Some Members of Congress and policy experts allege that U.S. producers and U.S. jobs have been adversely affected by the exchange rate policies adopted by China, Japan, and a number of other countries. They maintain that some countries are purposefully using various policies to weaken the value of their currency to boost exports and create jobs, but that these policies come at the expense of other countries, including the United States. During the global financial crisis, some political leaders and policy experts argued that there was a "currency war" in the global economy, as countries competed against each other to weaken the value of their currencies and boost exports. Even as the global financial crisis has faded, some policymakers continue to express concerns that other countries are using exchange rate policies to gain an unfair trade advantage against the United States. Some economists are skeptical about "currency manipulation" and whether it is a significant problem. They raise questions about whether government policies have long-term effects on exchange rates; whether it is possible to differentiate between "manipulation" and legitimate central bank activities; and the net effect of alleged currency manipulation on the U.S. economy. Some Members of Congress have proposed taking additional measures to address concerns about the exchange rate policies of other countries, while other Members have cautioned against aggressive measures that could trigger retaliation, among other concerns. During the 114 th Congress, two major pieces of legislation were enacted that contain provisions on currency. TPA legislation signed into law in June 2015 ( P.L. 114-26 ) includes principal negotiating objectives addressing currency manipulation. Provisions to combat currency manipulation were also included in the Trade Facilitation and Trade Enforcement Act ( P.L. 114-125 ), signed into law in February 2016. In the 115 th Congress, debates about currency manipulation have surfaced in the context of renegotiations of the North American Free Trade Agreement (NAFTA) and modifications to the U.S.-South Korea Free Trade Agreement (KORUS FTA). This report provides information on current debates over exchange rates in the global economy. It offers an overview of how exchange rates work; analyzes specific disagreements and debates; and examines existing frameworks for potentially addressing currency disputes. It also lays out some policy options available to Congress, should Members want to take action on exchange rate issues. An exchange rate is the price of a country's currency relative to other currencies. In other words, it is the rate at which one currency can be converted into another currency. For example, at the beginning of January 2018, one U.S. dollar could be exchanged for 0.83 euros (€), 112 Japanese yen (¥), or 0.74 British pounds (£). Exchange rates are expressed in terms of dollars per foreign currency, or expressed in terms of foreign currency per dollar. The exchange rate between dollars and euros in early January 2016 can be quoted as 1.21 dollars per euro ($/€) or, equivalently, 0.83 euros per dollar (€/$). Consumers use exchange rates to calculate the cost of goods produced in other countries. For example, U.S. consumers use exchange rates to calculate how much a bottle of French or Australian wine costs in U.S. dollars. Likewise, French and Australian consumers use exchange rates to calculate how much a bottle of U.S. wine costs in euros or Australian dollars. How much a currency is worth in relation to another currency is determined by the supply and demand for currencies in the foreign exchange market (the market in which foreign currencies are traded). The foreign exchange market is substantial, and has expanded in recent years. Trading in foreign exchange markets averaged $5.1 trillion per day in April 2016 (latest data available), up from $3.3 trillion in April 2007. The relative demand for currencies reflects the underlying demand for goods and assets denominated in that currency, and large international capital flows can have a strong influence on the demand for various currencies. The government, typically the central bank, can use policies to shape the supply of its currency in international capital markets. Exchange rates affect the price of every export leaving a country and every import entering a country. As a result, changes in the exchange rate can impact trade flows. When the value of a country's currency falls, or depreciates, relative to another currency, its exports become less expensive to foreigners and imports from overseas become more expensive to domestic consumers. These changes in relative prices can cause the level of exports to rise and the level of imports to fall. For example, if the dollar depreciates against the British pound, U.S. exports become cheaper to UK consumers, and imports from the UK become more expensive to U.S. consumers. As a result, U.S. exports to the UK may rise, and U.S. imports from the UK may fall. Likewise, when the value of a currency rises, or appreciates, the country's exports become more expensive to foreigners and