T he exchange rate policies of some East Asian nations—in particular, China, Japan, and South Korea—have been sources of tension with the United States in the past and remain so in the present. Some analysts and Members of Congress maintain that some countries have intentionally kept their currencies undervalued for a period of time in order to keep their exports price competitive in global markets. Some argue that these exchange rate policies constitute "currency manipulation" and violate Article IV, Section 1(iii) of the Articles of Agreement of the International Monetary Fund , which stipulates that "each member shall avoid manipulating exchange rates or the international monetary system in order to prevent effective balance of payments adjustment or to gain an unfair competitive advantage over other members." The Trade Facilitation and Trade Enforcement Act of 2015 ( P.L. 114-125 ) requires the Department of the Treasury to "undertake an enhanced analysis of exchange rates and externally‐oriented policies for each major trading partner that has (1) a significant bilateral trade surplus with the United States, (2) a material current account surplus, and (3) engaged in persistent one‐sided intervention in the foreign exchange market." In its semiannual report to Congress released in April 2017, "Treasury has found in this Report that no major trading partner met all three criteria." Treasury did, however, identify six major trading partners to include on its "Monitoring List": China, Germany, Japan, South Korea, Switzerland, and Taiwan. Four of the six trading partners are East Asian economies. This report examines the de facto foreign exchange rate policies adopted by the monetary authorities of East Asian governments. At one extreme, Hong Kong has maintained a "linked" exchange rate with the U.S. dollar since 1983, under which the Hong Kong Monetary Authority (HKMA) is required to intervene to keep the exchange rate between 7.75 and 7.85 Hong Kong dollars (HKD) to the U.S. dollar (USD). Such an arrangement is often referred to as a "fixed" or "pegged" exchange rate. At the other extreme, Japan, the Philippines, and South Korea have reportedly allowed their currencies to float freely in foreign exchange (forex) markets over the last few years—an exchange rate arrangement often referred to as a "free float." However, all three nations—like the United States—have intervened in international currency markets to influence fluctuations in the exchange rate. Most of East Asia's governments, however, have chosen exchange rate policies between these two extremes in the form of a "managed float." There are a number of different types of exchange rate policies that a nation may adopt, depending on what it perceives to be in its best interest economically and/or politically. At one extreme, a country may decide to allow the value of its currency to fluctuate relative to other major currencies in international foreign exchange (forex) markets—a policy commonly referred to as a "free float." One advantage of a "free float" policy over other exchange rate policies is that it permits the nation more autonomy with its domestic monetary policy. However, disadvantages of a "free float" policy include greater exchange-rate risk for international transactions, potentially destabilizing balance sheet effects, and possible rapid shifts in capital flows. At the other extreme, a nation may decide to fix the value of its currency relative to another currency or a bundle of currencies—usually referred to as a "pegged" exchange rate policy. Pegged exchange rate policies can take several forms. The pegged exchange rate may be set by law, without special provisions to defend the value of the currency. Alternatively, a nation may create a "currency board"—a monetary authority that holds sufficient reserves to convert the domestic currency into the designated reserve currency at a predetermined exchange rate. The currency board utilizes those reserves to intervene in international forex markets to maintain the fixed exchange rate. For example, Hong Kong's three designated currency-issuing banks—The Bank of China, HSBC, and Standard Chartered Bank—must deposit with the Hong Kong Monetary Authority sufficient U.S.-dollar-denominated reserves to cover their issuance of Hong Kong dollars at the designated exchange rate of HKD 7.80 = USD 1.00. Some economies that are heavily dependent on trade—such as Hong Kong and Singapore—perceive extensive currency volatility as a burden to trading enterprises, and manage their currencies to avoid it. An advantage of a pegged exchange rate is that it virtually eliminates exchange-rate risk. Disadvantages are the loss of autonomy in domestic monetary policy, potentially rapid changes in domestic prices (including fixed asset values), and exposure to speculative attacks on the pegged exchange rate. A third common exchange rate policy is a "managed float." A nation that adopts a "managed float" allows the value of its domestic currency to fluctuate in international forex