The International Monetary Fund (IMF) said Wednesday that according to recent economic fundamentals, the dollar has been overvalued by 6-12%, while the euro, yen and Renminbi are roughly in line with fundamentals.
The IMF disagrees with President Trump over the use of tariff measures to address trade imbalances, but the IMF's overvaluation of the dollar supports Trump's repeated assertions.
Trump has complained that European and Chinese policies have led to the devaluation of the euro and other currencies against the dollar.
The IMF's External Sector Report shows that current account surpluses remain concentrated in developed economies such as the euro zone and Singapore, while deficits have been in the United States, Britain and some emerging economies. The report is an annual assessment of the currencies, external surpluses and deficits of major economies.
Net lending positions have risen again and are at an all-time high of about 20% of global gross domestic product (GDP), four times the level in the early 1990s, according to the report. Net debit positions remain at similar levels.
The IMF said recent trade policy actions were dragging down global trade, eroding confidence and affecting investment. So far, however, no action has been taken to reverse external imbalances. The agency has warned that the US-China trade war will cost the global economy about $455 billion next year.
The IMF believes that trade surplus countries and deficit countries should not adopt tit-for-tat tariff measures, but should seek to restore trade liberalization and strengthen the rule-based multilateral trading system that has been effective for the past 75 years.
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