arbitrary fashion.
Are bilateral discussions with China the way to go? The latest high-level incarnation of this three-decade-long conversation is the U.S.-China Strategic and Economic Dialogue. It would hardly be a novelty to raise exchange rate concerns in this context; they have been a prime topic of discussion since well back in President George W. Bush's administration. Although China did adopt a gradual currency appreciation policy in 2005 and then again in 2010, there is little evidence that U.S. bilateral pressure played a decisive role. When the issue is raised in a bilateral context, a couple of difficulties arise. First, Chinese leaders are inclined to interpret U.S. concerns as misdirected reflections of U.S. domestic political pressures, rather than legitimate efforts to rebalance the global economy for the greater good. Second, bilateral talks raise the specter of great-power competition. It's no surprise that Beijing may wonder whether Washington is really looking for mutual benefit or whether it is trying to suppress a budding rival.
Could the G-20 then be the Goldilocks institution? It would seem custom-designed to address this issue. Barack Obama's administration lauded the forum for a membership that reflected new global economic realities. Most notably, it brought China to the table whereas its predecessors, the G-7 and G-8, did not. And global rebalancing featured prominently in the G-20's post-crisis agenda. This worked well, so long as the pledges were sufficiently vague. But as soon as the United States moved to translate the vague pledges into obligations and actions, it encountered stiff resistance. In the end, the only real leverage the G-20 offers is the possibility that a single country holding out from an international consensus might be isolated and shamed. China was saved from such a fate when Germany joined in objecting to disciplines on surplus countries.
The short answer is that none of above is the perfect setting to resolve or mitigate this complicated dispute. And the United States shouldn't try to fit a square peg in a round hole. The danger with pressing action through one of these institutions, despite the frailties described above, is that the effort could end up damaging a body that might still be very useful for other, less demanding tasks. One could argue that has already occurred with the G-20, given the weak results from efforts at global rebalancing] To twist a quote from Abraham Lincoln, it is better to leave well enough alone as an international economic institution and have everyone suspect you of impotence than to take on China and remove all doubt. We may be awash in acronymic organizations, but right now, none are well-situated to take on the renminbi.