imports become less expensive to domestic consumers. This can cause exports to fall and imports to rise. For example, if the dollar appreciates against the Australian dollar, U.S. exports become more expensive to Australian consumers, and imports from Australia become less expensive to U.S. consumers. Changes in prices may cause U.S. exports to Australia to fall and U.S. imports from Australia to rise. Exchange rates impact international investment in two ways. First, exchange rates determine the value of existing overseas investments. When a currency depreciates, the value of investments denominated in that currency falls for overseas investors. Likewise, when a currency appreciates, the value of investments denominated in that currency rises for overseas investors. For example, if a U.S. investor holds a German government bond denominated in euros, and the euro depreciates, the value of the bond in U.S. dollars falls, making the investment worth less to the U.S. investor. In contrast, if the euro appreciates, the value of the German bond in U.S. dollars rises, and the investment is worth more to the U.S. investor. Second, exchange rates impact the flow of investment across borders. Changes in the value of a currency today can shape investors' future expectations about the value of the currency, which can have substantial impacts on capital flows. If investors expect a currency to depreciate, overseas investors may be reluctant to invest in assets denominated in that currency and may want to sell assets denominated in the currency, in fear that their investments will become less valuable over time. Likewise, if a currency is expected to rise over time, assets denominated in that currency become more attractive to overseas investors. For example, a depreciating euro may deter U.S. investment in the Eurozone, while an appreciating euro may increase U.S. investment in the Eurozone. There are two major types of exchange rate policies. First, some governments "float" their currencies. This means they allow the price of their currency to fluctuate depending on supply and demand for currencies in foreign exchange markets. Governments with floating exchange rates do not take policy actions to influence the value of their currencies. Second, some countries "fix" or "peg" their exchange rate. This means they fix the value of their currency to another currency (such as the U.S. dollar or euro), a group (or "basket") of currencies, or a commodity, such as gold. The government (typically the central bank) then uses various policies to control the supply and demand for the currency in foreign exchange markets to maintain the set price for the currency. Often, central banks maintain exchange rate pegs by buying and selling currency in foreign exchange markets, or "intervening" in foreign exchange markets. There are pros and cons to having a floating or fixed exchange rate. Fixed exchange rates provide more certainty in international transactions, but they can make it more difficult for the economy to adjust to economic shocks and can make the currency more susceptible to speculative attacks. Floating exchange rates introduce more unpredictability in international transactions and may deter international trade and investment, but make it easier for the economy to adjust to changes in economic conditions. In order to take advantage of the benefits of both fixed and floating exchange rates, many countries do not adopt a purely fixed or floating exchange rate, but choose a hybrid policy: they let the currency's value fluctuate but take action to keep the exchange rate from deviating too far from a target value or zone. The degree to which they float or peg varies. The optimal choice for any given country will depend on its characteristics, including its size and interconnectedness to the country to which it would peg its currency. Between the end of World War II and the early 1970s, most countries, including the United States, had fixed exchange rates. In the early 1970s, when international capital flows increased, the United States abandoned its peg to gold and floated the dollar. Other countries' currencies were pegged to the dollar, and after the dollar floated, some other countries decided to float their currencies as well. In 2016 (latest data available), 36% of countries had floating currencies . This includes several major currencies, such as the U.S. dollar, the euro, the Japanese yen, and the British pound, whose economies together account for half of global GDP. Many countries use policies to manage the value of their currencies, although some manage it more than others. This includes many small countries, such as Panama and Hong Kong, as well as a few larger economies, such as China and Saudi Arabia. In 2014, 42% of countries used a "soft" peg, which let the exchange rate fluctuate within a desired range, and 13% of countries used a "hard" peg, which anchors the currency's value more strictly, including the formal adoption of a foreign currency to use as a domestic currency (for example, Ecuador has adopted the U.S. dollar as its national currency). No large country uses a hard peg.