The US Puts India On Its Currency Watch List; Know What It Means?

by Shatakshi Gupta

Recently, the US has placed 11 countries, including India, on the ‘Currency Behavior Monitoring List’ a.k.a Currency Manipulators Watch List regarding their currency behaviour. India was on this list in the December 2020 report. In 2019, the US Treasury Department removed India from the list of major trading partners in its ‘Currency Manipulators Watch List’.

What does the ‘Currency manipulator’ mean?

It is an assortment of countries by the US government to which the US realizes that these nations engage in unfair currency practices by willfully devaluing their currency against the dollar.

In other words, it is a country that artificially reduces the value of its currency to get an unfair advantage compared to another country.By devaluation,the cost of exports from that country will be reduced and consequently artificially show a reduction in the trade deficit.

What is Currency manipulators watch list?

The US Treasury Department maintains a list of trading partner countries in which the currency behaviour of such partner countries and their macroeconomic policies are closely monitored.It reviews the currency practices of the 20 largest trading partners of the US.

When the US puts a country on this list?

The Trade Facilitation and Trade Enforcement Act of 2015 puts acountry on the watch list, meeting two of the three criteria. 

  • The significant bilateral trade surplus with the US, at least $20 billion over a period of 12 months.
  • Current account surplus equal to at least 2% of gross domestic product (GDP) over a period of 12 months.
  • Continuous, unilateral intervention that is when net purchases of total foreign exchange equal to at least 2% of the country’s GDP over a period of 12 months are made again and again.

Countries that meet any two of these criteria are classified by the US Treasury Department as currency manipulators.

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Which countries are under this list?

Along with India, the other 10 countries in the list are China, Japan, Korea, Germany, Ireland, Italy, Malaysia, Singapore, Thailand and Mexico.

Chinese growth seems artificial

 Economic growth in China exceeded that of other large economies in the year 2020 but is driven by the resumption of manufacturing and in particular the increase in external demand for medical supplies, personal protective equipment and electronics.

However, there is a continuing question about China’s recovery as its domestic consumption growth is still low.China’s failure in foreign exchange intervention and the lack of transparency in its exchange rate mechanism raises questions on the value of the Renminbi.

Where does India stand?

India was put on this list based on two of three criteria that are trade surpluses and continuous, unilateral intervention.

Inclusion in this list does not mean any penalties and restrictions but it makes a dentin the country’s global financial image in financial markets in terms of foreign exchange policies, including the devaluation of currencies to gain export advantage.