The U.S. Department of Treasury has recently removed India along with Italy, Mexico, Thailand and Vietnam from its Currency Monitoring List of major trading partners that merit close attention to their currency practices and macroeconomic policies.
- India had been on the list for the last two years.
- China, Japan, Korea, Germany, Malaysia, Singapore, and Taiwan are the seven economies that are a part of the current monitoring list.
- The countries that have been removed from the list have met only one out of three criteria for two consecutive reports.
What is ‘Currency Manipulation’?
- The Trade Facilitation and Trade Enforcement Act of 2015 of US requires its Treasury Department to report to the Congress in every six months if any country is manipulating its currencies to gain trade advantages over the US.
- One of the ways of manipulation involves any country artificially weakening its currency by selling it in exchange for a foreign currency, usually the US dollar.
- This artificial weakening of currency makes its own exports cheaper, thereby gaining an unfair trade advantage over another country’s exports.
- There are three criteria the US Treasury looks at in placing a country on the watch list:
- Significant trade surplus with the US (at least $20 billion in 12 months)
- A large current account surplus (at least 2 per cent of GDP over a 12-month period)
- “Persistent”, one-sided intervention (when net purchases of foreign currency totalling at least 2 per cent of the country’s GDP over a 12-month period are conducted repeatedly, in at least six out of 12 months).
- The countries that meet two out of the three criteria are placed on the watch list.