The US Treasury Department has established the Currency Monitoring list to pay close attention to the major US trading partners’ currency practices and microeconomic policies. This list includes 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:
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.
The United States’ Department of Treasury has removed India from its Currency Monitoring List. India had been on the list for the last two years for alleged manipulation of Rupee which was conceived as an intrusion of the policy space of the RBI by Indian policymakers.
BODY PARAGRAPH-3 -SIGNIFICANCE
RBI is mandated to provide stability in the currency, as a result of which central banks buy and sell foreign currency. This 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. Also, this is a big win from a markets standpoint and also signifies the growing role of India in global growth.
In the past as well, India has maintained its stand that RBI is not accumulating reserves and its activity in the foreign exchange market is perfectly balanced. A final removal from the list signifies strong trade; investment and people-to-people ties that make bilateral, economic, and financial relationships, a critical element to India-USA partnership.