India on Currency Monitoring List

In News

Recently, India has been put on the U.S. Treasury’s Currency Manipulators Monitoring List along with 10 other countries for the April 2021 list.

• Other 10 countries are China, Japan, Korea, Germany, Ireland, Italy, Malaysia, Singapore, Thailand and Mexico.
  • All of these, except Ireland and Mexico, were on the December 2020 list.

Currency Manipulators

• The US government gives this label to countries which it feels are engaging in unfair currency practices by intentionally devaluing their currency against the US Dollar.
  • It means that the enlisted nation is artificially lowering the value of its currency to gain an unfair advantage over others as the devaluation reduces the cost of exports from that country and artificially shows a reduction in trade deficits as a result.
• Currency Manipulator Watch List
  • The US Department of Treasury releases the report titled ‘Macroeconomic and Foreign Exchange Policies of Major Trading Partners of the United States’.
  • The semi-annual report reviews currency practices of the US’s 20 biggest trading partners to track developments in international economies and inspect foreign exchange rates.
  • Three criteria from the Trade Facilitation and Trade Enforcement Act of 2015 are used to review partners and an economy meeting two of the three criteria is placed on the Watch List.
    • A significant bilateral trade surplus (at least USD 20 billion over a 12-month period).
    • A material current account surplus (at least 2 per cent of GDP over a 12-month period).
    • ‘Persistent one-sided intervention’ in forex markets (net purchases of foreign currency totalling at least 2 per cent of the country’s GDP over a 12 month period are conducted repeatedly, in at least six out of 12 months).
  • Implications on the Enlisted Country
    • It deteriorates the financial image of a country in the markets with respect to the foreign exchange policies including undervaluation of currencies to gain export advantages.
    • However, inclusion in the list does not lead to any kind of penalty and sanctions.

India’s Current Position

• According to the US Treasury Department, India met two of the three criteria, viz. the trade surplus criterion and the “persistent, one-sided intervention” criterion.
• India was on the list in the December 2020 report as well.
• The status can lead to the rupee appreciating as the Reserve Bank of India (RBI) might step back from its dollar purchases.

                                                                               (Image Courtesy: TOI)

Source: TH