Central bank intervention in foreign exchange markets may, under some conditions, stimulate exports and retard imports. In the past few years, this issue has moved to center stage because of the foreign exchange policies of China. Numerous public officials and commentators argue that China has engaged in impermissible ‘currency manipulation’, and various proposals for stiff action against China have been advanced. This paper considers the relationship between exchange rate policy and international trade, and addresses the questions of whether and how currency manipulation should be addressed by the international trading system. Our conclusions are at odds with much of what is currently being said by proponents of multilateral or unilateral actions against China. In particular, we question whether China's practices can be adjudicated to be ‘manipulation’ under international law, and doubt that their trade effects can be identified with the degree of confidence necessary to ascertain whether the practices ‘frustrate the intent’ of WTO/GATT commitments. The difficulty of identifying the trade effects of currency practices undermines the ability of the WTO dispute resolution system to address them, and calls into question the wisdom and legitimacy of unilateral countermeasures that have been proposed in various quarters.