Good News for India

India has been removed from US treasury’s currency monitoring list.

US treasury releases a report every two years to closely monitor its trading partners’ monetary affairs. Any nation, if found devaluing its currency to gain monetary benefits, make it to the list. The list has three criteria based on section 701 of the US Trade Facilitation and Trade Enforcement Act of 2015.

  1. Bilateral trade surplus with the US
  2. Current account in Surplus
  3. Persistent, one-sided intervention

In case of fulfilment of any of the three criteria for consecutive 2 years, nations’ names are called off the list.

 Apart from India, Mexico, Thailand, Italy and Vietnam were delisted, whereas China, Germany, Japan, Korea, Malaysia, Singapore, and Taiwan are still under observation.

India has been to-and-fro on the list. For the first time, India was added in April 2018 but was later removed on May 19 and eventually made it back again in December 2020. Since then, India has been under scrutiny.

What does this mean for India?

When a country is considered a 'currency manipulator on the US currency monitoring list, a currency manipulator is a designation applied by US government officials to countries that engage in "unfair currency practices" for trade gain.

Vivek Iyer, partner and leader (financial services risk) at Grant Thornton India, said, "This (removal from the US currency Monitoring list) means that the Reserve Bank of India (RBI) can now take stronger measures to manage exchange rates." Effectively, without being tagged as a currency manipulator. This big market win reflects India's growing role in global growth."

To manage the exchange rates amid rupee depreciation, the RBI recently took actions such as buying dollars at times of excess inflows and selling dollars at times of outflows.

"It is good news for India because we were named a currency manipulator," said Anil Kumar Bhansali, Head (Treasury), Finrex Treasury Advisors. This could help the rupee.

Currency Monitoring List: What is it?

Placing a country under the currency Monitoring list would mean that the country is artificially depressing the value of its currency to gain an unfair advantage over others. This is because the lower currency value will reduce export costs from that country.

The US Department of the Treasury issues a semi-annual report that tracks global economic developments and reviews foreign exchange rates. It also reviews the currency practices of the 20 largest trading partners of the US.

Currency Monitoring List: Three Criteria

There are criteria based on which a country is placed under the currency Monitoring list. For example, a country that meets two of the three criteria in the US Trade Facilitation and Trade Enforcement Act of 2015 is placed under the currency Monitoring list. In the latest report, Treasury reviewed the 20 largest US trading partners against thresholds established in the 2015 Act for three criteria:

1) The United States has a significant bilateral trade surplus with a goods and services trade surplus of at least $15 billion.

2) A significant current account surplus is at least 3 percent of GDP or a surplus for which the Treasury estimates a physical current account "gap" using the Treasury's Global Exchange Rate Assessment Framework (GERAF). " 

3) Persistent, unilateral intervention occurs when net foreign exchange purchases are made repeatedly in at least 8 out of 12 months. These net purchases account for at least 2% of an economy's GDP in the 12 months

Once a country meets the criteria, it is labeled as a 'currency manipulator by the US Treasury Department. In addition, once on the Monitoring list, an economy will remain for at least two consecutive reports "to help ensure that any improvement in performance versus benchmarks is durable and not due to temporary factors". 

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