markets until certain designated economic indicators reach critical levels. In some cases, the country may designate a band around a determined exchange rate, and intervene in international forex markets if its currency hits the upper or lower value limits. One special form of a managed float is a "crawling peg," in which the nation allows its currency gradually to appreciate or depreciate in value against one or more other currencies over time. China initiated a "crawling peg" policy on July 21, 2005, which it maintained until the summer of 2008, a period in which the renminbi appreciated 21% against the U.S. dollar. Other forms of managed float policies do not rely on the exchange rate but on other economic factors such as the trade balance, current account balance, inflation, and overall economic growth. Contemporary economic theory asserts that a nation cannot simultaneously maintain a fixed exchange rate, free capital movement, and an independent monetary policy. If a nation wishes to peg its currency and allow free capital movement (for example, Hong Kong) it must tie its monetary policy to that of the reserve currency nation (for Hong Kong, the United States). Many nations with pegged exchange rates choose to restrict the movement of capital to allow them greater autonomy in their monetary policies (such as anti-inflation measures, interest rate adjustments, or regulating the money supply). Table 1 lists the current de facto exchange rate policies of East Asia according to the International Monetary Fund (IMF) as of April 30, 2016. According to the IMF, only Japan allows its currency, the yen, to float freely on international foreign exchange (forex) markets. Five nations allow their currencies to float, but they reserve the right to intervene in forex markets to maintain stability. Seven countries manage their exchange rates according to certain economic objectives, such as domestic price stability or moderate swings in the forex rate relative to one or more currencies. Brunei and Hong Kong operate a currency board system that effectively pegs their exchange rates. The Hong Kong dollar is pegged to the U.S. dollar; the Brunei dollar is pegged to the Singaporean dollar. Categorizing a government's exchange rate policy can be complicated, particularly during periods of financial turbulence, as was seen, for example, during the global financial crisis of 2008. For example, according to South Korea's central bank, the Bank of Korea, the nation's official exchange rate policy has been a free floating system since December 1997. However, it was reported that the South Korean government sold about $1 billion for won on March 18, 2008, to stop a "disorderly decline" in the value of Korea's currency (see Figure 1 ). There were also reports that Korea sold more dollars for won in early April 2008. At the time, some forex analysts claimed that the new South Korean government had adopted a de facto pegged exchange rate policy of holding the exchange rate between the won and the U.S. dollar at 975-1,000 to 1. The value of the won declined further to nearly 1,500 won to the U.S. dollar in the spring of 2009, before gradually recovering over the next four years to about 1,100 won to the U.S dollar. Allegations of South Korea's intervention into forex markets reappeared in 2015 and 2016, when the won experienced another period of sustained depreciation against the U.S. dollar. The U.S. Treasury's Report to Congress on International Economic and Exchange Rate Policies , released on October 19, 2015, indicated that South Korea appeared to have attempted to resist the appreciation of the won in early 2015, only to switch to efforts to prevent the won's depreciation in July and August. In February 2016, the Bank of Korea stated that the recent declines in the value of the won were "excessive" and that it was concerned about possible "herd behavior" in forex markets, contributing to speculation that Bank of Korea would intervene in forex markets to support the won. Claims that South Korea was intervening in forex markets resurfaced in early 2017; the South Korean government sent a letter to the Financial Times , denying claims that it was managing exchange rates to prevent the won's appreciation. One South Korean think tank conjectured (incorrectly) that the Department of the Treasury might identify South Korea as a currency manipulator in its April 2017 report, given President Trump's statements about currency manipulation and its alleged negative effects on the U.S. economy. Another source of complication arises when there is a seeming discrepancy between the official exchange rate policy and observed forex market trends. For example, China officially maintained a "crawling peg" policy prior to the global financial crisis that allowed its currency—the renminbi—to adjust in value with respect to an undisclosed bundle of currencies within a specified range each day. In theory, this allowed the renminbi to appreciate or depreciate in value gradually over time, depending on market forces.