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TREASURY FRAMEWORK FOR ASSESSING CURRENCY UNDERVALUATION

SUMMARY

This summary explains how Treasury uses its Global Exchange Rate Assessment Framework 

(GERAF) to evaluate currency valuations in the context of countervailing duty proceedings. 

GERAF assesses exchange rate valuations on a real-trade-weighted basis for more than 50 major 

economies that account for more than 90% of global economic activity. GERAF’s exchange rate 

valuations are derived from its estimates of the medium-term current account balances for all 

these economies that are consistent with economic fundamentals and appropriate policies. This 

approach is widely accepted and often employed in the economic literature on global external 

imbalances and has been employed in applied practices for assessing currency valuations. 

GERAF uses an econometric framework to assess historical statistical relationships between 

current accounts, cyclical factors, macroeconomic and structural fundamentals, and 

macroeconomic policies in a globally consistent manner. This approach can then translate 

findings of globally consistent current account misalignments into corresponding real effective 

exchange rate (REER) misalignments. These REER misalignments can then be translated into 

corresponding (and multilaterally consistent) bilateral exchange rate misalignments vis-à-vis the 

U.S. dollar. 

GERAF’s assessment provides a detailed framework for assessing, among other factors, the 

impact of specific government policies—including those that could be considered “government 

action on the exchange rate” in 19 CFR 351.528—on currency undervaluation. Moreover, 

GERAF can quantify the impact of a particular domestic policy on a given currency’s valuation 

as well as the collective impact of all other countries’ policies on that given currency’s valuation. 

These features allow Treasury to make a granular assessment of the extent to which a country’s 

government action on the exchange rate contributed, if at all, to REER undervaluation and 

nominal, bilateral undervaluation vis-à-vis the U.S. dollar. 

Ultimately, GERAF allows Treasury to quantify the impact of government action on the 

exchange rate on:

• “the gap between the country’s real effective exchange rate (REER) and the real

effective exchange rate that achieves an external balance over the medium term that 

reflects appropriate policies (equilibrium REER)”; as well as

• the gap between the “nominal, bilateral United States dollar rate consistent with the

equilibrium REER” and the “actual nominal, bilateral United States dollar rate” during 

the period under investigation.

Treasury would normally consider two key external policies to constitute “government action on 

the exchange rate,” as these are generally used as primary policy tools for directly affecting 

exchange rates. Specifically, Treasury will use GERAF to assess the impact on currency 

valuation arising from:

i) intervention in foreign exchange markets; and 
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ii) controls on cross-border capital flows.

Treasury will employ GERAF to assess the extent to which currency valuations have been 

affected by the actual levels of foreign exchange intervention and capital controls, and how these 

levels compare to the desirable levels of foreign exchange intervention or capital controls for the 

economy in question. As necessary, Treasury may consider other policies or actions that may 

constitute “government action on the exchange rate” on a case-by-case basis. However, such 

actions may not be possible to incorporate into the GERAF model. Therefore, in assessing the 

impact of other possible government actions on the exchange rate, Treasury may rely on 

additional analysis beyond what is feasible using GERAF. For example, 19 CFR 351.528 states 

that in making assessments of government action on the exchange rate, consideration may be 

given to the “government’s degree of transparency regarding actions that could alter the 

exchange rate.” 

For more technical details on the GERAF methodology, see https://home.treasury.gov/policyissues/international/exchange-rate-analysis.