The US Department of Treasury has removed India from its Currency Monitoring List of major trading partners after the past two years. Along with India, Italy, Mexico, Thailand and Vietnam have also been removed from the list. In its biannual report to the US Congress, the country’s Department of Treasury said China, Japan, Korea, Germany, Malaysia, Singapore and Taiwan are the seven economies that are part of the current monitoring list.
In this report, the US treasury department reviewed and assessed the policies of major US trading partners, comprising roughly 80% of US foreign trade in goods and services, during the four quarters through June 2022. Once on the Currency Monitoring List, an economy remains there for at least two consecutive reports.
How Many Times India has been un Currency Monitoring List:
India was added to the list for a second time in December 2020. It was first added to the list in December 2018.
Term-‘ Currency Manipulator’
This is a label 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. This is because the devaluation would reduce the cost of exports from that country and artificially show a reduction in trade deficits as a result.
The US Treasury Department uses three criteria to assess whether an economy has manipulated its currency or not.
> Bilateral trade surplus with the US of more than $20 billion.
>Current account surplus of at least 3% of Gross Domestic Product (GDP)
>Net purchases of foreign currency of 2% of GDP over 12 months.
The reason being higher dollar purchases by RBI of close to 5% of GDP large on account of huge capital inflows, which is higher than its threshold of 2% of GDP.
Why India was Removed from the List:
The countries that have been removed from the list have met only one out of three criteria for two consecutive reports, it said.
This (the removal from US’ Currency Monitoring List) means that the Reserve Bank of India (RBI) can now take robust measures to manage the exchange rates effectively, without being tagged as a currency manipulator. This is a big win from a markets standpoint and also signifies the growing role of India in global growth.
The move came on a day when Secretary of the Treasury Janet Yellen visited New Delhi and held talks with Finance Minister Nirmala Sitharaman. On her first visit to India, United States Treasury Secretary Janet Yellen quoted President Joe Biden, saying that India is an “indispensable partner to the United States”.
