Us Treasury Removes India From Its Currency Monitoring List

26-08-2023

12:22 PM

1 min read

Currency Monitoring List – About, criteria for inclusion, impact, India’s inclusion etc.
News Summary

The US Department of Treasury has removed India from its Currency Monitoring List of major trading partners.
Along with India, the United States also removed Italy, Mexico, Thailand and Vietnam from its Currency Monitoring List.
India had been on the list for the last two years.

Currency Monitoring List

Currency Monitoring List of major trading partners of the USA is the list of countries that merit close attention to their currency practices and macroeconomic policies.
Basically, it is a monitoring list of countries with potentially “questionable foreign exchange policies” and “currency manipulation”.
- Currency manipulator label is given by the US government to countries it feels are engaging in unfair currency practices by deliberately devaluing their currency against the dollar.
- The practice would mean that the country in question is artificially lowering the value of its currency to gain an unfair advantage over others.

Country’s inclusion is based on the three key criteria:
- a significant bilateral trade surplus (equivalent to $15 billion) with the United States;
- a material current account surplus (equivalent to 3 per cent of gross-domestic product); and
- engaged in persistent one-sided intervention in the foreign exchange market.
Countries remain on the list for two report cycles to ensure that if there are any improvements in the performance of the country it should not be due to temporary reasons.
An economy meeting two of the three criteria is placed on the Watch List. Countries that meet all three of the criteria are labelled as currency manipulators by the Treasury.

The designation of a country as a currency manipulator does not immediately attract any penalties.
However, it tends to dent the confidence about a country in the global financial markets.

India was last included in the currency watchlist in October 2018, but was removed from the list in May 2019.
Again, in December 2020, India was included in the list. Since then, it had been on the list, only to be removed recently.
Indian policymakers criticized India’s inclusion in the list by saying that the move is an intrusion of the policy space of the RBI.
- RBI is mandated to provide stability in the currency, as a result of which central banks buy and sell foreign currency.
As per India, RBI is not accumulating reserves and its activity in the foreign exchange market is perfectly balanced.

As per the US Department of Treasury, India had fulfilled the criteria for inclusion in the list in December 2020 and it continued to do during the review of April 2021.
For example, the reasons cited by the US for India’s inclusion in April 2021 were:
- India’s trade surplus with the United States had gone up by nearly $5 billion in the financial year 2020/21.
- India’s bilateral trade surplus in goods with the United States totalled $24 billion in 2020, along with a services trade surplus of $8 billion.
- The report also highlighted that the RBI’s dollar purchase stood at 5% of the GDP exceeded the 2% threshold.

India, along with four other countries has been removed from the Currency Monitoring List by the US Department of Treasury.
The countries that have been removed from the list have met only one out of three criteria for two consecutive reports.
Currently, after the removal of five states, China, Japan, Korea, Germany, Malaysia, Singapore and Taiwan are the remaining seven economies that have remained on the list and are a part of the current monitoring list.