9, NOVEMBER: The United States Department of Treasury has taken off India’s name from the from its Currency Monitoring List of major trading partners. In its biannual report to Congress, the US’ Treasury Department conveyed that along with India, it had also removed Mexico, Thailand, Italy and Vietnam from the list. With this, seven economies that are now on the current monitoring list include Japan, China, Korea, Singapore, Germany, Malaysia and Taiwan.
Interestingly, the report was issued on the same day that Secretary of the Treasury Janet Yellen met Finance Minister Nirmala Sitharaman in New Delhi. During the meeting, both leaders had affirmed to solidify business-to-business links between India and the United States. Yellen also quoted US President Joe Biden, saying that India is an “indispensable partner to the United States”. “That’s particularly true today. I believe that these urgent challenges are bringing India and the United States closer together than ever before,” said Janet Yellen.
What is the US’ Currency Monitoring List?
The Currency Monitoring List closely follows the currency policies of some of the US’ major trade partners. If a country appears on the list, it is regarded as a “currency manipulator”. A ‘currency manipulator’ is a designation that the US government authorities give to countries that according to the US, engage in “unfair currency practices” for trade benefits.
Thus, inclusion in the list simply means that the country is artificially lowering the value of its currency to get an advantage over others. This is because a lower currency value leads to reduced export costs from that country. The status is reported by the US Department of Treasury in form of a semi-annual report in which it tracks global economic developments and reviews foreign exchange rates. It also closely monitors and reviews the currency practices of 20 major trading partners of the US.
Removal of India from the list – What does it mean?
Removal of India from the list by the US’ Treasury Department can be seen as a positive news both in terms of market aspect and India’s monetary policy-making. If Indian market experts are to be believed, the development 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 may also be a big win from a markets standpoint and also signifies the growing role of India in global growth.
To manage exchange rates amid the rupee fall, the Reserve Bank of India had recently taken measures like greater purchases of dollars at the time of excess inflows and selling dollars at the time of outflows. Experts are also seeing this as a good news from a view-point that the Rupee could appreciate on account of this.
Three Criteria of the Currency Monitoring List
The US treasury usually puts a country’s name on the list if the said nation has intervened in the currency market by higher levels than 2% of its GDP over a year, and had a current account surplus above a stipulated level. Its net purchases of foreign currency, too, also need to exceed 2% of GDP over one year.
A country that meets two of the three criteria in the Trade Facilitation and Trade Enforcement Act of 2015 gets included in the list. If the country meets all three criteria. it gets termed as ‘currency manipulator’ by the US Department of Treasury. Once a country appears on the currency monitoring list, it will remain there for at least two consecutive reports “to help ensure that any improvement in performance versus the criteria is durable and is not due to temporary factors”.